KORN/FERRY INTERNATIONAL
Our Offices Worldwide
The Americas
Atlanta
Bogota
Boston
Buenos Aires
Calgary
Caracas
Chicago
Dallas
Denver
Houston
Irvine
Lima
Los Angeles
Mexico City
Miami
Minneapolis
Monterrey
Montreal
New York
Philadelphia
Princeton
Quito
Rio de Janeiro
San Francisco
Santiago
Sao Paulo
Seattle
Silicon Valley
Stamford
Toronto
Tysons Corner
Vancouver
Washington, D.C.
Europe
Amsterdam
Athens
Birmingham
Brussels
Budapest
Copenhagen
Dusseldorf
Frankfurt
Geneva
Gothenburg
Helsinki
London
Luxembourg
Lyon
Madrid
Milan
Oslo
Paris
Rome
Stockholm
Strasbourg
Vienna
Warsaw
Zurich
Asia/Pacific
Auckland
Bangkok
Beijing
Hong Kong
Jakarta
Kuala Lumpur
Melbourne
Mumbai
New Delhi
Seoul
Shanghai
Singapore
Sydney
Tokyo
Wellington
Annual Report 2003
KORN/FERRY INTERNATIONAL
1800 Century Park East, Suite 900
Los Angeles, California 90067
Tel: +1 310 552 1834
Fax: +1 310 553 8640
www.kornferry.com
Leading the Search Since 1969. Korn/Ferry has defined the values
of excellence and quality in executive recruitment for over three decades, performing
over 100,000 senior-level searches for organizations worldwide. Korn/Ferry is a premiere
provider of executive human capital solutions, with services ranging from corporate
governance and CEO recruitment to executive search, middle-management recruitment,
strategic management assessment and coaching and executive development.
$315 million Global Fee Revenue
6,823 Searches in Fiscal 2003
462 Consultants Worldwide
3.8 million Candidates in Database
75 Offices Worldwide
All figures include Futurestep
46
1
22
18
10
15
24
Engagements by Industry
FISCAL 2003 ASSIGNMENTS
22% Consumer Market
15% Financial Market
24% Industrial Market
10% Life Sciences Market
18% Technology Market
6% Education/Not-for-Profit
4% Healthcare Provider
1% General
9
21
7
3
8
7
45
Engagements by Function
FISCAL 2003 ASSIGNMENTS
9% CEO & Board
45% CFO/Senior Executive/
General Management
Finance & Control
7%
8% Human Resources & Administration
3%
7% Manufacturing/Engineering/R&D/
Information Systems
Technology
21% Marketing & Sales
32
40
18
10
Engagements by Region
FISCAL 2003 ASSIGNMENTS
40% North America
10% South America
18% Asia/Pacific
32% Europe
Board of Directors
Senior Management
Corporate Data
Transfer Agent
Mellon Investor Services LLC
Shareholder Services
PO Box 3315
South Hackensack, NJ 07660
Domestic: 877-889-7584
International: 201-329-8660
www.melloninvestor.com
Annual Meeting
September 10, 2003, 10 a.m.
Park Hyatt
2121 Avenue of the Stars
Los Angeles, California 90067
Legal Counsel
Sullivan & Cromwell
Auditors
Ernst & Young LLP
Investor Relations
Gary D. Burnison
310-552-1834
Media Relations
Don Spetner
310-843-4176
Paul C. Reilly
Chairman and Chief Executive Officer
Korn/Ferry International
Gary D. Burnison
Executive Vice President and
Chief Financial Officer
Dan A. Demeter
Chief Information Officer
Peter L. Dunn
General Counsel
Gary C. Hourihan
President, Strategic
Management Assessment
Robert McNabb
Chief Executive Officer, Futurestep
Don Spetner
Chief Marketing Officer
Charles Tseng
President, Asia/Pacific
James E. Barlett
Vice Chairman
TeleTech
Frank V. Cahouet
Retired Chairman, President
and Chief Executive Officer
Mellon Financial Corporation
Spencer C. Fleischer
Vice Chairman
Friedman Fleischer & Lowe
Sakie T. Fukushima
Senior Client Partner and Director
Korn/Ferry International
Patti S. Hart
Former Chairman and
Chief Executive Officer
Excite@Home
David L. Lowe
Vice Chairman
Friedman Fleischer & Lowe
Charles D. Miller
Retired Chairman and
Chief Executive Officer
Avery Dennison Corporation
Chairman
Nationwide Health Properties, Inc.
Edward D. Miller
Former President and
Chief Executive Officer
AXA Financial, Inc.
Gerhard Schulmeyer
Former Chief Executive Officer
Siemens Corporation
Professor of Practice
MIT Sloan School of Management
Mark C.Thompson
Chairman
Integration, Inc.
Dear Shareholder,
Fiscal Year 2003 was another year of contraction and difficulty for
in many ways acted as a beacon to attract talent and capital in to our
the recruitment industry. As clients continued to trim staff and work
firm. There is often a flight to quality during difficult times, and our
off excess capacity, the executive search industry was forced to
firm benefited from this phenomenon. We were able to recruit 33
reduce overhead and battle for market share. While the market
new consultants last year, both from our competitors and from
decline was significant, it was less severe than the previous year as
key industries.
we recorded a 17 percent decline in fee revenue versus a 39 percent
I’d like to take this opportunity to thank two of our directors
dropoff in the previous year. Moreover, in the fourth quarter of this
who stepped down from our board this past year. Win Priem, my
past fiscal year, we showed our first sequential quarterly uptick in
predecessor as CEO and one of the pillars of our firm, completed
revenue in nine quarters.
his board term in fiscal 2003. I would like to thank Win for his
We have righted our ship and strengthened our balance sheet.
immeasurable contribution in building Korn/Ferry into a global
We ended fiscal year 2003 with $83 million in cash on hand, and we
powerhouse over the past three decades, and on a personal level for
substantially reduced our operating expenses from the prior year.
his advice and counsel to me since my arrival. We also owe a debt
We have dramatically reduced overhead throughout the organization,
of gratitude to Chuck Miller, who has served on our board since we
and the benefits are beginning to accrue. We were particularly
went public in 1999, and who has been a client, friend and supporter
pleased with the results at Futurestep, where revenues increased 10
of Korn/Ferry from our very early days in the business.
percent from the prior year.
As we look toward a new fiscal year, we have real reason for
Perhaps most significantly, we made real, measurable progress
optimism for the first time in several years. The resolution of the
on our long-term strategy during this difficult fiscal year. In
conflict in Iraq, the roadmap for peace in the Middle East, and the
December 2001 we unveiled our long-term strategy of broadening
recent rise in the equity markets in the U.S. all provide evidence that
our products and services for the executive human capital sector.
the global economic and geopolitical situation is stabilizing and that
We determined that the most effective way to deliver these services,
the worst may indeed be behind us.
and to grow our business and reward shareholders, was to build
All of the broad demographic indices portend a strong demand
lasting, integrated relationships with global clients. At the core of
for executive human capital in the years ahead. We have taken
this strategy is our global accounts program, and I’m pleased to
advantage of the difficult times of the past two years to streamline
report that last fiscal year we doubled the number of integrated
our cost structure and solidify our long-term growth strategies. For
global accounts in our firm, and we have expanded our number of
Korn/Ferry, the best is yet to come.
trained account managers.
We have also continued to innovate with new services. Chief
among our innovations is the recently launched Search Assessment
Product, which incorporates our proprietary management assess-
ment tools into our executive search process. Korn/Ferry consultants
can now employ a statistically validated evaluation tool in every
search, that allows clients to assess how candidates think and
behave, and to look well beyond interviewing skills and resumes.
This tool is a clear differentiator and a tremendous value-add for
our clients.
The two great strengths of Korn/Ferry are our people and our
brand. I’m pleased to report that these two pillars helped us with-
stand the turmoil in the search industry of the past 30 months, and
Paul C. Reilly
Chairman and Chief Executive Officer
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
18-Jul-2003 22:25 EST
ˆ1VF=3Z2JVYMVNKGÊ
2*
1C
1VF=3Z2JVYMVNKG
CLN
97534 TX 1
HTM
PMT
Page 1 of 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
⌧
(cid:1)
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 30, 2003
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 001-14505
KORN/FERRY INTERNATIONAL
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
95-2623879
(I.R.S. Employer
Identification Number)
1800 Century Park East, Suite 900
Los Angeles, California 90067
(Address of principal executive offices) (Zip code)
(310) 552-1834
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, par value $0.01 per share
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
⌧
(cid:1)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
⌧
Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes
⌧
(cid:1)
No
The number of shares outstanding of our common stock as of July 16, 2003 was 37,606,834 shares. The aggregate market value
of the Registrant’s common stock held by non-affiliates of the Registrant on October 31, 2002, (assuming that the Registrant’s only
affiliates are its officers, directors and 10% or greater stockholders) was approximately $272,169,832, based upon the closing market
price of $8.53 on that date of a share of common stock as reported on the New York Stock Exchange.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its 2003 Annual Meeting of Stockholders scheduled to be held on
September 10, 2003 are incorporated by reference into Part III of this Form 10-K.
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.175
7.9.16
PAL vaugm0pa
WLA
21-Jul-2003 14:35 EST
ˆ1VF=3Z2JW5CJ1VG{Š
3*
1C
1VF=3Z2JW5CJ1VG
CLN
97534 TX 2
HTM
PMT
Page 1 of 1
KORN/FERRY INTERNATIONAL
Index to Annual Report on Form 10-K for the Fiscal Year Ended April 30, 2003
PART I.
Business
Properties
Item 1.
Item 2.
Item 3.
Item 4.
Executive Officers
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Item 5.
Item 6.
Item 7.
Market for Registrant’s Common Equity and Related Stockholder Matters
Selected Financial Data.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III.
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Item 14. Controls and Procedures
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
PART IV.
(a) 1. Index to Financial Statements
2. Financial Statement Schedules
3. Exhibits
Reports on Form 8-K
(b)
Signatures
Page
3
14
14
14
14
16
17
19
29
30
30
31
31
31
31
31
32
34
35
Financial Statements and Financial Statement Schedules
F-1
2
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
PART I.
Item 1. Business
Business Overview
18-Jul-2003 06:57 EST
ˆ1VF=3Z2JVYB6F8GLŠ
1*
0C
1VF=3Z2JVYB6F8G
CLN
97534 TX 3
HTM
IFV
Page 1 of 1
Korn/Ferry International, or KFY, is a premier executive recruitment firm with the broadest global presence in the recruitment
industry. Since 1969, when we opened our first office in Los Angeles, we have grown to 70 cities in 36 countries. In 1998, we
extended our market reach into the mid-market with the introduction of Futurestep, our middle-management recruitment service. As
of April 30, 2003, we have approximately 1,536 employees, including 392 executive recruitment and 70 Futurestep consultants who
are primarily responsible for client services. Our clients include many of the world’s largest and most prestigious public and private
companies, middle-market and emerging growth companies, as well as governmental and not-for-profit organizations. We have
established strong client loyalty; more than 79% of the executive recruitment assignments we performed in fiscal 2003 were on behalf
of clients for whom we had conducted multiple assignments over the last three fiscal years.
We were originally formed as a California corporation in November 1969 and converted to a Delaware corporation in fiscal
2000.
We file annual, quarterly and current reports, proxy statements, and other documents with the Securities and Exchange
Commission, or the SEC, under the Securities Exchange Act of 1934, or the Exchange Act. You may read and copy any materials that
we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington D.C. 20549. You may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our reports, proxy statements,
and other documents filed electronically with the SEC are available at the website maintained by the SEC at http://www.sec.gov.
We also make available free of charge on or through our Internet website at http://www.kornferry.com our annual, quarterly, and
current reports, and, if applicable, amendments to those reports, filed or furnished pursuant to Section 13(a) of the Exchange Act as
soon as reasonably practicable after we electronically file such reports with, or furnish them to, the SEC.
We provide the following recruitment services:
Executive Search: Executive search, our core business, focuses on board level, chief executive and other senior executive
positions for clients predominantly in the consumer, financial, industrial, life sciences and technology industries. The relationships
that we develop through this business are valuable for introducing our other service offerings to clients.
Middle-Management Recruitment: Futurestep, our leading middle-management recruitment business, draws from
Korn/Ferry’s more than 30 years of industry experience to create customized recruitment strategies based on clients’ individual
workforce needs. In addition to middle-management search, Futurestep offers project recruitment and managed services. Futurestep
combines solution-oriented service with leading technologies to deliver strong candidates and fast cycle times. At April 30, 2003, the
Futurestep database contained over one million recruitment candidates.
Financial information regarding our business segments is contained in the Notes to our Consolidated Financial Statements.
Industry Overview
We have historically operated in the executive search market and have aggressively used technology to expand our presence into
middle-management search.
3
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:57 EST
ˆ1VF=3Z2JVYCG2TGrŠ
1*
0C
1VF=3Z2JVYCG2TG
CLN
97534 TX 4
HTM
IFV
Page 1 of 1
Executive Recruitment: The executive recruitment market concentrates on searches for positions with annual compensation of
$150,000 or more, which generally involve board level, chief executive and other senior executive positions. The industry is
comprised of retained and contingency search firms. Retained firms typically charge a fee for their services equal to approximately
one-third of the annual cash compensation for the position being filled and bill for their services in three installments, irrespective of
whether a position has been filled. Contingency firms generally work on a non-exclusive basis and are compensated only upon
successfully placing a recommended candidate.
Middle-Management Recruitment: The middle-management recruitment market focuses on searches for middle and lower
management positions with annual compensation of $75,000 to $150,000. Firms in this market usually operate on a contingency
basis. This market has undergone a fundamental transformation over the past two years towards a technology based environment.
Technology and the Internet have made identifying, targeting and reaching potential candidates much quicker. This market also
benefits from the efficiencies of maintaining large databases of qualified candidates, employing advanced assessment software, and
reducing placement times. As a result, technology enabled on-line recruiting services are becoming more important.
Other Human Capital Services: In addition to executive and middle-management recruitment, we provide management
assessment and executive coaching services.
Industry Trends
There are and will be times, such as the present, when the recruitment industry is adversely affected by worldwide socio-
economic conditions. However, we believe that a number of favorable trends will contribute to the long-term growth of the
recruitment industry:
Consolidation of Human Capital Solutions Providers—In choosing their recruitment and human resource service providers,
companies are actively in search of preferred providers in order to consolidate vendor relationships. Companies that can address a
broad range of recruitment needs are becoming increasingly attractive. Clients are seeking trusted partners who understand their
business and their unique organizational culture, who can manage their business on a global scale.
Increased Use of Advanced Technology—Emphasis in the recruitment business is shifting from candidate identification to
candidate assessment and placement. The emphasis on assessment and placement is being driven by enhancements in technology as it
is becoming easier to identify desirable candidates in on-line and off-line databases. In addition, information technology and the
Internet are creating efficient ways to manage the recruitment process in identifying, recruiting and assessing candidates. At the same
time, new barriers to entry into the executive recruitment industry are being created as investments in information technology become
critical to serve clients’ needs globally.
Increased Outsourcing of Recruitment Functions—Recent economic factors are requiring companies to focus on core
competencies and to outsource recruitment functions to providers who can efficiently provide high quality recruitment services. A
dearth of qualified management-level candidates has made identifying and recruiting exceptional candidates more difficult.
Companies increasingly rely on experienced global executive recruitment firms to address their management recruitment needs. By
hiring global executive recruitment firms, companies can expect to:
•
•
•
•
•
Access a diverse and highly qualified field of candidates on an as-needed basis;
Reduce or eliminate the costs required to maintain and train an in-house recruiting department in a rapidly changing
industry;
Benefit from the most updated industry and specific geographic market information;
Access cutting-edge search technology software; and
Maintain management focus on core strategic business issues.
4
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
18-Jul-2003 22:26 EST
ˆ1VF=3Z2JVYNDZHG$Š
2*
1C
1VF=3Z2JVYNDZHG
CLN
97534 TX 5
HTM
PMT
Page 1 of 1
Globalization of Business—As the world’s individual markets continue to integrate into one global economy, more companies
are required to supplement internal talent with experienced senior executives who can operate effectively in a global economy. The
rapidly changing competitive environment challenges multinational and local companies to identify qualified executives with the
right combination of skills, experience and cultural compatibility. Today, clients are turning to those firms that combine proven
expertise with specialized knowledge of key industries and local markets, enabling them to address their mounting global recruitment
needs.
Other Industry Trends—In addition to the industry trends mentioned above, we believe the following trends will also contribute
to the growth of the recruitment industry:
•
•
•
•
•
Increasing demand for managers with broader qualifications;
Increasing desire by candidates to more actively manage their careers;
Increasing demand for senior executives who can exceed the high standards of due diligence and public scrutiny as a result
of new securities legislation;
Aging baby-boom generation resulting in a smaller pool of available candidates; and
Shortening executive management tenures and more frequent job changes.
Growth Strategy
Our objective is to expand our position as a premier global recruitment firm. The principal elements of our strategy include:
Broadening our Product and Service Offerings
In addition to being a premier executive recruitment firm, we also offer clients middle-management recruitment, project
recruitment and managed services through Futurestep, strategic management assessment services and executive development. We will
continue to develop and add new products and services that our clients demand and that we feel are consistent with our brand
positioning.
Global Account Management
In an effort to better coordinate global recruiting and to gain operational efficiencies, multinational clients will increasingly turn
to strategic partners that can manage their recruitment needs on a centralized basis. This will require vendors with a global network of
offices and technological support systems to manage multiple hires across geographical regions. Our global account management
program, Integrated Services, continues to identify account leaders for multinational clients, provides training and software support to
manage these accounts, and develops guidelines and protocols to support cross-border assignments for these clients.
Expanding our Market Reach and Presence through Technology and Assessment Solutions
An advanced technology infrastructure has become a critical element of the recruitment business. In the executive recruitment
market, we have invested approximately $49 million over the past three fiscal years to develop a state-of-the-art technology
infrastructure, including a worldwide network and our proprietary executive recruitment software. In June 2000, we introduced e-
Korn/Ferry, our executive search Internet tool that allows executives to submit relevant employment information to us. In fiscal year
2003, we introduced our proprietary tool, Search AssessmentSM, which represents a powerful method to assess executive candidates.
Search AssessmentSM has been integrated into our standard search process, thus enhancing our capabilities. We will continue to refine
our technology, including our exclusive candidate assessment tools, in order to strengthen our relationships with our existing clients,
attract new clients, expand into new markets and position ourselves to gain a competitive advantage in marketing complementary
services.
5
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:57 EST
ˆ1VF=3Z2JVYCR7SG[Š
1*
0C
1VF=3Z2JVYCR7SG
CLN
97534 TX 6
HTM
IFV
Page 1 of 1
Leveraging our Leadership and Brand Name in Executive Recruitment
We believe that there are significant opportunities to extend our market share and develop new client relationships by
aggressively marketing our proven global recruitment expertise. Our leadership in executive recruitment enables us to grow our
business by increasing the number of recruitment assignments we handle for existing clients in all areas of recruitment. We also
believe that our strong relationships and well-recognized brand name will enable us to introduce new services to our existing clients
and potential new clients and will allow us to build communities of candidates to directly market services, such as career
management, to executives and other candidates who are actively seeking to manage their careers.
Our Services and Organization
We address the global recruitment needs of our clients at all levels of management by offering the following services:
Executive Recruitment Services
Overview. Our executive recruitment services are typically used to fill executive-level positions, such as board of directors,
chief executive officers, chief financial officers and other senior executive officers. Once we are retained by a client to conduct an
assignment, we assemble a team comprised of consultants with geographic, industry and functional expertise. Our search consultants
serve as management advisors and work closely with the client in identifying, assessing and placing a qualified candidate. In fiscal
2003, we performed over 4,700 executive recruitment assignments.
We use a search methodology that has been developed through many years of experience in conducting executive recruitment.
We emphasize a close working relationship with the client and a comprehensive understanding of the client’s business issues, strategy
and culture, as well as an in-depth knowledge of the skills necessary to succeed within a client’s organization. Initially, the search
team consults with the client to better understand its history, culture, structure, expectations, challenges, future direction and
operations. In these meetings, the team identifies the specific needs of the client and develops a profile of an ideal candidate for the
position. Early in the process, the team also works with the client to develop the general parameters of a compensation package that
will attract high quality candidates.
Once the position is defined, the research team identifies, through the use of our proprietary databases and a number of key
technology-based information resources, companies that are in related industries facing similar challenges and issues with operating
characteristics similar to those of the client. In addition, the team consults with its established network of resources, and our databases
that contain profiles of over 2,500,000 executives, including those obtained through e-Korn/Ferry, to help identify individuals with
the right backgrounds and personal abilities. These sources are a critical element in assessing the marketplace. The original list of
candidates is carefully screened through phone interviews, video conferences or in-person meetings. The client is then presented with
up to five qualified candidates to interview. We conduct reference checks throughout the process, sometimes with the assistance of an
independent third party.
The finalist for the position will usually meet with the client for a second and possibly a third round of discussions. At this point,
the compensation package for each will have been discussed in detail increasing the likelihood that offers will be accepted. Generally,
the search consultants will participate in the negotiations until a final offer is made and accepted. Throughout the process, ongoing
communication with the client is critical to keep client management apprised of progress.
Industry Specialization. Consultants in our five global markets and three regional specialty practice groups bring an in-depth
understanding of the market conditions and strategic and management issues faced by clients within their specific industry. We plan
to continue to expand our specialized expertise through internal development and strategic hiring in targeted growth areas.
6
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:57 EST
ˆ1VF=3Z2JVYCV9FGVŠ
1*
0C
1VF=3Z2JVYCV9FG
CLN
97534 TX 7
HTM
IFV
Page 1 of 1
Percentage of Fiscal 2003 Assignments by Industry Specialization
Global Markets:
Industrial
Consumer
Technology
Financial Services
Life Sciences
Regional Specialties:
Education/Not-for-profit
Healthcare Provider
General
24%
22%
18%
15%
10%
6%
4%
1%
Functional Expertise. We have organized executive recruitment centers of functional expertise, made up of consultants who
have extensive backgrounds in placing executives in certain functions, such as directors, chief executive officers and other senior
executive and financial officers. Our board services practice, for example, was first established in 1972 to help clients assemble an
effective, knowledgeable and cohesive board of directors to meet the growing demands for accountability and more effective board
performance. The shortage of experienced directors, the tightening of governance policies and the desire on the part of companies to
broaden the expertise of their board are raising the standards required to identify and recruit directors with the needed skills. We have
established significant expertise in this area and have built a proprietary database with the names and backgrounds of all the Fortune
1000 directors, plus a significant number of middle-market and high-growth company board members, to help support board searches.
Members of functional groups are located throughout our regions and across our specialty practice groups.
Percentage of Fiscal 2003 Assignments by Functional Expertise
Board Level/CEO/CFO/Senior Executive and General Management
Marketing and Sales
Human Resources and Administration
Manufacturing/Engineering/Research and Development/Technology
Finance and Control
Information Systems
54%
21%
8%
7%
7%
3%
Organization
North America—We opened our first office in Los Angeles in 1969, and currently have 23 offices throughout the United States
and Canada. In fiscal 2003, fee revenue was $162 million handling over 1,900 assignments in this region, with an average of 210
consultants.
Europe—We opened our first European office in London in 1972 and currently have 21 offices throughout 17 countries in the
region. In fiscal 2003, fee revenue was $79 million handling over 1,500 assignments in this region, with an average of 127
consultants.
Asia/Pacific—We opened our first Asia/Pacific office in Tokyo in 1973, and have built a 14-office network throughout ten
countries in the region. In fiscal 2003, fee revenue was $34 million handling over 800 assignments in this region, with an average of
59 consultants.
South America—We opened our first South American office in Brazil in 1974. We expanded our practice to Mexico through the
1977 acquisition of a less than 50% interest in a company in Mexico City and currently conduct operations in Mexico through
subsidiaries in which we hold a minority interest. As of April 30, 2003, we operated a network of seven offices in six countries
covering the entire South America region and two offices in Mexico. The region, excluding Mexico, generated fee revenue of $7.6
million in fiscal 2003 compared to $17.6
7
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:57 EST
ˆ1VF=3Z2JVYCYC2GKŠ
1*
0C
1VF=3Z2JVYCYC2G
CLN
97534 TX 8
HTM
IFV
Page 1 of 1
million in fiscal 1999. We handled nearly 500 assignments in fiscal 2003 in this region, with an average of 24 consultants. Our share
of the operating results for our Mexico subsidiaries are included in equity in earnings of unconsolidated subsidiaries on the
consolidated statements of operations.
Client Base. Our clients are many of the world’s largest and most prestigious public and private companies, including 40% of
the Fortune 500 companies. In fiscal 2003, no single client represented more than 1% of fee revenue. We have established strong
client loyalty; more than 79% of the executive recruitment assignments we performed in fiscal 2003 were on behalf of clients for
whom we had conducted multiple assignments over the last three fiscal years.
Competition. We are a premier executive recruitment firm. Other multinational executive recruitment firms include Heidrick
& Struggles International, Inc., Spencer Stuart & Associates, Egon Zehnder International and Russell Reynolds Associates, Inc.
Although these firms are our primary competitors, we also compete with smaller firms that specialize in specific regional, industry or
functional searches. We believe our brand name, global network, prestigious client list, strong specialty practices and quality of
service are recognized worldwide. We also believe that our equity-based compensation scheme distinguishes us from many of our
competitors and is important for retaining consultants.
Middle-Management Recruitment Services
Overview. Futurestep offers clients a multi-tiered portfolio of services, ranging from middle-management search to project
recruitment and managed services. Each Futurestep service benefits from the in-depth industry and functional-area expertise of our
global consultant network, guaranteeing that clients work with people who understand their business and have the knowledge base to
qualify candidates effectively.
Futurestep was the first company to combine traditional search expertise with the reach and speed of the Internet. Futurestep
consultants, based in 18 countries, have instant access to the world’s largest database of prescreened middle-management
professionals. The global candidate pool complements our international presence and multi-channel sourcing strategy to ensure speed,
efficiency and quality of service for clients worldwide.
Futurestep’s middle-management search uses multiple sourcing channels, validated cultural assessments and a global database
of more then one million prescreened professionals to offer a low overhead approach that accelerates the recruitment process and
provides a diverse set of candidates matched toward specific cultural and strategic requirements.
For multiple recruiting projects, Futurestep consultants work with clients to analyze existing internal recruitment capabilities and
develop a co-sourcing platform that emphasizes shared ownership of the recruitment process. Futurestep also offers managed services
to clients seeking a fully integrated, single source for their recruitment needs.
Organization. We opened our first Futurestep office in Los Angeles in May 1998. In January 2000, we acquired the ESS
business of PA Consulting with operations in Europe and Asia/Pacific. In fiscal 2002 and 2003, we consolidated Futurestep’s back
office functions with executive recruitment and co-located Futurestep with executive recruitment offices in North America and
Europe to streamline the business. At April 30, 2003, we had Futurestep operations in ten cities in North America, fourteen in Europe
and seven in Asia/Pacific.
Competition. We believe that there is no competitor that currently competes directly with all of the services provided by
Futurestep. Futurestep competes for assignments:
•
•
generally, with contingency firms who do not have the same pricing structure or provide all of the same services and
to a lesser extent in the technology based middle-management recruitment industry, with firms such as Monster Worldwide.
8
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:57 EST
ˆ1VF=3Z2JVYD0DRG7Š
1*
0C
1VF=3Z2JVYD0DRG
CLN
97534 TX 9
HTM
IFV
Page 1 of 1
Although technology oriented companies may be drawn to the recruitment business by their ability to leverage their existing
technology, their lack of a recognized brand name, experienced consultants and global footprint act as significant barriers to entry.
Strategic Management Assessment. We have expanded strategic management assessment beyond Europe to cover North and
South America, Australia and Japan. This service focuses on helping corporate leadership evaluate the individual and collective
performance of their management team. This service, which further extends the range of leadership capital solutions we offer to our
clients, is a valuable tool for the chief executive, board of directors and other senior officers in pursuing organizational transformation
and the alignment of senior management with the Company’s strategic goals and internal values. This service responds to our clients’
needs for a tool to address the challenges of changing company relationships and global restructuring and, for venture capital firms, to
evaluate the leadership team in existing or prospective portfolio companies. The assessment process is performed by consultants with
extensive experience in interviewing and evaluating senior executives and who understand local cultural differences and the relevant
business and industry challenges. The assessment process is backed by a statistically validated and proprietary assessment instrument
that was developed for us by leading assessment experts and is supported by a proprietary systems platform.
Technology
Our technology enhances the functionality, speed and quality of our human capital services. It also represents a long-term
strategy designed to create competitive advantage and sustained growth. We have evolved our technology capability through
acquisition, purchase, and development of state-of-the-art components. Our technology is scaleable and will accommodate future
growth in our current services as well as the addition of new services. Our professionals use our information technology infrastructure
to:
•
•
•
•
develop and manage company and candidate profiles;
obtain information from and correspond with candidates;
identify market needs and new business opportunities; and
coordinate and implement marketing, communication, financial and administrative functions throughout our global
operations.
The core component and driving force of our technology is e-Korn/Ferry, our worldwide Executive Center web site and global
candidate management system. In fiscal 2003, the e-Korn/Ferry architecture was enhanced with a new tool to manage site content,
including support for international languages. We developed a feature-based web site model – creating business-specific functions
and branding on a common code base. This set the stage for the introduction of the new Futurestep Candidate Site, featuring multi-
language, streamlined candidate registration with an improved “look and feel.” This latest phase of operational consolidation provides
economies of scale by moving all Korn/Ferry candidate web sites to a common technology infrastructure. This platform was further
enhanced to serve the needs of Futurestep’s managed services clients by setting up customized recruitment web sites, private
partitioned databases, and custom emails. We also added the Client Center: a secure web site for Korn/Ferry clients to access
information about the progress of our recruitment efforts on their behalf.
In fiscal 2003, we brought the Management Assessment System onto our common technology platform and introduced self-
assessment, allowing participants to complete assessment questionnaires online in multiple languages. We also applied the assessment
methodology to executive recruitment in Search Assessment—an invitation-based process that uses online assessment instruments to
evaluate finalist candidates’ competency and values fit in Korn/Ferry searches. This capability provides a major competitive
advantage for the Korn/Ferry search business. Search Assessment has been integrated into our engagement management system,
Searcher, with powerful search criteria that help our consultants match candidates to positions by career values and style
characteristics.
9
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
18-Jul-2003 22:26 EST
ˆ1VF=3Z2JVYNQ3GGSŠ
3*
1C
1VF=3Z2JVYNQ3GG
CLN
97534 TX 10
HTM
PMT
Page 1 of 1
In fiscal 2003, we made a series of enhancements to the Performance Management system, used to provide enterprise
competency management services to large clients. We made the online objective setting process more robust and granular, and
introduced several new modules. Compensation Planning manages the client’s enterprise compensation process in conjunction with
performance ratings, promotions and average increase rate guidelines. Talent Review keeps a company-wide skills inventory for the
client and supports succession planning. HR Center is an administrative component that empowers client human resources units to
manage all processes.
Organization
Our executive recruitment business is managed on a geographic basis throughout our four regions: North America, Europe,
Asia/Pacific and South America. Futurestep is managed on a worldwide basis with operations in North America, Europe and
Asia/Pacific.
Professional Staff and Employees
As of April 30, 2003, we had approximately 1,248 executive recruitment employees consisting of 392 consultants and 856
associates, researchers, administrative and support staff. In addition, we had 14 consultants in our two unconsolidated Mexico offices.
Futurestep had 241 employees at April 30, 2003 consisting of 70 consultants and 171 administrative and support staff. Corporate had
47 corporate professionals at April 30, 2003. We have not been a party to a collective bargaining agreement and consider our relations
with our employees to be good. Korn/Ferry International is an equal opportunity employer.
In executive search, senior associates, associates and researchers support the efforts of our consultants with candidate sourcing
and identification, but do not generally lead an assignment. We have training and professional development programs and a high rate
of internal promotions. Promotion to vice president is based on a variety of factors, including demonstrated superior execution and
business development skills, the ability to identify solutions to complex issues, personal and professional ethics, a thorough
understanding of the market, how to retain clients and develop repeat business, and the ability to help build effective teams. In
addition, we have a program of recruiting experienced professionals into our firm.
The following table provides information relating to each of our business segments for fiscal 2003:
Executive Recruitment:
North America
Europe
Asia/Pacific
South America.
Futurestep(2)
Corporate
Fee Revenue
$
162.3
79.0
33.5
7.6
32.7
Adjusted
Operating
Income
(Loss)(1)
Number of
Offices as of
April 30,
2003
Number of
Consultants
as of April 30,
2003
Operating
Income
(Loss)
(in millions)
$
$
17.4
0.2
2.0
(0.6)
(9.9)
(22.5)
23.2
5.5
2.4
(0.6)
(4.5)
(23.0)
23
21
14
7
10
192
122
56
22
70
(1) Adjusted operating income (loss) excludes asset impairment and restructuring charges of $16.3 million on a consolidated basis.
(2) Futurestep partially occupies 21 of the executive recruitment offices globally.
10
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL redel0cm
WLA
18-Jul-2003 08:26 EST
ˆ1VF=3Z2JVY7N0KGxŠ
2*
1C
1VF=3Z2JVY7N0KG
CLN
97534 TX 11
HTM
PMT
Page 1 of 1
Risk Factors
The risks described below are the material risks facing our company. Additional risks not presently known to us or that we
currently deem immaterial may also impair our business operation. Our business, financial condition or results of operations could
be materially adversely affected by any of these risks.
Competition in our industry could result in our losing market share and our charging lower prices for our service, which
could reduce our revenue.
We compete for executive search business with numerous executive search firms and businesses that provide job placement
services. Traditional executive search competitors include Heidrick & Struggles, Inc., Spencer Stuart & Associates, Egon Zehnder
International and Russell Reynolds Associates, Inc. In each of our markets, our competitors may possess greater resources, greater
name recognition and longer operating histories than we do, which may give them an advantage in obtaining future clients and
attracting qualified professionals in these markets. There are few barriers to entry into the executive search industry and new
recruiting firms continue to enter the market. We believe the continuing development and increased availability of information
technology will continue to attract new competitors. Increased competition may lead to pricing pressures that could negatively impact
our business.
If we fail to attract and retain qualified and experienced consultants, our revenue could decline and our business could be
harmed.
We compete with other executive search firms for qualified consultants. Generally, a small number of consultants have primary
responsibility for a client relationship. Any decrease in the quality of our reputation, reduction in our compensation levels or
restructuring of our compensation system, whether as a result of insufficient revenue, a decline in the market price of the common
stock or for any other reason, could impair our ability to retain existing or attract additional qualified consultants with the requisite
experience, skills or established client relationships. In addition, many of our consultants hold shares of our common stock that
became freely tradable in February 2003. Our failure to retain our most productive consultants or maintain the quality of service to
which our clients are accustomed, and the ability of a departing consultant to move business to his or her new employer could result
in a loss of clients and harm our business.
Economic conditions in the geographic regions and the industries from which we derive a significant portion of our fee
revenue could undermine our future profitability.
Demand for our services is significantly affected by the general level of economic activity in the geographic regions and
industries in which we operate. When economic activity slows, many companies hire fewer permanent employees. Therefore, a
significant economic downturn, on a global basis, in North America, or in other regions or industries where our operations are heavily
concentrated, such as the advanced technology and financial services industries could harm our business, results of operations and
financial condition. Currently, the global financial markets, especially in the United States, continue to experience significant turmoil,
negatively impacting our fee revenue and operating income. In addition, in fiscal 2003, our total assignments included 18% related to
the technology industry and 15% related to the financial services/investments industry, both of which have experienced volatility
recently.
We face risks associated with political instability, legal requirements and currency fluctuations in our international
operations.
We operate in 36 countries and generate nearly half our fee revenue from operations outside of North America. There are certain
risks inherent in transacting business worldwide, such as:
•
•
changes in and compliance with applicable laws and regulatory requirements;
tariffs and other trade barriers;
11
18-Jul-2003 08:27 EST
ˆ1VF=3Z2JVY7V3WGrŠ
2*
1C
1VF=3Z2JVY7V3WG
CLN
97534 TX 12
HTM
PMT
Page 1 of 1
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL redel0cm
WLA
•
•
•
•
•
•
•
difficulties in staffing and managing global operations;
problems in collecting accounts receivable;
social and political instability;
fluctuations in currency exchange rates;
statutory equity requirements;
repatriation controls; and
Potential adverse tax consequences.
We have no hedging or similar foreign currency contracts, and therefore fluctuations in the value of foreign currencies could
harm our global operations. We cannot assure you that one or more of these factors will not harm our business, financial condition or
results of operations.
We are limited in our ability to recruit employees of our clients and we could lose those opportunities to our competition,
which could harm our business.
Either by agreement with clients, or for client relations or marketing purposes, executive search firms sometimes refrain, for a
specified period of time, from recruiting employees of a client when conducting searches on behalf of other clients. These off-limits
agreements can generally remain in effect for up to two years following completion of an assignment. The duration and scope of the
off-limits agreement, including whether it covers all operations of the client and its affiliates or only certain divisions of a client,
generally are subject to negotiation or internal policies and may depend on factors such as the scope, size and complexity of the
client’s business, the length of the client relationship and the frequency with which the executive search firm has been engaged to
perform executive searches for the client. Our inability to recruit employees of these clients may make it difficult for us to obtain
search assignments from, or to fulfill search assignments for, other companies in that client’s industry. We cannot assure you that off-
limits agreements will not impede our growth or our ability to attract and serve new clients, or otherwise harm our business.
Our financial results may suffer if Futurestep does not become profitable.
Futurestep has incurred operating losses of $110.0 million from inception through April 30, 2003. In addition, we believe
Futurestep, primarily overseas, will continue to generate operating losses through at least the end of fiscal 2004. We cannot assure
you that Futurestep’s operating losses will not increase in the future. If Futurestep does not become profitable, our financial results
may suffer. If our executive recruitment consultants do not actively promote our technology-based services to our clients, the fee
revenue growth and profitability of these services could be harmed.
If we are unable to retain our executive officers and key personnel, or to integrate new members of our senior management
that are critical to our business, we may not be able to successfully manage our business in the future.
Our future success depends upon the continued service of our executive officers and other key management personnel. If we
lose the services of one or more of our executives or key employees, or if one or more of them decides to join a competitor or
otherwise compete directly or indirectly with us, we may not be able to successfully manage our business or achieve our business
objectives.
We rely heavily on our information systems and if we lose that technology, or fail to further develop our technology, our
business would be harmed.
Our success depends in large part upon our ability to store, retrieve, process and manage substantial amounts of information. To
achieve our strategic objectives and to remain competitive, we must continue to develop and enhance our information systems. This
may require the acquisition of equipment and software and
12
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL redel0cm
WLA
18-Jul-2003 08:27 EST
ˆ1VF=3Z2JVY8075GEŠ
2*
1C
1VF=3Z2JVY8075G
CLN
97534 TX 13
HTM
PMT
Page 1 of 1
the development, either internally or through independent consultants, of new proprietary software. If we are unable to design,
develop, implement and utilize, in a cost-effective manner, information systems that provide the capabilities necessary for us to
compete effectively, or any interruption or loss of our information processing capabilities, for any reason, could harm our business,
results of operations and financial condition.
If we are unable to maintain our professional reputation and brand name, our business will be harmed.
We depend on our overall reputation and brand name recognition to secure new engagements and hire qualified professionals.
Our success also depends on the individual reputations of our professionals. We obtain a majority of our new engagements from
existing clients or from referral by those clients. Any client who is dissatisfied with our work can adversely affect our ability to secure
those new engagements.
If any factor hurts our reputation, including poor performance, we may experience difficulties in competing successfully for
both new engagements and qualified consultants. Failing to maintain our professional reputation and brand name could seriously
harm our business.
We are subject to potential legal liability from both clients and employers, and our insurance coverage may not cover all of
our potential liability.
We are exposed to potential claims with respect to the executive search process. A client could assert a claim for matters such as
breach of an off-limits agreement or recommending a candidate who subsequently proves to be unsuitable for the position filled.
Further, the current employer of a candidate whom we place could file a claim against us alleging interference with an employment
contract. In addition, a candidate could assert an action against us for failure to maintain the confidentiality of the candidate’s
employment search or for alleged discrimination or other violations of employment law by one of our clients. We cannot assure you
that our insurance will cover all claims or that our insurance coverage will continue to be available at economically feasible rates.
Certain of our historical statements were audited by Arthur Andersen LLP, and your ability to rely on those statements and
recover from them may be limited.
On April 11, 2002, our board of directors, upon recommendation of the audit committee, dismissed Arthur Andersen LLP as our
independent auditors and appointed Ernst & Young LLP as our new independent auditors. Ernst & Young LLP has audited our
financial statements for the fiscal years ended April 30, 2003 and 2002 but not any prior fiscal year. We have restated our financial
statements for the fiscal year ended April 30, 2001 relating to the consolidation of our Mexico subsidiaries. The statements for that
fiscal year were audited by Arthur Andersen LLP, and we have not been able to have their report for that fiscal year reissued. In
addition, we will not be able to obtain the written consent of Arthur Andersen LLP for any registration statement we may file as
required by Section 7 of the Securities Act. Accordingly, investors will not be able to sue Arthur Andersen LLP pursuant to Section
11(a)(4) of the Securities Act relating to those registration statements and therefore may have their recovery limited as a result of the
lack of consent. The ability of investors to recover from Arthur Andersen LLP may also be limited as a result of their financial
condition or other matters relating to the various civil and criminal lawsuits relating to them.
Our stock price could fluctuate significantly.
The market price of our common stock has fluctuated in the past and is likely to fluctuate in the future. Significant fluctuation in
the market price of our common stock can occur for a number of reasons, including:
•
•
•
changes in economic conditions;
fluctuations in our financial performance;
changes in our capital structure and liquidity;
13
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL redel0cm
WLA
•
•
changes in management or key consultants; and
industry developments.
18-Jul-2003 08:27 EST
ˆ1VF=3Z2JVY86BHG#Š
2*
1C
1VF=3Z2JVY86BHG
CLN
97534 TX 14
HTM
PMT
Page 1 of 1
In addition, the securities markets have experienced significant price and volume fluctuations that are independent of the
operating performance of individual companies. These market fluctuations could also materially and adversely affect the market price
of our common stock. Past stock price performance is not an indication of future performance.
We have provisions that make an acquisition of us more difficult and expensive.
•
Antitakeover provisions in our Certificate of Incorporation, our Bylaws and the Delaware laws make it more difficult and
expensive for us to be acquired in a transaction which is not approved by our Board of Directors. Some of the provisions in our
Certificate of Incorporation and Bylaws include:
a classified board of directors
limitations on the removal of directors
limitation on stockholder actions
advance notification requirements for director nominations and actions to be taken at shareholder meetings
the ability to issue one or more series of preferred stock by action of our Board of Directors
•
•
•
•
These provisions could discourage an acquisition attempt or other transaction in which shareholders could receive a premium
over the current market price for the common stock.
Item 2. Properties
Our corporate office is located in Los Angeles, California. We lease all 75 of our executive recruitment and Futurestep offices
located in North America, Europe, Asia/Pacific and South America. As of April 30, 2003, we leased an aggregate of approximately
670,000 square feet of office space. The leases generally are for terms of one to ten years and contain customary terms and
conditions. We believe that our facilities are adequate for our current needs and we do not anticipate any difficulty replacing such
facilities or locating additional facilities to accommodate any future growth.
Item 3. Legal Proceedings
From time to time, we are involved in litigation both as plaintiff and defendant, relating to claims arising out of our operations.
As of the date of this report, we are not engaged in any legal proceedings that are expected, individually or in the aggregate, to have a
material adverse effect on our business, financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the last quarter of fiscal 2003.
Executive Officers as of April 30, 2003
Name
Age
Position
Paul C. Reilly
Gary D. Burnison
Gary C. Hourihan
Robert H. McNabb
49 Chairman of the Board and Chief Executive Officer
42 Chief Financial Officer and Executive Vice President
54
56 Chief Executive Officer for Futurestep
Executive Vice President—President Global Management Assessment
14
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL redel0cm
WLA
18-Jul-2003 08:27 EST
ˆ1VF=3Z2JVY8DFTGrŠ
2*
1C
1VF=3Z2JVY8DFTG
CLN
97534 TX 15
HTM
PMT
Page 1 of 1
Our executive officers serve at the discretion of our Board of Directors. There is no family relationship between any executive
officer or director. The following information sets forth the business experience for at least the past five years for each of our
executive officers as of April 30, 2003.
Paul C. Reilly has been Chief Executive Officer and President since June 2001. Prior to joining Korn/Ferry International, Mr.
Reilly was at KPMG International, where he was Chief Executive Officer. Mr. Reilly joined KPMG International in 1987.
Gary D. Burnison has been Executive Vice President and Chief Financial Officer since March 2002 and is a member of our
Global Operating Committee. Prior to joining Korn/Ferry International, Mr. Burnison was Principal and Chief Financial Officer of
Guidance Solutions, a privately held consulting firm, from 1999 to 2001. Prior to that, Mr. Burnison served as an Executive Officer
and a member of the board of directors of Jefferies and Company, an investment bank and brokerage firm, from 1995 to 1999.
Previously, Mr. Burnison was a partner at KPMG Peat Marwick.
Gary C. Hourihan is a Corporate Executive Vice President and President of Management Assessment, for Korn/Ferry
International, responsible for overseeing global operations and strategy for our Management Assessment business. Mr. Hourihan is
also a member of our Global Operating Committee and was our Executive Vice President—Organizational Development from
January 1999 to December 2001. Prior to joining Korn/Ferry International, he was the co-founder, Chairman, and Chief Executive
Officer of SCA Consulting, L.L.C., one of the leading executive compensation consulting firms in the United States, where he was
employed from November 1984 until joining Korn/Ferry International.
Robert H. McNabb was elected Chief Executive Officer for Futurestep in July 2002 and is a member of our Global Operating
Committee. Prior to becoming the Chief Executive Officer for Futurestep, he was President of the Futurestep Americas and
Asia/Pacific regions since December 2001. Prior to joining Futurestep, he was the President and Chief Executive Officer of Corestaff
from 1998 to 2001 and President and Chief Operating Officer at Republic Industries in 1997.
15
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL redel0cm
WLA
PART II.
18-Jul-2003 08:28 EST
ˆ1VF=3Z2JVY8LK3GzŠ
2*
1C
1VF=3Z2JVY8LK3G
CLN
97534 TX 16
HTM
PMT
Page 1 of 1
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
Common Stock
Our common stock is listed on the New York Stock Exchange under the symbol “KFY.” The following table sets forth the high
and low sales price per share of the common stock for the periods indicated, as reported on the New York Stock Exchange:
Low
High
Fiscal Year Ended April 30, 2003
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year Ended April 30, 2002
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year Ended April 30, 2001
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$11.91 $ 5.78
$ 9.45 $ 6.17
$10.00 $ 5.81
$ 7.28 $ 5.59
$23.99 $14.90
$15.79 $ 6.66
$11.40 $ 6.90
$11.40 $ 5.80
$36.63 $21.13
$40.44 $29.69
$38.00 $16.25
$20.60 $14.90
On July 16, 2003 the last reported sales price on the New York Stock Exchange for the common stock was $9.77 per share and
there were approximately 2,600 beneficial holders of the common stock.
Dividends
We have not paid any cash dividends since April 30, 1996 and do not intend to pay any cash dividends in the foreseeable future,
but instead intend to retain future earnings to finance our operations and growth of the business. Future dividend policy will depend
on our earnings, capital requirements, financial condition and other factors considered relevant by our board of directors. Our credit
facility also contains provisions that limit our ability to pay dividends.
Recent Sales of Unregistered Securities
We issued securities convertible into or exercisable for approximately 4.9 million shares of common stock in June 2002 to
purchasers affiliated with Friedman, Fleischer & Lowe. These issuances were exempt pursuant to Regulation D under the Securities
Act.
We issued 10,076 shares of common stock in June 2002 to four individuals in Australia in connection with the acquisition of the
Australian business of Amrop International, which closed in fiscal 2000. These issuances were exempt pursuant to Regulation S under
the Securities Act.
16
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL redel0cm
WLA
18-Jul-2003 08:28 EST
ˆ1VF=3Z2JVY8SNFGcŠ
2*
1C
1VF=3Z2JVY8SNFG
CLN
97534 TX 17
HTM
PMT
Page 1 of 1
Item 6. Selected Financial Data
The following selected financial data are qualified by reference to, and should be read together with, our “Audited Consolidated
Financial Statements and Related Notes” and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” appearing elsewhere in this Form 10-K report. The selected statement of operations data set forth below for the fiscal
years ended April 30, 2003, 2002, and 2001 and the selected balance sheet data as of April 30, 2003 and 2002 are derived from our
consolidated financial statements, audited by Ernst & Young LLP in fiscal 2003 and 2002 and Arthur Andersen LLP in fiscal 2001,
appearing elsewhere in this Form 10-K report. The selected statement of operations data set forth below for the fiscal years ended
April 30, 2000 and 1999 and the balance sheet data as of April 30, 2001, 2000 and 1999 are derived from consolidated financial
statements and notes thereto, audited by Arthur Andersen LLP, which are not included in this Form 10-K report. However, data for
the years ended and as of April 30, 2001, 2000 and 1999 have been restated to reflect the operating results of our Mexico subsidiaries
under the equity method. Ernst & Young LLP has applied certain procedures to the restatement adjustments for fiscal 2001 as
described in their report on the 2003 consolidated financial statements. Ernst & Young LLP has not performed any procedures with
respect to the data and restatement adjustments for fiscal 2000 and 1999.
17
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
18-Jul-2003 22:28 EST
ˆ1VF=3Z2JVYP2B2G.Š
2*
1C
1VF=3Z2JVYP2B2G
CLN
97534 TX 18
HTM
PMT
Page 1 of 2
Selected Statement of Operations Data:
Fee revenue
Reimbursed out-of-pocket engagement expenses
Total revenue
Compensation and benefits
General and administrative expenses
Out-of-pocket engagement expenses
Depreciation and amortization
Asset impairment and restructuring charges(1)
Non-recurring charges(2)
Operating income (loss)
Interest and other income (expense)
Provision for (benefit from) income taxes
Equity in earnings of unconsolidated subsidiaries
Fiscal Year Ended April 30,
2003
2002
2001
2000
1999
(in thousands, except per share amounts)
$315,112
23,354
$ 377,425
29,310
$614,067
37,523
$472,877
29,583
$311,303
49,365
338,466
406,735
651,590
502,460
360,668
223,192
73,107
23,029
16,161
16,281
273,994
101,934
25,759
17,482
93,203
383,277
149,656
36,710
26,874
295,307
114,452
30,562
13,228
223,788
70,205
29,029
9,196
89,202
(13,304)
(105,637)
55,073
48,911
(60,752)
(9,333)
2,040
1,775
(6,083)
(12,328)
1,141
(3,278)
22,443
1,661
2,328
21,938
1,510
(275)
6,928
1,529
Net income (loss)
$ (22,902)
$ (98,251)
$ 31,013
$ 30,811
$ (66,426)
Accretion on redeemable convertible preferred stock
852
Net income (loss) attributed to common shareholders
$ (23,754)
$ (98,251)
$ 31,013
$ 30,811
$ (66,426)
Basic earnings (loss) per share
Diluted earnings (loss) per share
Basic weighted average common shares outstanding
Diluted weighted average common shares outstanding
Other Data:
Fee revenue by business segment:
Executive recruitment:
North America
Europe
Asia/Pacific
South America
Total executive recruitment
Futurestep
JobDirect
(0.63)
$
$
(0.63)
37,576
37,576
$
$
(2.62)
(2.62)
37,547
37,547
0.83
$
$
0.81
37,266
38,478
0.85
$
$
0.82
36,086
37,680
$
$
(2.37)
(2.37)
28,086
28,086
$162,309
78,990
33,523
7,616
$ 195,522
92,098
37,546
10,794
$332,541
131,980
52,146
16,382
$261,791
110,206
47,554
16,752
$163,936
91,864
33,979
17,552
282,438
32,674
335,960
40,079
1,386
533,049
76,335
4,683
436,303
36,574
307,331
3,972
Total fee revenue
$315,112
$ 377,425
$614,067
$472,877
$311,303
Number of offices (at period end)
Number of consultants (at period end)
Number of engagements
Selected Balance Sheet Data:
Cash and cash equivalents
Marketable securities, current
Working capital
Total assets
Total long-term debt
Mandatorily redeemable stock
Total shareholders’ equity
75
462
6,823
85
524
7,682
103
663
11,291
102
583
8,636
69
414
6,347
$ 82,685
$ 66,128
$ 85,661
16,397
51,211
496,102
11,842
$ 83,653
59,978
78,470
472,178
16,915
111,739
21,839
112,927
301,311
2,360
25,610
377,574
1,634
72,673
369,013
41,364
9,606
166,455
179,297
270,166
231,224
172,686
(1) In response to deteriorating economic conditions encountered in the beginning of fiscal 2002, we developed a series of
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
18-Jul-2003 22:28 EST
ˆ1VF=3Z2JVYP2B2G.Š
2*
1C
1VF=3Z2JVYP2B2G
CLN
97534 TX 18
HTM
PMT
Page 2 of 2
restructuring initiatives to address the cost structure and reposition ourselves to gain market share
18
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY8ZRRG^Š
1*
0C
1VF=3Z2JVY8ZRRG
CLN
97534 TX 19
HTM
IFV
Page 1 of 1
and take advantage of any potential economic upturn. As a result, we recognized asset impairment and restructuring charges of
$93.2 million in fiscal 2002 comprised of (a) goodwill impairment for JobDirect of $28.9 million and for North America
executive recruitment of $14.0 million, (b) other asset impairments of $15.1 million, (c) severance restructuring charge of $19.1
million, and (d) facilities restructuring charge of $16.1 million. In addition, we recognized $16.3 million of restructuring charges
in fiscal 2003 comprised of (a) other asset impairment charge of $0.8 million, (b) severance restructuring charge of $5.3 million,
(c) facilities restructuring charge of $11.8 million and (d) a $1.6 million gain recognized as a result of a litigation settlement.
(2) In fiscal 1999, upon the completion of the initial public offering, we recognized a non-recurring compensation and benefits
expense of $89.2 million, comprised of (a) $49.3 million representing the difference between the issuance price of the shares
issued by us twelve months before the initial filing date of the Registration Statement and the fair market value of the shares at
the date of grant, (b) $25.7 million from the completion of the redemption of certain shares of our capital stock, primarily the
payment of additional redemption amounts to certain shareholders under the terms of a 1994 stock redemption agreement, and
(c) $4.3 million from the payment of existing obligations to former holders of phantom units and stock appreciation rights. We
also recognized non-recurring charges of $7.3 million related to costs, primarily severance and benefits expense, incurred to
achieve operating efficiencies in fiscal 1999 and $2.6 million related to the resignation of the former President and Chief
Executive Officer.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking Statements
This Annual Report on Form 10-K may contain certain statements that we believe are, or may be considered to be, “forward-
looking” statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These forward-looking statements generally can be identified by use of statements that include phrases such as “believe”,
“expect”, “anticipate”, “intend”, “plan”, “foresee”, “may”, “will”, “estimates”, “potential”, “continue” or other similar words or
phrases. Similarly, statements that describe our objectives, plans or goals also are forward-looking statements. All of these forward-
looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those
contemplated by the relevant forward-looking statement. The principal risk factors that could cause actual performance and future
actions to differ materially from the forward-looking statements include, but are not limited to, dependence on attracting and
retaining qualified and experienced consultants, portability of client relationships, local political or economic developments in or
affecting countries where we have operations, ability to manage growth, restrictions imposed by off-limits agreements, competition,
risks related to the growth and results of Futurestep, reliance on information processing systems, and employment liability risk.
Readers are urged to consider these factors carefully in evaluating the forward-looking statements. The forward-looking statements
included in this Annual Report are made only as of the date of this Annual 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 consolidated financial statements included in this annual report on Form 10-K.
Overview
We are a premier executive recruitment firm with the broadest global presence in the recruitment industry. Our services include
executive recruitment, middle-management recruitment (through Futurestep), strategic management assessment and executive
coaching. We have approximately 392 executive recruitment consultants and 70 Futurestep consultants based in nearly 70 cities
across 36 countries. Our clients are many of the world’s largest and most prestigious public and private companies, middle-market
and emerging growth companies as well as government and not-for-profit organizations. Over half of the executive recruitment
searches we performed in fiscal 2003 were for board level, chief executive and other senior executive positions and our 3,250
19
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY94W1GLŠ
1*
0C
1VF=3Z2JVY94W1G
CLN
97534 TX 20
HTM
IFV
Page 1 of 1
clients included approximately 40% of the Fortune 500 companies. We have established strong client loyalty; more than 79% of the
executive recruitment assignments we performed in fiscal 2003 were on behalf of clients for whom we had conducted multiple
assignments over the last three fiscal years.
Based on deteriorating economic conditions in the beginning of fiscal 2002, we began developing a series of restructuring
initiatives, to address our cost structure and to reposition ourselves to gain market share and take advantage of the eventual economic
recovery. Our immediate goals were to reduce losses, preserve our top producers and maintain our high standards of client service.
In August 2001, we announced the first of these business realignment initiatives. These initiatives reduced the workforce by
approximately 30%, or over 850 employees. Such initiatives included consolidating back-office functions for Futurestep and
executive recruitment, exiting the college recruitment market, and the write-off of other related assets and goodwill. These
restructuring initiatives resulted in a total charge of $93.2 million and $16.3 million in fiscal 2002 and 2003, respectively.
In June 2003, we announced that we will continue to streamline our infrastructure and improve overall organization efficiencies.
Near term activities will focus on the consolidation of Futurestep back-office functions, reduction of corporate and administrative
overhead, and other adjustments to our cost base. As such, we expect to incur a charge of approximately $6 million to $8 million in
the fiscal first quarter 2004 of which the majority will be in cash.
In November 2001, the Financial Accounting Standards Board (“FASB”) issued Topic No. D-13, “Income Statement
Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred” that requires presentation of reimbursements
received for “out-of-pocket” expenses as revenue and the related expenses as expense in the statement of operations. This topic issued
as Emerging Issues Task Force Issue No. 01-14 (EITF No. 01-14), is effective for reporting periods beginning after December 15,
2001 and requires prior period results to be reclassified to conform to the new presentation. We implemented this guidance effective
May 1, 2002. Accordingly, prior year results reflect the reclassification of “out-of-pocket” expenses, primarily candidate travel
expenses, previously reported as a reduction in revenue, to expense. There was no impact on operating income, net income, EPS or
cash flow as a result of the reclassification.
In December 2002, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-
Based Compensation—Transition and Disclosure”, effective for fiscal years ending after December 15, 2002. This rule amends SFAS
No. 123, “Accounting for Stock-based Compensation”, to provide several alternatives for adopting the stock option expense
provisions of SFAS No. 123, as well as additional required interim financial statement disclosures. SFAS No. 148 does not require
companies to expense stock options in current earnings. We have not adopted the provisions of SFAS No. 123 for expensing stock
based compensation; however, we will adopt the additional interim disclosure provisions of SFAS 148.
In the current year, we have presented our segment operating results to reflect our business segments without allocations of
corporate overhead. This presentation represents how management internally evaluates the operating performance of our business
segments and gives a more meaningful picture of our business units’ performance. Accordingly, prior year operating results have
been reclassified to reflect segment results on the same basis.
Critical Accounting Policies
The following discussion and analysis of our financial condition and operating results are based on our consolidated financial
statements. Preparation of this Annual Report on Form 10-K requires us to make estimates and assumptions that affect the reported
amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported
amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates and assumptions. In
preparing our financial statements and accounting for the underlying transactions and balances, we apply our accounting policies as
20
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY97XQG:Š
1*
0C
1VF=3Z2JVY97XQG
CLN
97534 TX 21
HTM
IFV
Page 1 of 1
disclosed in our consolidated financial statements. We consider the policies discussed below as critical to an understanding of our
financial statements because their application places the most significant demands on management’s judgment. Specific risks for
these critical accounting policies are described in the following paragraphs. Senior management has discussed the development and
selection of the critical accounting estimates with the Audit Committee of the Board of Directors.
Revenue Recognition. Management is required to establish policies and procedures to ensure that revenue is recorded for valid
engagements, over the performance period and related costs are matched against such revenue. We provide recruitment services on a
retained basis and generally bill clients in three monthly installments. Since the search is generally not contingent upon placement of
a candidate, our assumptions primarily relate to establishing the period over which such service is performed. These assumptions
determine the timing of revenue recognition and profitability for the reported period. If these assumptions do not accurately reflect the
period over which revenue is earned, revenue and profit could differ.
Deferred Compensation. Deferred compensation requires assumptions regarding participant data and discount rate that can
significantly impact the liability and related cost on our balance sheet and statement of operations. Management engages an actuary to
review these assumptions to ensure that they reflect the population and economics of our deferred compensation plans in all material
respects. The actuarial assumptions we use may differ from actual results due to changing market conditions or changes in the
participant population. These differences could have a significant impact on our costs and liability.
Carrying Values. Valuations are required under U.S. generally accepted accounting principles to determine the carrying value
of various assets. Our most significant assets that require management to prepare or obtain valuations are goodwill and deferred
income taxes. Management must identify whether events have occurred that may impact the carrying value of these assets and make
assumptions regarding future events, such as profitability. Differences between the assumptions used to prepare these valuations and
actual results could materially impact the carrying amount of these assets and net income (loss).
Results of Operations
The following table summarizes the results of our operations as a percentage of fee revenue:
Fee revenue
Compensation and benefits
General and administrative expenses
Out-of-pocket engagement expenses
Depreciation and amortization
Asset impairment and restructuring charges
Operating income (loss)
Net income (loss)
Fiscal Year Ended April 30,
2003
2002
2001
100%
71
23
7
5
5
(4)
(7)
100%
73
27
7
5
25
(28)
(26)
100%
62
24
6
4
9
5
Excluding asset impairment and restructuring charges in fiscal 2002 and 2003 and, for comparability (under SFAS No. 142
“Goodwill and Other Intangible Assets”), goodwill amortization in fiscal 2001, operating income (loss) as a percentage of fee revenue
is 1%, (3%) and 11% for the fiscal years ended April 30, 2003, 2002 and 2001, respectively. On this same basis, net income (loss) as
a percentage of fee revenue is (2%), (1%) and 7% for the fiscal years ended April 30, 2003, 2002 and 2001, respectively.
The continued weakness in the global economy has resulted in decreases in fee revenue in all of our business lines and
geographic regions in fiscal 2003 and 2002. This decline follows a 10-year period of double digit growth.
21
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
18-Jul-2003 22:36 EST
ˆ1VF=3Z2JVYPGJQGsŠ
2*
1C
1VF=3Z2JVYPGJQG
CLN
97534 TX 22
HTM
PMT
Page 1 of 2
The following tables summarize the results of our operations by business segment:
Fee revenue
Executive recruitment:
North America
Europe
Asia/Pacific
South America
Total executive recruitment
Futurestep
JobDirect
Total fee revenue
Reimbursed out-of-pocket engagement expenses
Fiscal Year Ended April 30,
2003
2002
2001
Dollars
%
Dollars
%
Dollars
%
(dollars in thousands)
$162,309 52% $195,522 52% $332,541 54%
78,990 25
33,523 11
2
7,616
92,098 24
37,546 10
3
10,794
131,980 21
9
52,146
3
16,382
282,438 90
32,674 10
335,960 89
40,079 11
1,386
533,049 87
76,335 12
1
4,683
315,112 100%
377,425 100%
23,354
29,310
614,067 100%
37,523
Total revenue
$338,466
$406,735
$651,590
Operating income (loss)
Executive recruitment:
North America
Europe
Asia/Pacific
South America
Total executive recruitment
Futurestep
JobDirect
Corporate(b)
Fiscal Year Ended April 30,
2003
2002
Dollars
Margin
Dollars
Margin
2001
Dollars
Margin
(dollars in thousands)
$ 17,422
224
2,039
(602)
11%
0
6
(8)
$
5,790
(7,656)
1,469
(752)
3%
(8)
4
(7)
$ 87,605
27,033
9,285
1,901
19,083
(9,856)
7
(30)
(22,531)
(0)
(94)
(1,149)
(37,784)
(38,169)
(28,535)
125,824
(26,023)
(11,249)
(33,479)
26%
20
18
12
24
(34)
Total operating income (loss)
$(13,304)
(4%)
$(105,637)
(28%)
$ 55,073
9%
Fiscal Year Ended April 30,
2003
2002
Dollars
Margin
Dollars
Margin
2001
Dollars
Margin
(dollars in thousands)
Operating income (loss) before asset impairment and
restructuring charges and goodwill amortization (a)
Executive recruitment:
North America
Europe
Asia/Pacific
South America
$ 23,173
5,567
2,351
(602)
14%
7
7
(8)
$ 33,863
(306)
3,315
(752)
17%
(0)
9
(7)
$ 93,358
28,899
9,571
1,901
28%
22
18
12
Total executive recruitment
30,489
11
36,120
11
133,729
25
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
18-Jul-2003 22:36 EST
ˆ1VF=3Z2JVYPGJQGsŠ
2*
1C
1VF=3Z2JVYPGJQG
CLN
97534 TX 22
HTM
PMT
Page 2 of 2
Futurestep
JobDirect
Corporate (b)
(4,481)
(14)
(23,031)
(38)
(15,361)
(5,833)
(27,360)
(31)
(23,983)
(9,668)
(33,479)
Total operating income (loss) before asset impairment
and restructuring charges and goodwill amortization
$ 2,977
1%
$ (12,434)
(3)%
$ 66,599
11%
(a) Operating income (loss) before asset impairment and restructuring charges and goodwill amortization are non-GAAP financial
measures and exclude asset impairment and restructuring charges of $16.3 million and $93.2 million in fiscal 2003 and 2002,
respectively, as follows: $5.8 million and $28.1 million in North
22
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY9G00G\Š
1*
0C
1VF=3Z2JVY9G00G
CLN
97534 TX 23
HTM
IFV
Page 1 of 1
America, $5.3 million and $7.4 million in Europe, $0.3 million and $1.8 million in Asia/Pacific, $5.4 million and $22.4 million
in Futurestep, $0 and $32.3 million in JobDirect and $(0.5) million and $1.2 million in Corporate, respectively. Goodwill
amortization was $11.5 million in fiscal 2001. The Company presents these amounts as alternative measures to the actual
amounts. The Company uses these amounts to analyze its operating results since it believes that asset impairment and
restructuring charges and goodwill amortization do not reflect, and make it difficult to compare, the Company’s ongoing
operations year over year.
(b) In the current year, we have presented the segment operating results to reflect our business segments without allocations of
corporate overhead. Accordingly, we have reclassified prior year operating results to reflect our segment operating results on the
same basis.
In the following comparative analysis, all percentages are calculated based on dollars in thousands.
Fiscal 2003 Compared to Fiscal 2002
Fee revenue
Fee revenue decreased $62.3 million, or 17%, to $315.1 million for fiscal 2003 from $377.4 million for fiscal 2002. The
decrease in fee revenue was primarily a result of a decrease in demand reflecting weakness in the global economy throughout fiscal
2003.
Executive recruitment—All geographic regions reported lower fee revenue in fiscal 2003 compared to the prior year. North
America experienced the largest decline in fee revenue of $33.2 million, or 17%, compared to prior fiscal year due to a 10% decrease
in the number of engagements and a slight decrease in average fees. Europe reported fee revenue of $79.0 million, a decline of $13.1
million, or 14%, compared to prior year driven by a 17% decrease in the number of engagements while average fees remained
constant.
Futurestep—Fee revenue decreased $7.4 million, or 18%, to $32.7 million in fiscal 2003 from $40.1 million in fiscal 2002 as we
changed the focus of this business to be multiple recruiting project oriented. Of the total decrease in fee revenue, Europe declined
$5.2 million, or 21%, and North America declined $2.3 million, or 23%. Fee revenue in Asia/Pacific remained fairly constant at $5.2
million in fiscal 2003.
JobDirect—In the third quarter of 2002, we decided to exit the college recruitment market and wind down JobDirect operations.
JobDirect reported fee revenue of $1.4 million through December 31, 2001, the close of business. In fiscal 2002, we recognized
impairment charges of $30.3 million and a restructuring charge of $2.0 million.
Compensation and Benefits
Compensation and benefits expense decreased $50.8 million, or 19%, to $223.2 million in fiscal 2003 from $274.0 million in
fiscal 2002. Executive recruitment compensation and benefits costs decreased $33.9 million, or 15%, in the current fiscal year
compared to the prior fiscal year. This decrease reflects a 13% reduction in our workforce in the current fiscal year and a 18%
decrease in executive recruitment bonus expense primarily due to the decline in fee revenue. Executive recruitment compensation and
benefits expense as a percentage of fee revenue remained constant at 66% in fiscal 2003 and 2002. Futurestep compensation and
benefits expense declined $10.7 million, or 30%, to $24.6 million in fiscal 2003 from $35.3 million in fiscal 2002 reflecting a 21%
decrease in Futurestep employees in the current fiscal year. As a percentage of fee revenue, Futurestep compensation and benefits
expense slightly declined from 88% in fiscal 2002 to 75% in fiscal 2003. Corporate compensation and benefits expense declined $2.9
million, or 19%, in the current fiscal year compared to the prior fiscal year. This decrease reflects a 24% reduction in our workforce in
the last half of the current fiscal year as well as gains recognized in the current fiscal year related to our Company Owned Life
Insurance policies (COLI).
23
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY9K1PGVŠ
1*
0C
1VF=3Z2JVY9K1PG
CLN
97534 TX 24
HTM
IFV
Page 1 of 1
General and Administrative Expenses
General and administrative expenses decreased $28.8 million, or 28%, to $73.1 million in fiscal 2003 from $101.9 million in
fiscal 2002. In executive recruitment, general and administrative expenses decreased $14.9 million, or 22%, primarily due to reduced
facility costs as well as reduced bad debt expenses. As a percentage of fee revenue, general and administrative expenses slightly
decreased to 19% in fiscal 2003 from 21% in fiscal 2002. Futurestep general and administrative expenses decreased $8.8 million, or
49%, mainly due to reduced office costs and professional and advertising expenses related to our ongoing cost reduction efforts. As a
percentage of fee revenue, Futurestep general and administrative expenses decreased to 28% in current fiscal year from 45% in the
prior fiscal year. Corporate general and administrative expenses decreased $1.5 million, or 13%, mainly due to the reduction of
professional costs.
Out-of-Pocket Engagement Expenses
Out-of-pocket engagement expenses are comprised of expenses incurred by candidates and our consultants that are generally
billed to clients. As a percentage of fee revenue, out-of-pocket engagement expenses remained constant at 7%.
Operating income (loss)
Operating loss decreased $92.3 million to $13.3 million in the current fiscal year from $105.6 million in the prior fiscal year.
Excluding restructuring and impairment charges of $16.3 million and $93.2 million in fiscal 2003 and 2002, respectively, operating
income increased $15.4 million to $3.0 million in fiscal 2003. Executive recruitment operating income, on this same basis, decreased
$5.6 million to $30.5 million in the current fiscal year from $36.1 million in the prior fiscal year. This decrease was primarily driven
by the decrease in fee revenue partially offset by a decline in general and administrative expense and compensation and benefits
expense. As a percentage of fee revenue, executive recruitment operating income was constant at 11%. Operating margins in North
America, Asia/Pacific and South America declined and Europe operating margin increased.
Futurestep operating losses improved from $37.8 million in fiscal 2002 to $9.9 million in fiscal 2003. Excluding asset
impairment and restructuring charges of $5.4 million in fiscal 2003 and $22.4 million in fiscal 2002, losses improved $10.9 million in
the current fiscal year reflecting the reduced general and administrative expenses and compensation and benefits costs discussed
above. The operating loss margin (excluding asset impairment and restructuring charges) improved to (14%) in fiscal 2003 compared
to fiscal 2002 reflecting the larger percentage decrease in costs compared to fee revenue.
Interest Income and Other Income, Net
Interest income and other income, net includes interest income of $1.5 million and $2.4 million in fiscal 2003 and 2002,
respectively. The decrease in interest income of $0.9 million is primarily due to lower average cash balances and lower interest rates
compared to the prior fiscal year. The decrease in other income is primarily due to lower investment losses recognized in the current
fiscal year.
Interest Expense
Interest expense increased $2.0 million in the current fiscal year to $10.5 million from $8.5 million in the prior fiscal year,
primarily due to interest on our convertible debt issued in June 2002 as well as an increase in the average outstanding borrowings on
the cash surrender value of COLI policies.
Provision for (Benefit From) Income Taxes
The provision for income taxes was $2.0 million in fiscal 2003 compared to a benefit of $12.3 million in fiscal 2002. The benefit
received in the prior year reflects tax savings primarily as a result of restructuring charges not duplicated in the current year. Although
we reported a pretax loss in the current period, certain
24
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL redel0cm
WLA
18-Jul-2003 08:43 EST
ˆ1VF=3Z2JVY9R4=G.Š
2*
1C
1VF=3Z2JVY9R4=G
CLN
97534 TX 25
HTM
PMT
Page 1 of 1
foreign subsidiaries reported pretax income resulting in foreign income tax expense. The effective tax rate was (9%) for fiscal 2003
and 11% for fiscal 2002.
Equity in Earnings of Unconsolidated Subsidiaries
Equity in earnings of unconsolidated subsidiaries is comprised of our less than 50% shareholder interest in our Mexico
subsidiaries. We report our interest in the earnings of the Mexico subsidiaries as a one-line adjustment to net income (loss). Equity in
earnings was $1.8 million in fiscal 2003 and $1.1 million in fiscal 2002.
Fiscal 2002 Compared to Fiscal 2001
Fee Revenue
Fee revenue decreased $236.6 million, or 39%, to $377.4 million in fiscal 2002 from $614.1 million in fiscal 2001. The decrease
in fee revenue was a result of a decrease in demand reflecting weakness in the global economy throughout fiscal 2002 compared to
the prior year.
Executive Recruitment—All geographic regions reported lower fee revenue in fiscal 2002 compared to the prior fiscal year.
North America experienced the largest decline in fee revenue of $137.0 million, or 41%, to $195.5 million in fiscal 2002, primarily
due to a 42% decrease in the number of engagements while average fees remained constant. Europe reported fee revenue of $92.1
million, a decline of $40.0 million, or 30%, compared to the prior fiscal year primarily driven by a 36% decrease in the number of
engagements while average fees increased slightly.
Futurestep—Fee revenue decreased $36.3 million, or 47%, to $40.1 million in fiscal 2002 from $76.3 million in fiscal 2001
across all geographic regions. Of the total decrease in fee revenue, North America declined $16.1 million, or 62%, Europe declined
$15.8 million, or 39%, and Asia/Pacific declined $4.4 million, or 46%.
JobDirect—In the third quarter of 2002, we decided to exit the college recruitment market and wind down JobDirect operations.
JobDirect reported fee revenue of $1.4 million through December 31, 2001, the close of business, compared to $4.7 million in fiscal
2001. In fiscal 2002, we recognized impairment charges of $30.3 million and a restructuring charge of $2.0 million.
Compensation and Benefits
Compensation and benefits expense decreased $109.3 million, or 29%, to $274.0 million in fiscal 2002 from $383.3 million in
fiscal 2001. Executive recruitment compensation and benefits expense decreased $83.9 million, or 28%, in fiscal 2002 compared to
fiscal 2001. This decrease reflects a 30% reduction in our workforce in the last half of fiscal 2002 and a 54% decrease in executive
recruitment bonus expense primarily due to the decline in fee revenue. Executive recruitment compensation and benefits expense as a
percentage of fee revenue increased to 66% in fiscal 2002 from 57% in fiscal 2001 primarily due to the decrease in fee revenue offset
by a decrease in bonuses. Futurestep compensation and benefits expense declined $18.6 million, or 34%, compared to the prior fiscal
year reflecting a 42% decrease in employees in the last half of fiscal 2002, largely in the United States. Corporate compensation and
benefits expenses decreased $3.5 million, or 19%, to $15.1 million in fiscal 2002 from $18.6 million in fiscal 2001, primarily related
to the decrease in bonus expense.
General and Administrative Expenses
General and administrative expenses decreased $47.7 million, or 32%, to $101.9 million in fiscal 2002 from $149.7 million in
fiscal 2001. In executive recruitment, general and administrative expenses decreased $20.1 million, or 23%, due to a reduction of bad
debt expenses, professional fees and reduced facilities costs resulting from the restructuring initiatives. As a percentage of fee
revenue, executive recruitment general and administrative expenses increased to 21% in fiscal 2002 from 17% in fiscal 2001.
Futurestep general and
25
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY9V6NG1Š
1*
0C
1VF=3Z2JVY9V6NG
CLN
97534 TX 26
HTM
IFV
Page 1 of 1
administrative expenses decreased $22.5 million, or 56%, mainly due to a reduction of advertising expenses, professional fees and
bad debt expenses. Futurestep general and administrative expenses as a percentage of fee revenue decreased to 45% in fiscal 2002
from 53% in the prior fiscal year. Corporate general and administrative expenses decreased $1.5 million, or 11%, to $11.5 million in
fiscal 2002 from $12.9 million in fiscal 2001, primarily due to reduced professional and facilities costs.
Out-of-Pocket Engagement Expenses
Out-of-pocket engagement expenses are comprised of expenses incurred by candidates and our consultants that are generally
billed to clients. As a percentage of fee revenue, out-of-pocket engagement expenses slightly increase to 7% in fiscal 2002 from 6%
in the prior year.
Operating income (loss)
Operating income decreased $160.7 million in fiscal 2002, to a loss of $105.6 million from a profit of $55.1 million in fiscal
2001. Excluding asset impairment and restructuring charges of $93.2 million in fiscal 2002 and goodwill amortization of $11.5
million in fiscal 2001, operating income decreased $79.0 million to a loss of $12.4 million in fiscal 2002. Executive recruitment
operating income, on this same basis, decreased to $36.1 million, or 11% of fee revenue, from $133.7 million, or 25% of fee revenue,
in fiscal 2001. This decrease was driven primarily by the decrease in fee revenue partially offset by a decline in general and
administrative expense and compensation and benefits expense. Operating income declined in each region within executive
recruitment with the largest dollar decreases in North America and Europe and margin decreases in Europe and South America.
Futurestep operating losses increased from $26.0 million in fiscal 2001 to $37.8 million in fiscal 2002, primarily as a result of
decreased fee revenue and asset impairment and restructuring charges of $22.4 million in fiscal 2002. Excluding these restructuring
charges and goodwill amortization in fiscal 2001 of $2.0 million, Futurestep operating loss improved $8.6 million, or 36%, reflecting
the reduced compensation and benefits costs and general and administrative expenses discussed above. The operating loss margin
however, excluding these charges, declined in fiscal 2002 from fiscal 2001 reflecting the larger percentage decrease in fee revenue
compared to costs.
Interest Income and Other Income, Net
Interest income and other income, net includes interest income of $2.4 million and $4.4 million in fiscal 2002 and 2001,
respectively. The decrease in interest income of $2.0 million is primarily due to lower average cash and marketable securities
balances and lower interest rates in fiscal 2002. The slight increase in other income is primarily due to lower losses on the disposal of
property in fiscal 2002 compared to fiscal 2001.
Interest Expense
Interest expense increased $1.1 million to $8.5 million in fiscal 2002 from $7.4 million in fiscal 2001. The increase is a result of
increased average borrowings under our previous line of credit and an increase in the effective interest rate in fiscal 2002.
Provision for (Benefit From) Income Taxes
The benefit from income taxes was $12.3 million in fiscal 2002 compared to a provision of $22.4 million in fiscal 2001. The
effective tax rate was 11% for fiscal 2002 and 43% for fiscal 2001.
Equity in Earnings of Unconsolidated Subsidiaries
Equity in earnings of unconsolidated subsidiaries is comprised of our less than 50% shareholder interest in our Mexico
subsidiaries. We report our interest in the earnings of the Mexico subsidiaries as a one-line
26
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
18-Jul-2003 22:37 EST
ˆ1VF=3Z2JVYPRPPGiŠ
2*
1C
1VF=3Z2JVYPRPPG
CLN
97534 TX 27
HTM
PMT
Page 1 of 1
adjustment to net income (loss). The decrease in equity in earnings of $0.6 million to $1.1 million in fiscal 2002 from $1.7 million in
fiscal 2001 is primarily due to lower fee revenue in fiscal 2002.
Liquidity and Capital Resources
In June 2002, we closed a $50.0 million private placement with Friedman, Fleischer & Lowe, a San Francisco based private
equity firm, comprised of $40.0 million 7.5% Convertible Subordinated Notes, $10.0 million 7.5% Convertible Series A Preferred
Stock and warrants to purchase 272,727 shares of our common stock at an exercise price of $12 per share. Interest and dividends are
payable semi-annually in either additional notes and preferred stock or cash, at our option, except for the first two years from the date
of issuance during which 1% must be paid in cash. The notes and preferred stock are convertible into shares of our common stock at
$10.25 per share which, if converted, would represent 4.9 million shares or 11.4% of our outstanding common stock. In December
2002, we paid $0.3 million of interest and dividends in cash.
We obtained a $30.0 million Senior Secured Revolving Credit Facility in February 2003. The total amount available for
borrowing is limited based on certain accounts receivable balances. The credit facility is secured by substantially all of our assets
including certain accounts receivable balances and guarantees by and pledges of the capital stock of our significant subsidiaries. We
are required to meet certain financial condition covenants on a quarterly basis. As of April 30, 2003, we had no outstanding balance
on our credit facility. We had an available borrowing capacity of $15.7 million as of April 30, 2003, of which $5.7 million was
assigned to letters of credit.
We believe that cash on hand, the credit facility and funds from operations will be sufficient to meet our anticipated working
capital, capital expenditures and general corporate requirements. However, adverse changes in our fee revenue could require us to
further cut costs or obtain financing to meet our cash needs.
The following table sets forth our obligations and commitments to make future payments under contracts and other
commitments. In addition to the amounts set forth below, we have contingent commitments under certain employment agreements
that are payable only upon termination of employment.
Contractual Obligations
Lease commitments
Long-term debt
The following table presents selected financial information:
Cash and cash equivalents
Working capital
Total long-term debt
Payments due by period
Total
2004
2005-
2006
2007-
2008
After 2008
$88,546
46,463
(dollars in thousands)
$32,075
$20,025
$21,400
5,099
$ 15,046
41,364
As of April 30,
2003
2002
2001
(dollars in thousands)
$82,685 $66,128 $85,661
72,673 25,610 51,211
41,364 1,634 11,842
The increase in our working capital of $47.1 million in fiscal 2003 compared to the prior fiscal year is primarily due to the
increase in cash as a result of the issuance of our convertible securities and the elimination of our previous credit facility borrowings
in the current year. Changes in other current assets, primarily a decrease in receivables of $8.2 million and a decrease of $17.5 million
primarily related to income tax receivables, were offset by changes in other current liabilities, primarily a decrease in notes payable of
$7.7 million, a decrease in compensation and benefits payable of $2.0 million and a decrease in other accrued liabilities of $8.9
million. The decrease in working capital of $25.6 million in fiscal 2002 compared to fiscal 2001 was primarily due to a decrease in
cash as a result of operating losses and restructuring costs paid in fiscal 2002.
27
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
18-Jul-2003 22:38 EST
ˆ1VF=3Z2JVYQ6YZG%Š
2*
1C
1VF=3Z2JVYQ6YZG
CLN
97534 TX 28
HTM
PMT
Page 1 of 1
Cash provided by operating activities was $24.5 million in fiscal 2003. In fiscal 2002, cash used by operating activities was
$59.5 million primarily as a result of a $93.2 million restructuring charge. Cash provided by operating activities was $63.8 million in
fiscal 2001.
Cash used by investing activities was $10.4 million for fiscal 2003, $2.5 million for fiscal 2002 and $55.7 million for fiscal
2001. In fiscal 2003, cash used in investing activities was comprised of $6.9 million of premiums on COLI and $3.5 million of capital
expenditures. In fiscal 2002, cash used by investing activities was comprised of capital expenditures of $8.5 million and premiums on
COLI of $9.5 million offset by $16.4 million received from the sale of marketable securities. In fiscal 2001, cash used by investing
activities primarily included $44.5 million for business acquisitions, $12.6 million for the purchase of equity investments and $33.9
million of capital expenditures offset by net sales of marketable securities of $61.1 million.
Capital expenditures totaled $3.5 million, $8.5 million and $33.9 million for fiscal 2003, 2002 and 2001, respectively. These
expenditures primarily consisted of systems hardware and software costs, upgrades to information systems and leasehold
improvements. The decrease in fiscal 2003 of $5.0 million compared to fiscal 2002 and the decrease of $25.4 million in fiscal 2002
over fiscal year 2001, reflects our reduced spending efforts.
Cash provided by (used in) financing activities was $5.6 million, $44.1 million and ($2.3) million in fiscal 2003, 2002 and 2001,
respectively. In fiscal 2003, we received proceeds of $45.6 million from the issuance of convertible securities and paid our net
outstanding borrowings of $39.0 million from our previous credit facility. In addition, we made payments on shareholder acquisition
notes of $9.5 million and received funds from borrowings under COLI policies, primarily for the related premiums, of $8.7 million. In
fiscal 2002, we had net borrowings of $39.0 million on our previous credit facility and $11.7 million on our COLI policies offset by
payments on shareholder acquisition notes of $9.4 million. In fiscal 2001, we made payments of $14.2 million on shareholder
acquisition notes and received proceeds from the issuance of common stock of $10.3 million, including proceeds from stock options
exercised of $5.9 million.
Total outstanding borrowings under COLI policies were $66.5 million, $59.9 million and $47.9 million as of April 30, 2003,
2002 and 2001, respectively. Generally, we borrow under our COLI policies to pay related premiums. Such borrowings do not require
principal payments, bear interest at primarily variable rates and are secured by the cash surrender value of the life insurance policies
of $119.7 million, $112.9 million and $102.3 million as of April 30, 2003, 2002 and 2001, respectively. At April 30, 2003, the net
cash value of these policies was $53.2 million of which $44.0 million is held in trust limiting our ability to borrow to pay premiums
on these policies.
Quarterly Results
The following table sets forth certain unaudited statement of operations data for the quarters in fiscal 2003 and 2002. The
unaudited quarterly information has been prepared on the same basis as the annual financial statements and, in management’s
opinion, includes all adjustments necessary to present fairly the information for the quarters presented.
Quarters Ended
Fiscal 2003
Fiscal 2002(1)
July 31
Oct. 31(1)
Jan. 31
April 30
July 31
Oct. 31
Jan. 31
April 30
(dollars in thousands, except per share amounts)
$83,950 $ 79,572 $75,536 $76,054 $105,535 $ 99,260 $86,698
(3,482)
1,142
(7,253)
(1,743)
(54,783)
(46,859)
(15,939)
(18,017)
(36,752)
(30,867)
183
(2,559)
1,310
(583)
$ 85,932
(10,620)
(13,272)
(708)
(18,259)
(2,804)
(1,984)
(46,859)
(30,867)
(7,253)
(13,272)
(0.02)
(0.02)
(0.48)
(0.48)
(0.07)
(0.07)
(0.05)
(0.05)
(1.25)
(1.25)
(0.82)
(0.82)
(0.19)
(0.19)
(0.35)
(0.35)
Fee revenue
Operating income (loss)
Net loss(2)
Net loss attributed to common
shareholders
Net loss per share
Basic
Diluted
(1) We recognized asset impairment and restructuring charges of $16,281 in the second quarter of 2003 comprised of (a) $5,273 of
severance restructuring costs, (b) $11,788 of facilities restructuring costs,
28
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:57 EST
ˆ1VF=3Z2JVYB3CMGYŠ
1*
0C
1VF=3Z2JVYB3CMG
CLN
97534 TX 29
HTM
IFV
Page 1 of 1
(c) $798 related to the write-down of related assets, primarily property and equipment, offset by (d) a gain of $1,578 related to a
litigation settlement of a former subsidiary. We recognized asset impairment and restructuring charges of $49,428, $34,839, $0,
and $8,936 in fiscal quarters of 2002, respectively, comprised of (a) $42,926 of goodwill impairment charges, (b) $15,053 for
the impairment of other assets, primarily property and equipment and other investments, (c) $19,102 of severance restructuring
costs, and (d) $16,122 of facilities restructuring costs.
(2) Net income (loss), excluding asset impairment and restructuring charges would have been ($1,736) for the second quarter of
fiscal 2003 and $2,616, $1,536, $7,253 and $4,336 for fiscal 2002, respectively.
Recently Issued Accounting Standards
In May 2002, we adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement
replaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” The
adoption of SFAS No. 144 did not have an impact on our financial position or results of our operations.
In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This
statement requires that a liability for costs associated with an exit or disposal activity, including certain restructuring costs, be
recognized and measured initially at fair value when the liability is incurred. Previously, these liabilities were recognized at the date
an entity committed to a plan and measurement at fair value was not required. This statement is effective prospectively for exit and
disposal activities initiated after December 31, 2002. The adoption of this statement did not have a significant impact on our financial
position or results of our operations.
In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities”, effective as of the
first interim period beginning after June 15, 2003. The impact upon adoption of this standard is not expected to have a material impact
on the results of our operations or our financial position.
In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity.” This Statement establishes standards for classifying and measuring as liabilities certain financial instruments
that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS No. 150 is effective at the
beginning of the first interim period beginning after June 15, 2003; including all financial instruments created or modified after May
31, 2003. This Statement requires mandatorily redeemable instruments be classified as liabilities. The Company will adopt this
Statement in the first quarter of fiscal 2004, and our convertible mandatorily redeemable preferred stock will be classified as a
liability.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a result of our global operating activities, we are exposed to certain market risks, including foreign currency exchange
fluctuations, fluctuations in interest rates and variability in interest rate spread relationships. We manage our exposure to these risks in
the normal course of our business as described below. We have not utilized financial instruments for trading or other speculative
purposes nor do we trade in derivative financial instruments.
Foreign Currency Risk
Generally, financial results of our foreign subsidiaries are measured in their local currencies. Assets and liabilities are translated
into U.S. dollars at the rates of exchange in effect at the end of each year and revenue and expenses are translated at average rates of
exchange during the year. Resulting translation adjustments are reported as a component of comprehensive income.
29
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:57 EST
ˆ1VF=3Z2JVYB9GYGHŠ
1*
0C
1VF=3Z2JVYB9GYG
CLN
97534 TX 30
HTM
IFV
Page 1 of 1
Financial results of foreign subsidiaries in countries with highly inflationary economies are measured in U.S. dollars. The
financial statements of these subsidiaries are translated using a combination of current and historical rates of exchange and any
translation adjustments are included in determining net income.
Historically, we have not realized any significant translation gains or losses on transactions involving U.S. dollars and other
currencies. This is primarily due to natural hedges of revenue and expenses in the functional currencies of the countries in which our
offices are located and investment of excess cash balances in U.S. dollar denominated accounts. In fiscal 2003, 2002 and 2001, we
recognized foreign currency (gains) losses, after income taxes, of ($0.3) million, ($0.2) million and $0.6 million, respectively,
primarily related to our Europe operations. Realization of translation gains or losses due to the translation of inter-company payables
denominated in U.S. dollars is mitigated through the timing of repayment of these inter-company borrowings.
Interest Rate Risk
We primarily manage our exposure to fluctuations in interest rates through our regular financing activities that generally are
short term and provide for variable market rates. As of April 30, 2003, we had no outstanding balance on our credit facility. We have
$66.5 million of borrowings against the cash surrender value of COLI contracts as of April 30, 2003 bearing interest primarily at
variable rates payable at least annually.
We have notes payable due to shareholders of $5.1 million resulting from business acquisitions in fiscal 2000 and 2001, at rates
ranging from 5.2% to 7.0%. In June 2002, we issued $40.0 million of 7.5% Convertible Debt and $10.0 million of 7.5% Convertible
Preferred Stock that is mandatorily redeemable by us if outstanding on June 13, 2010. The Convertible Debt approximates fair value
at April 30, 2003.
Item 8. Financial Statements and Supplementary Data
See Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
30
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
Item 10. Directors and Executive Officers of the Registrant
PART III.
18-Jul-2003 06:57 EST
ˆ1VF=3Z2JVYBDJLG=Š
1*
0C
1VF=3Z2JVYBDJLG
CLN
97534 TX 31
HTM
IFV
Page 1 of 1
The information required by this Item will be included under the captions “The Board of Directors,” “Nominees for Director—
Class 2004,” “Nominees for Director—Class 2005,” “Nominees for Directors—Class 2006” and “Section 16(a) Beneficial Ownership
Reporting Compliance” in our fiscal 2003 Proxy Statement, and is incorporated herein by reference. See also “Executive Officers of
the Registrant” in Part I of this report.
Item 11. Executive Compensation
The information required by this Item will be included under the captions “Executive Compensation—Summary Compensation
Table,” “Executive Compensation—Option Grant Table,” “Executive Compensation—Aggregated Option Exercises and Year-end
Option Values” and “Employment Agreements” in our fiscal 2003 Proxy Statement, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item will be included under the caption “Security Ownership of Certain Beneficial Owners and
Management” in our fiscal 2003 Proxy Statement, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this Item will be included under the caption “Certain Relationships and Related Transactions” in
our fiscal 2003 Proxy Statement, and is incorporated herein by reference.
Item 14. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Based on their evaluation of our disclosure controls and procedures conducted within 90 days of the date of filing this report on
Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as
defined in rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934) are effective.
(b) Changes in Internal Controls
There were no significant changes in our internal controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.
31
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL redel0cm
WLA
PART IV.
18-Jul-2003 08:45 EST
ˆ1VF=3Z2JVYBPPKG?Š
3*
1C
1VF=3Z2JVYBPPKG
CLN
97534 TX 32
HTM
PMT
Page 1 of 1
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT.
1. Index to Financial Statements:
See Consolidated Financial Statements included as part of this Form 10-K
2. Financial Statement Schedules
Schedule II—Valuation and Qualifying Accounts
3. Exhibits:
Exhibit
Number
Description of Exhibit
Page
F-1
F-32
3.1
3.2
3.3
4.1
4.2
4.3
4.4
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.
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.
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.
Form of Common Stock Certificate of the Company, filed as Exhibit 4.1 to the Company’s Registration Statement on
Form S-3 (No. 333-49286), and incorporated herein by reference.
Form of 7.5% Convertible Subordinated Note Due 2010, filed as Exhibit 4.1 to the Company’s Current Report on
Form 8-K, dated June 18, 2002, and incorporated herein by reference.
Form of Stock Purchase Warrant, filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K, dated June 18,
2002, and incorporated herein by reference.
Subordination Agreement, dated as of June 13, 2002, made by Korn/Ferry International, a Delaware corporation,
Friedman Fleischer & Lowe Capital Partners, L.P., a Delaware limited partnership, and FFL Executive Partners,
L.P., a Delaware limited partnership in favor of Bank of America, N.A., filed as Exhibit 4.3 to the Company’s
Current Report on Form 8-K, dated June 18, 2002, and incorporated herein by reference.
10.1*
Form of Indemnification Agreement between the Company and some of its executive officers and directors, filed as
Exhibit 10.1 to the Company’s Registration Statement on Form S-1 (No. 333-61697), effective February 10, 1999,
and incorporated herein by reference.
10.2*
Form of U.S. and International Worldwide Executive Benefit Retirement Plan, filed as Exhibit 10.3 to the
Company’s Registration Statement of Form S-1 (No. 333-61697), effective February 10, 1999, and incorporated
herein by reference.
10.3*
Form of U.S. and International Worldwide Executive Benefit Life Insurance Plan, filed as Exhibit 10.4 to the
Company’s Registration Statement on Form S-1 (No. 333-61697), effective February 10, 1999, and incorporated
herein by reference.
10.4*
Worldwide Executive Benefit Disability Plan (in the form of Long-Term Disability Insurance Policy), filed as
Exhibit 10.5 to the Company’s Registration Statement on Form S-1 (No. 333-61697), effective February 10, 1999,
and incorporated herein by reference.
10.5*
Form of U.S. and International Enhanced Executive Benefit and Wealth Accumulation Plan, filed as Exhibit 10.6 to
the Company’s Registration Statement on Form S-1 (No. 333-61697), effective February 10, 1999, and
incorporated herein by reference.
32
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
18-Jul-2003 22:39 EST
ˆ1VF=3Z2JVYQJ2YGAŠ
2*
1C
1VF=3Z2JVYQJ2YG
CLN
97534 TX 33
HTM
PMT
Page 1 of 1
Exhibit
Number
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18
10.19*
Description of Exhibit
Form of U.S. and International Senior Executive Incentive Plan, filed as Exhibit 10.7 to the Company’s Registration
Statement on Form S-1 (No. 333-61697), effective February 10, 1999, and incorporated herein by reference.
Executive Salary Continuation Plan, filed as Exhibit 10.8 to the Company’s Registration Statement on Form S-1 (No.
333-61697), effective February 10, 1999, and incorporated herein by reference.
Form of Amended and Restated Stock Repurchase Agreement, filed as Exhibit 10.10 to the Company’s Registration
Statement on Form S-1 (No. 333-61697), effective February 10, 1999, and incorporated herein by reference.
Form of Standard Employment Agreement, filed as Exhibit 10.11 to the Company’s Registration Statement on Form
S-1 (No. 333-61697), effective February 10, 1999, and incorporated herein by reference.
Form of U.S. and Foreign Executive Participation Program, filed as Exhibit 10.27 to the Company’s Registration
Statement on Form S-1 (No. 333-61697), effective February 10, 1999, and incorporated herein by reference.
Employment Agreement between the Company and Paul C. Reilly, dated May 24, 2001, filed as Exhibit 10.14 to the
Company’s Annual Report on Form 10-K, dated July 30, 2001, and incorporated herein by reference.
Amendment to Employment Agreement between the Company and Paul C. Reilly, dated December 1, 2001, filed as
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, dated December 17, 2001, and incorporated
herein by reference.
Second Amendment to Employment Agreement between the Company and Paul C. Reilly, dated July 1, 2003.
Letter from the Company to Paul C. Reilly, dated June 6, 2001, filed as Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q, dated December 17, 2001, and incorporated herein by reference.
Employment Agreement between the Company and Windle B. Priem, dated June 30, 2001, filed as Exhibit 10.1 to
the Company’s Quarterly Report on Form 10-Q, dated September 14, 2001, and incorporated herein by reference.
Employment Agreement between the Company and Gary C. Hourihan effective March 6, 2000, filed as Exhibit 10.22
to the Company’s Annual Report on Form 10-K, dated July 31, 2000 and incorporated herein by reference.
Korn/Ferry International Special Severance Pay Policy, dated January 1, 2000, filed as Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q, dated March 19, 2001 and incorporated herein by reference.
Loan agreement, dated as of February 14, 2003, among Korn/Ferry International, the lenders thereto and Wells Fargo
Bank, N.A. as administrative agent, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, dated
March 17, 2003, and incorporated herein by reference.
Performance Award Plan, filed as Exhibit 10.2 to the Company’s Registration Statement on Form S-1 (No. 333-
61697), effective February 10, 1999, and incorporated herein by reference.
10.20*
Amendments to Performance Award Plan, filed as Exhibit 10.4 on the Company’s Annual Report on Form 10-K,
dated July 30, 2001, and incorporated herein by reference.
10.21*
Amendments to Performance Award Plan, filed as Exhibit 10.25 to the Company’s Annual Report on Form 10-K,
dated July 29, 2002, and incorporated herein by reference.
10.22*
Amendments to Performance Award Plan.
33
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
18-Jul-2003 22:40 EST
ˆ1VF=3Z2JVYQT7XGÉŠ
2*
1C
1VF=3Z2JVYQT7XG
CLN
97534 TX 34
HTM
PMT
Page 1 of 1
Exhibit
Number
10.23
10.24*
10.25*
Description of Exhibit
Investor Rights Agreement, dated as of June 13, 2002, by and among Korn/Ferry International, a Delaware
corporation, Friedman Fleischer & Lowe Capital Partners, L.P., a Delaware limited partnership, and FFL
Executive Partners, L.P., a Delaware limited partnership, filed as Exhibit 10.1 to the Company’s Current Report
on Form 8-K, dated June 18, 2002, and incorporated herein by reference.
Letter from the Company to James E. Boone, dated February 28, 1995, filed as an Exhibit 10.27 to the Company’s
Amended Annual Report on Form 10-K/A, dated August 12, 2002, and incorporated herein by reference.
Employment Agreement between the Company and James E. Boone, dated May 1, 1995, filed as an Exhibit 10.28
to the Company’s Amended Annual Report on Form 10-K/A, dated August 12, 2002, and incorporated herein
by reference.
10.26*
Letter from Korn/Ferry International Futurestep, Inc. to Robert H. McNabb, dated December 3, 2001, filed as an
Exhibit 10.29 to the Company’s Amended Annual Report on Form 10-K/A, dated August 12, 2002, and
incorporated herein by reference.
10.27*
Letter from the Company to Robert H. McNabb, dated November 29, 2001, filed as an Exhibit 10.30 to the
Company’s Amended Annual Report on Form 10-K/A, dated August 12, 2002, and incorporated herein by
reference.
Employment Agreement between the Company and Robert H. McNabb, dated December 7, 2001, filed as an
Exhibit 10.31 to the Company’s Amended Annual Report on Form 10-K/A, dated August 12, 2002, and
incorporated herein by reference.
Employee Stock Purchase Plan.
Subsidiaries of Korn/Ferry International.
Consent of Ernst & Young, LLP, Independent Auditors.
Power of Attorney (contained on signature page).
10.28*
10.29**
21.1
23.1
24.1
Management contract, compensatory plan or arrangement.
*
** The Employee Stock Purchase Plan is subject to stockholder approval at our annual meeting to be held September 10, 2003.
(b) REPORTS ON FORM 8-K.
On June 19, 2003, we furnished to the Securities and Exchange Commission a Current Report on Form 8-K which contains
information required under “Item 12. Results of Operations and Financial Condition.” The Current Report on Form 8-K includes a
copy of our press release dated June 18, 2003, reporting our results of operations and financial condition for fiscal fourth quarter and
year-ended April 30, 2003.
34
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL redel0cm
WLA
SIGNATURES
18-Jul-2003 08:30 EST
ˆ1VF=3Z2JVYC1X5GtŠ
2*
1C
1VF=3Z2JVYC1X5G
CLN
97534 TX 35
HTM
PMT
Page 1 of 1
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
KORN/FERRY INTERNATIONAL
By:
/s/ GARY D. BURNISON
Gary D. Burnison
Chief Financial Officer and
Executive Vice President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and directors of the Registrant hereby
constitutes and appoints Peter L. Dunn and Gary D. Burnison, and each of them, as lawful attorney-in-fact and agent for each of the
undersigned (with full power of substitution and resubstitution, for and in the name, place and stead of each of the undersigned
officers and directors), to sign and file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended, any and all amendments, supplements and exhibits to this report and any and all other documents in connection therewith,
hereby granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing
necessary or desirable to be done in order to effectuate the same as fully and to all intents and purposes as each of the undersigned
might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or
any of their substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ PAUL C. REILLY
Paul C. Reilly
Chairman of the Board and Chief Executive
Officer
Date
July 18, 2003
/s/ GARY D. BURNISON
Chief Financial Officer,
July 18, 2003
Gary D. Burnison
and Executive Vice President (Principal
Financial Officer)
/s/ JAMES E. BARLETT
Director
James E. Barlett
/s/ FRANK V. CAHOUET
Director
Frank V. Cahouet
/s/ SPENCER C. FLEISCHER
Director
Spencer C. Fleischer
/s/ SAKIE FUKUSHIMA
Director
Sakie Fukushima
35
July 18, 2003
July 18, 2003
July 18, 2003
July 18, 2003
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:57 EST
ˆ1VF=3Z2JVYC4YVGpŠ
1*
0C
1VF=3Z2JVYC4YVG
CLN
97534 TX 36
HTM
IFV
Page 1 of 1
Signature
Title
/s/ PATTI S. HART
Director
Patti S. Hart
/s/ DAVID L. LOWE
Director
David L. Lowe
/s/ CHARLES D. MILLER
Director
Charles D. Miller
/s/ EDWARD D. MILLER
Director
Edward D. Miller
/s/ GERHARD SCHULMEYER
Director
Gerhard Schulmeyer
/s/ MARK THOMPSON
Director
Mark Thompson
36
Date
July 18, 2003
July 18, 2003
July 18, 2003
July 18, 2003
July 18, 2003
July 18, 2003
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
CERTIFICATIONS
18-Jul-2003 06:57 EST
ˆ1VF=3Z2JVYC7=HGgŠ
1*
0C
1VF=3Z2JVYC7=HG
CLN
97534 TX 37
HTM
IFV
Page 1 of 1
I, Paul C. Reilly, certify that:
1.
I have reviewed this annual report on Form 10-K of Korn/Ferry International;
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material
2.
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report; and
3.
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this annual report;
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a)
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
annual report is being prepared;
b)
evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the “Evaluation Date”); and
c)
presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors
and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a)
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s
ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material
weaknesses in internal controls; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal controls; and
6.
The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes
in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
By:
Name:
Title:
/s/ PAUL C. REILLY
Paul C. Reilly
Chairman and Chief Executive Officer
Date: July 18, 2003
37
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:57 EST
ˆ1VF=3Z2JVYCC14GxŠ
1*
0C
1VF=3Z2JVYCC14G
CLN
97534 TX 38
HTM
IFV
Page 1 of 1
I, Gary D. Burnison, certify that:
1.
I have reviewed this annual report on Form 10-K of Korn/Ferry International;
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material
2.
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report; and
3.
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this annual report;
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a)
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
annual report is being prepared;
b)
evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the “Evaluation Date”); and
c)
presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors
and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a)
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s
ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material
weaknesses in internal controls; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal controls; and
6.
The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes
in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
By:
/s/ GARY D. BURNISON
Name:
Title: Chief Financial Officer and Executive Vice President
Gary D. Burnison
Date: July 18, 2003
38
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
18-Jul-2003 23:36 EST
ˆ1VF=3Z2JVY=Z6XGKŠ
2*
1C
1VF=3Z2JVY=Z6XG
CLN
97534 FIN 1
HTM
PMT
Page 1 of 1
INDEX TO FINANCIAL STATEMENTS
Reports of Independent Auditors and Independent Public Accountants
Consolidated Balance Sheets as of April 30, 2003 and 2002
Consolidated Statements of Operations for the three years ended April 30, 2003.
Consolidated Statements of Shareholders’ Equity for the three years ended April 30, 2003
Consolidated Statements of Cash Flows for the three years ended April 30, 2003
Notes to Consolidated Financial Statements
Schedule II—Valuation and Qualifying Accounts
INDEX TO FINANCIAL STATEMENT SCHEDULE
F-2
F-5
F-6
F-7
F-8
F-9
F-32
Note: All other schedules have been omitted since the required information is not present or not present in amounts sufficient to
require submission of the schedule.
F-1
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY54PHG9Š
1*
0C
1VF=3Z2JVY54PHG
CLN
97534 FIN 2
HTM
IFV
Page 1 of 1
Shareholders and Board of Directors
Korn/Ferry International
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheets of KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
(the “Company”), as of April 30, 2003 and 2002, and the related consolidated statements of operations, shareholders’ equity and cash
flows for the two years then ended. Our audit also included the financial statement schedule for the two years ended April 30, 2003
included in the index at Item 15 (a). The consolidated financial statements and schedule of the Company for the year ended April 30,
2001, included in the index at Item 15 (a), were audited by other auditors whose report dated June 11, 2001, expressed an unqualified
opinion on those statements and schedule prior to the restatement described in Note 15. These financial statements and schedule are
the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of KORN/FERRY INTERNATIONAL AND SUBSIDIARIES as of April 30, 2003 and 2002 and the consolidated
results of their operations and their cash flows for the two years then ended, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed above, the consolidated financial statements of the Company for the year ended April 30, 2001, were audited by
other auditors who have ceased operations. As described in Note 15, these consolidated financial statements have been restated to
reflect the Company’s investment in its Mexico subsidiaries on the equity method of accounting. Previously, these subsidiaries were
included in the consolidated financial statements as consolidated subsidiaries. We audited the adjustments that were applied to restate
the disclosures reflected in Note 15 with respect to fiscal 2001, and the adjustments that were applied to the schedule for the year
ended April 2001. Our procedures principally consisted of the following: (i) examining evidence of the appropriateness of the equity
method of accounting for the investment in the Mexico subsidiaries, (ii) agreeing the adjustment amounts for Mexico subsidiaries to
the Company’s consolidating financial statements obtained from management and (iii) testing the mathematical accuracy in
computing the restated consolidated financial statement amounts reflected in Note 15. In our opinion, such adjustments are
appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the fiscal
2001 consolidated financial statements and schedule of the Company other than with respect to such adjustments and, accordingly, we
do not express an opinion or any other form of assurance on the fiscal 2001 consolidated financial statements and schedule taken as a
whole.
/s/ ERNST & YOUNG LLP
Los Angeles, California
May 27, 2003, except Note 6 which date is June 2, 2003
F-2
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY699CGDŠ
1*
0C
1VF=3Z2JVY699CG
CLN
97534 FIN 3
HTM
IFV
Page 1 of 1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Korn/Ferry International:
We have audited the accompanying consolidated balance sheets of KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
(the “Company”), a Delaware corporation, as of April 30, 2001 and 2000, and the related consolidated statements of operations,
shareholders’ equity and cash flows for each of the three years in the period ended April 30, 2001. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES as of April 30, 2001 and 2000, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended April 30, 2001, in conformity with accounting
principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Los Angeles, California
June 11, 2001
THIS IS A COPY OF AN ACCOUNTANTS’ REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP. THIS
REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. THE FINANCIAL STATEMENTS REFERRED
TO IN THIS REPORT HAVE BEEN RESTATED SUBSEQUENT TO THE DATE OF THE REPORT TO ACCOUNT FOR
KORN/FERRY INTERNATIONAL’S INVESTMENT IN ITS MEXICO SUBSIDIARIES UNDER THE EQUITY METHOD
INSTEAD OF THE CONSOLIDATION METHOD. (SEE NOTE 15). THE RESTATEMENT ADJUSTMENTS HAVE
BEEN REPORTED ON BY ERNST & YOUNG LLP.
WE WILL NOT BE ABLE TO OBTAIN THE WRITTEN CONSENT OF ARTHUR ANDERSEN LLP FOR ANY
REGISTRATION STATEMENT WE MAY FILE AS REQUIRED BY SECTION 7 OF THE SECURITIES ACT.
ACCORDINGLY, INVESTORS WILL NOT BE ABLE TO SUE ARTHUR ANDERSEN LLP PURSUANT TO SECTION 11
(a)(4) OF THE SECURITIES ACT RELATING TO THOSE REGISTRATION STATEMENTS AND THEREFORE MAY
HAVE THEIR RECOVERY LIMITED AS A RESULT OF THE LACK OF CONSENT. THE ABILITY OF INVESTORS
TO RECOVER FROM ARTHUR ANDERSEN LLP MAY ALSO BE LIMITED AS A RESULT OF THEIR FINANCIAL
CONDITION OR OTHER MATTERS RELATING TO THE VARIOUS CIVIL AND CRIMINAL LAWSUITS RELATING
TO THEM.
F-3
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY6PH=G+Š
1*
0C
1VF=3Z2JVY6PH=G
CLN
97534 FIN 4
HTM
IFV
Page 1 of 1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Korn/Ferry International:
We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial
statements of Korn/Ferry International and Subsidiaries (the “Company”) included in this Form 10-K report and have issued our
report thereon dated June 11, 2001. Our audit was made for the purpose of forming an opinion on the basic financial statements taken
as a whole. The Schedule II—Korn/Ferry International and Subsidiaries Valuation and Qualifying Accounts is the responsibility of
the Company’s management and is presented for purposes of complying with the Securities and Exchange Commission’s rules and is
not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the
audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required
to be set forth therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Los Angeles, California
June 11, 2001
THIS IS A COPY OF AN ACCOUNTANTS’ REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP. THIS
REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. THE FINANCIAL STATEMENTS REFERRED
TO IN THIS REPORT HAVE BEEN RESTATED SUBSEQUENT TO THE DATE OF THE REPORT TO ACCOUNT FOR
KORN/FERRY INTERNATIONAL’S INVESTMENT IN ITS MEXICO SUBSIDIARIES UNDER THE EQUITY METHOD
INSTEAD OF THE CONSOLIDATION METHOD. (SEE NOTE 15). THE RESTATEMENT ADJUSTMENTS HAVE
BEEN REPORTED ON BY ERNST & YOUNG LLP.
WE WILL NOT BE ABLE TO OBTAIN THE WRITTEN CONSENT OF ARTHUR ANDERSEN LLP FOR ANY
REGISTRATION STATEMENT WE MAY FILE AS REQUIRED BY SECTION 7 OF THE SECURITIES ACT.
ACCORDINGLY, INVESTORS WILL NOT BE ABLE TO SUE ARTHUR ANDERSEN LLP PURSUANT TO SECTION 11
(a)(4) OF THE SECURITIES ACT RELATING TO THOSE REGISTRATION STATEMENTS AND THEREFORE MAY
HAVE THEIR RECOVERY LIMITED AS A RESULT OF THE LACK OF CONSENT. THE ABILITY OF INVESTORS
TO RECOVER FROM ARTHUR ANDERSEN LLP MAY ALSO BE LIMITED AS A RESULT OF THEIR FINANCIAL
CONDITION OR OTHER MATTERS RELATING TO THE VARIOUS CIVIL AND CRIMINAL LAWSUITS RELATING
TO THEM.
F-4
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
18-Jul-2003 22:42 EST
ˆ1VF=3Z2JVYR5GJG]Š
2*
1C
1VF=3Z2JVYR5GJG
CLN
97534 FIN 5
HTM
PMT
Page 1 of 1
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
ASSETS
Cash and cash equivalents
Receivables due from clients, net of allowance for doubtful accounts of $7,199 and $7,767
Income tax and other receivables
Deferred income taxes
Prepaid expenses
Total current assets
Property and equipment, net
Cash surrender value of company owned life insurance policies, net of loans
Deferred income taxes
Goodwill
Other intangibles, net of accumulated amortization of $5,402 and $4,103
Deferred financing costs, investments and other
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Notes payable and current maturities of long-term debt
Borrowings under credit facility
Accounts payable
Compensation and benefits payable
Other accrued liabilities
Total current liabilities
Deferred compensation and other retirement plans
Long-term debt
Other
Total liabilities
7.5 % Convertible mandatorily redeemable preferred stock, net of unamortized discount and issuance
costs, redemption value $10,100
Shareholders’ equity:
Common stock, $0.01 par value, 150,000 shares authorized, 38,642 and 38,587 shares issued and
37,590 and 37,869 shares outstanding
Retained earnings (deficit)
Unearned restricted stock compensation
Accumulated other comprehensive loss
Shareholders’ equity
Less: Notes receivable from shareholders
Total shareholders’ equity
Total liabilities and shareholders’ equity
April 30,
2003
2002
$ 82,685
46,737
12,648
9,162
10,403
$ 66,128
54,960
30,140
10,336
10,331
161,635
171,895
27,698
53,143
23,897
94,729
220
7,691
40,248
53,048
21,794
85,346
396
4,847
$ 369,013
$ 377,574
$
5,099
8,651
52,206
23,006
$ 12,818
39,000
8,319
54,221
31,927
88,962
146,285
49,944
41,364
12,682
44,806
1,634
5,552
192,952
198,277
9,606
302,021
(126,607)
(1,560)
(6,044)
301,488
(102,853)
(2,988)
(14,101)
167,810
(1,355)
181,546
(2,249)
166,455
179,297
$ 369,013
$ 377,574
The accompanying notes are an integral part of these consolidated financial statements.
F-5
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
18-Jul-2003 22:42 EST
ˆ1VF=3Z2JVYRKP4G?Š
2*
1C
1VF=3Z2JVYRKP4G
CLN
97534 FIN 6
HTM
PMT
Page 1 of 1
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Fee revenue.
Reimbursed out-of-pocket engagement expenses
Revenue
Compensation and benefits.
General and administrative expenses.
Out-of-pocket engagement expenses
Depreciation and amortization
Asset impairment and restructuring charges
Goodwill impairment charges
Total operating expenses
Operating income (loss)
Interest income and other income, net
Interest expense
Income (loss) before provision for (benefit from) income taxes and equity in earnings
of unconsolidated subsidiaries
Provision for (benefit from) income taxes
Equity in earnings of unconsolidated subsidiaries
Net income (loss)
Fiscal Year Ended April 30,
2003
2002
2001
$315,112
23,354
$ 377,425
29,310
$614,067
37,523
338,466
406,735
651,590
223,192
73,107
23,029
16,161
16,281
273,994
101,934
25,759
17,482
50,277
42,926
383,277
149,656
36,710
26,874
351,770
512,372
596,517
(13,304)
(105,637)
55,073
1,189
10,522
2,438
8,521
4,122
7,400
(22,637)
(111,720)
51,795
2,040
1,775
(12,328)
1,141
22,443
1,661
$ (22,902)
$ (98,251)
$ 31,013
Accretion on redeemable convertible preferred stock
852
Net income (loss) attributed to common shareholders
$ (23,754)
$ (98,251)
$ 31,013
Basic earnings (loss) per common share
Basic weighted average common shares outstanding
Diluted earnings (loss) per common share
Diluted weighted average common shares outstanding
$
(0.63)
$
(2.62)
$
0.83
37,576
37,547
37,266
$
(0.63)
$
(2.62)
$
0.81
37,576
37,547
38,478
The accompanying notes are an integral part of these consolidated financial statements.
F-6
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY6ZNZGÈŠ
1*
0C
1VF=3Z2JVY6ZNZG
CLN
97534 FIN 7
HTM
IFV
Page 1 of 1
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
Common
Stock
$ 283,277
(118)
12,910
Retained
Earnings
(Deficit)
$ (35,615)
31,013
Unearned
Restricted
Stock
Compensation
Accumulated
Other
Comprehensive
Income (Loss)
Shareholders’
Equity
Comprehensive
Income (Loss)
$
(7,300)
$
240,362
(118)
12,910
31,013
$
31,013
(6,336)
(2,962)
(6,336)
(2,962)
(6,336)
(2,962)
$
21,715
296,069
(376)
1,655
4,923
(783)
301,488
(1,115)
151
335
(321)
23
1,460
(4,602)
(16,598)
$
(4,921)
783
1,150
274,869
(376)
1,655
2
1,150
(98,251)
(98,251)
$
(98,251)
(465)
(465)
2,962
2,962
(465)
2,962
$
(95,754)
(102,853)
(2,988)
(14,101)
(335)
321
1,442
(852)
(22,902)
8,057
181,546
(1,115)
151
1,442
23
1,460
(852)
(22,902)
8,057
$
$
(22,902)
8,057
(14,845)
Balance as of April 30, 2000
Purchase of stock
Issuance of stock
Comprehensive income:
Net income
Foreign currency translation
Unrealized loss on investment, net of
adjustments
tax benefit of $2,145
Comprehensive income
Balance as of April 30, 2001
Purchase of stock
Issuance of stock
Issuance of restricted stock
Forfeiture of restricted stock
Amortization of unearned restricted
stock compensation
Comprehensive loss:
Net loss
Foreign currency translation
adjustments
Reclassification adjustment for losses
realized on investment, net of tax
benefit of $2,145
Comprehensive loss
Balance as of April 30, 2002
Purchase of stock
Issuance of stock
Issuance of restricted stock
Forfeiture of restricted stock
Amortization of unearned restricted
stock compensation
Variable stock-based compensation
Issuance of warrants
Accretion of mandatory redemption
value of preferred stock
Comprehensive loss:
Net loss
Foreign currency translation
adjustments
Comprehensive loss
Balance as of April 30, 2003
$ 302,021
$(126,607)
$
(1,560)
$
(6,044)
$
167,810
The accompanying notes are an integral part of these consolidated financial statements.
F-7
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY71QMG~Š
1*
0C
1VF=3Z2JVY71QMG
CLN
97534 FIN 8
HTM
IFV
Page 1 of 2
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in) provided by
operating activities:
Depreciation
Amortization of goodwill
Amortization of intangible assets
Amortization of note payable discount
Interest paid in kind and amortization on convertible debt
(Gain) loss on disposition of property and equipment
Unrealized loss on marketable securities and other assets
Provision for doubtful accounts
Cash surrender value (gains) losses and benefits in excess of premiums paid
Deferred income tax (benefit) provision
Tax benefit from exercise of stock options
Asset impairment charges
Restructuring charges
Restricted stock compensation
Change in other assets and liabilities, net of acquisitions:
Deferred compensation
Receivables
Prepaid expenses
Investment in unconsolidated subsidiaries
Income taxes
Accounts payable and accrued liabilities
Other
Fiscal Year Ended April 30,
2003
2002
2001
$(22,902) $(98,251) $ 31,013
14,862
16,533
1,299
244
3,051
(15)
587
5,846
(1,943)
(2,103)
1,113
1,554
1,294
5,138
20,808
(72)
(625)
468
(10,666)
6,557
949
467
63
946
10,853
(806)
1,003
188
57,730
5,543
1,152
3,284
5,160
(147)
(769)
(3,903)
(60,948)
1,434
14,712
11,526
637
724
651
22,581
2,270
(4,220)
2,779
4,039
(14,893)
(2,458)
726
2,298
(9,056)
519
Net cash provided by (used in) operating activities
24,495
(59,519)
63,848
Cash from investing activities:
Purchase of property and equipment
Purchase of marketable securities
Sale of marketable securities
Business acquisitions, net of cash acquired
Premiums on life insurance, net of benefits received
Purchase of investments
Net cash used in investing activities
Cash from financing activities:
Issuance of convertible debt, preferred stock and warrants, net
Net (repayments) borrowings on previous credit facility
Payment of shareholder acquisition notes
Net borrowings under life insurance policies
Purchase of common stock and payment of related notes
Issuance of common stock and receipts on shareholders’ notes
(3,455)
(8,539)
16,397
(834)
(9,543)
(6,942)
(33,854)
(16,397)
61,107
(44,488)
(9,485)
(12,570)
(10,397)
(2,519)
(55,687)
45,628
(39,000)
(9,528)
8,729
(1,115)
894
39,000
(9,449)
11,662
(532)
3,462
(1,365)
(14,200)
3,486
(533)
10,287
Net cash provided by (used in) financing activities
5,608
44,143
(2,325)
Effect of exchange rate changes on cash flows
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
(3,149)
(1,638)
(3,828)
16,557
66,128
(19,533)
85,661
2,008
83,653
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY71QMG~Š
1*
0C
1VF=3Z2JVY71QMG
CLN
97534 FIN 8
HTM
IFV
Page 2 of 2
Cash and cash equivalents at end of the year
$ 82,685 $ 66,128
$ 85,661
The accompanying notes are an integral part of these consolidated financial statements.
F-8
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY74S8GdŠ
1*
0C
1VF=3Z2JVY74S8G
CLN
97534 FIN 9
HTM
IFV
Page 1 of 1
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2003
(dollars in thousands, except per share amounts)
1. Organization and Summary of Significant Accounting Policies
Nature of Business
Korn/Ferry International (“KFY” or the “Company”), a Delaware corporation, and its subsidiaries are engaged in the business of
providing executive recruitment, technology enhanced middle-management recruitment, through Futurestep, and consulting and
related services globally on a retained basis.
Basis of Consolidation and Accounting for Investments
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation.
Investments in affiliated companies which are 50% or less owned and where the Company exercises significant influence over
operations are accounted for using the equity method. Investments in companies in which the Company does not have a controlling
interest, or an ownership and voting interest so large as to exert significant influence, are accounted for at market value if the
investment is publicly traded or if the investment is not publicly traded, then the investment is accounted for at cost. Dividends and
other distributions of earnings from both market-value and cost-method investments are included in other income when declared.
Unrealized gains and losses on investments accounted for at market value are reported net of tax as a component of accumulated other
comprehensive income (loss) until the investment is sold or an unrealized loss is no longer considered temporary, at which time the
realized or recognized gain or loss is included in income or expense.
In fiscal 2002, the Company believed that the loss related to a publicly traded investment was no longer temporary and
reclassified a loss of $2,962, net of a tax benefit of $2,145, from other comprehensive loss to net income (loss). This loss is included
in asset impairment charge of $6,264 (see Note 4). The Company recognized an additional unrealized holding loss on this investment
of $640 and $946 in fiscal 2003 and 2002, respectively, included in other income.
Basis of Presentation
The accounting and reporting policies of the Company conform with accounting practices generally accepted in the United
States and prevailing practice within the industry.
Use of Estimates and Uncertainties
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses
during the reporting period. As a result, actual results could differ from these estimates. The most significant areas that require
management judgment are revenue recognition (discussed below), deferred compensation (see Note 6) and evaluation of the carrying
value of goodwill and deferred income taxes (discussed below and Note 7).
Revenue Recognition
Substantially all professional fee revenue is derived from fees for professional services related to executive recruitment, middle-
management recruitment, consulting and related services performed on a retained basis. Fee
F-9
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY401MGMŠ
1*
0C
1VF=3Z2JVY401MG
97534 FIN 10
HTM
IFV
Page 1 of 1
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
revenue from recruitment activities is generally one-third of the estimated first year compensation plus a percentage of the fee to
cover indirect expenses. Fee revenue is recognized as earned. The Company generally bills clients in three monthly installments
commencing in the month of a client’s acceptance of the contract. Fees earned in excess of the initial contract amount are billed at
completion of the engagement.
In November 2001, the Financial Accounting Standards Board (“FASB”) issued Topic No. D-13, “Income Statement
Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred” that requires presentation of reimbursements
received for “out-of-pocket” expenses as revenue and the related expenses as expense in the statement of operations. This topic issued
as Emerging Issues Task Force Issue No. 01-14 (EITF No. 01-14), is effective for reporting periods beginning after December 15,
2001 and requires prior period results to be reclassified to conform to the new presentation. The Company implemented this guidance
effective May 1, 2002. Accordingly, prior year results reflect the reclassification of “out-of-pocket” expenses, primarily candidate
travel expenses, previously reported as a reduction in revenue, to expense. There was no impact on operating income, net income,
EPS or cash flow as a result of the reclassification.
Goodwill and Other Intangibles
Goodwill represents the excess of the acquisition cost over the net assets acquired in business combinations. Goodwill is
recorded net of accumulated depreciation through April 30, 2001. Other intangibles arising from business acquisitions include
contractual obligations contingent upon future performance that are amortized on a straight-line basis over the contractual period.
Other intangibles are recorded net of accumulated amortization.
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”,
effective May 1, 2001, goodwill is no longer amortized, but is subject to periodic impairment tests. The Company assesses whether
goodwill is impaired at least annually using the two-step process. This assessment was made as of April 30, 2003 and no impairment
was indicated.
Stock Based Compensation
The Company accounts for its employee stock options under the recognition and measurement principles of Accounting
Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Under APB No.
25, no stock-based compensation is reflected in net income (loss), as all options granted under the plans had an exercise price equal to
the fair market value of the underlying common stock on the date of grant and the related number of shares granted is fixed at that
point in time.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”,
effective for fiscal years ending after December 15, 2002. This rule amends SFAS No. 123, “Accounting for Stock-based
Compensation”, to provide several alternatives for adopting the stock option expense provisions of SFAS No. 123, as well as
additional required interim financial statement disclosures. SFAS No. 148 does not require companies to expense stock options in
current earnings. The Company has not adopted the provisions of SFAS No. 123 for expensing stock based compensation; however,
the Company will adopt the additional interim disclosure provisions required by SFAS 148.
F-10
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY4338G3Š
1*
0C
1VF=3Z2JVY4338G
97534 FIN 11
HTM
IFV
Page 1 of 1
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
The following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had applied the fair
value recognition provisions of SFAS No. 148:
Net income (loss) attributed to common shareholders, as reported
Stock-based employee compensation charges, net of related tax effects:
Determined under the intrinsic-value based method
Determined under the fair-value based method
Fiscal Year Ended April 30,
2003
2002
2001
$(23,754)
$ (98,251)
$ 31,013
23
(21,256)
(24,069)
(21,134)
Net income (loss ) attributed to common shareholders As adjusted
$(44,987)
$(122,320)
$ 9,879
Basic EPS
Dilutive EPS
As reported
Pro forma
As reported
Pro forma
(0.63)
(1.20)
(0.63)
(1.20)
(2.62)
(3.26)
(2.62)
(3.26)
0.83
0.27
0.81
0.26
The weighted average fair value of options granted in fiscal 2003, 2002 and 2001 was $5.09, $8.61 and $16.49, respectively.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with a zero
dividend rate and the following assumptions:
Expected stock volatility
Risk-free interest rate
Expected option life (in years)
Fiscal Year
Ended April 30,
2003
2002
2001
66.2%
3.76%
7.50
66.5%
5.14%
7.50
64.5%
5.37%
7.50
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options. The assumptions
used in option valuation models are highly subjective, particularly the expected stock price volatility of the underlying stock. Because
changes in these subjective input assumptions can materially affect the fair value estimate in management’s opinion, existing
valuation models do not provide a reliable, single measure of the fair value of its employee stock options. For purposes of pro forma
disclosures, the estimated fair values of the options are amortized over the options’ vesting periods.
Translation of Foreign Currencies
Generally, financial results of the Company’s foreign subsidiaries are measured in their local currencies. Assets and liabilities
are translated into U.S. dollars at the rates of exchange in effect at the end of each year and revenue and expenses are translated at
average rates of exchange during the year. Resulting translation adjustments are reported as a component of comprehensive income
(loss).
Gains and losses from foreign currency transactions of these subsidiaries and the translation of the financial results of
subsidiaries operating in highly inflationary economies are included in general and administrative expenses. Net foreign currency
transaction and translation (gains) losses, on an after tax basis, included in net income (loss), were ($252), ($246) and $646 in fiscal
2003, 2002 and 2001, respectively.
F-11
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY464YG/Š
1*
0C
1VF=3Z2JVY464YG
97534 FIN 12
HTM
IFV
Page 1 of 1
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
Cash Flows
Cash equivalents consist of highly liquid investments with maturities of three months or less from the date of purchase.
Net cash from operating activities includes cash payments for interest of $7,056, $8,324 and $7,401 in fiscal 2003, 2002 and
2001, respectively. Cash payments for income taxes, net of refunds, amounted to ($17,263), $7,908, and $24,222 in fiscal 2003, 2002
and 2001, respectively.
Fair Value of Financial Instruments
The carrying amount of cash, cash equivalents and accounts receivable approximates fair value due to the short maturity of these
instruments. Notes payable and long-term debt bear interest at rates that approximate the current market interest rates for similar
instruments and, accordingly the carrying value approximates fair value. The fair value of notes receivable from shareholders based
on discounting the estimated future cash flows using a current market rate approximates the carrying value.
Marketable Securities
Management determines the appropriate classification of its investments in marketable securities at the time of purchase and
reevaluates this classification at each balance sheet date. At April 30, 2003 and 2002, we had no investments in marketable securities.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to significant concentrations of credit risk consist principally of
receivables due from clients. Concentrations of credit risk with respect to receivables are limited due to the Company’s large number
of customers and their dispersion across many different industries and countries worldwide.
Cash Surrender Value of Life Insurance
The change in the cash surrender value (“CSV”) of company owned life insurance (“COLI”) contracts, net of insurance
premiums paid and gains realized, is reported in compensation and benefits expense. See Note 6.
New Accounting Pronouncements
In May 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This
statement replaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived assets to be Disposed
Of.” The adoption of SFAS No. 144 did not have an impact on the Company’s financial position or results of operations.
In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This
statement requires that a liability for costs associated with an exit or disposal activity, including certain restructuring costs, be
recognized and measured initially at fair value when the liability is incurred. Previously, these liabilities were recognized at the date
an entity committed to a plan and measurement at fair
F-12
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY496LGÉŠ
1*
0C
1VF=3Z2JVY496LG
97534 FIN 13
HTM
IFV
Page 1 of 1
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
value was not required. This statement is effective prospectively for exit and disposal activities initiated after December 31, 2002. The
adoption of this statement did not have a significant impact on the Company’s financial position or results of operations.
In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities”, effective as of the
first interim period beginning after June 15, 2003. The impact upon adoption of the standard is not expected to have a material impact
on the results of operations or the financial position of the Company.
In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity.” This Statement establishes standards for classifying and measuring as liabilities certain financial instruments
that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS No. 150 is effective at the
beginning of the first interim period beginning after June 15, 2003; including all financial instruments created or modified after May
31, 2003. This Statement requires mandatorily redeemable instruments be classified as liabilities. The Company will adopt this
Statement in the first quarter of fiscal 2004 where convertible mandatorily redeemable preferred stock will be classified as a liability.
Reclassifications
Certain prior year reported amounts have been reclassified to conform to the current year presentation.
F-13
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL redel0cm
WLA
18-Jul-2003 08:31 EST
ˆ1VF=3Z2JVY4H9XGlŠ
2*
1C
1VF=3Z2JVY4H9XG
97534 FIN 14
HTM
PMT
Page 1 of 1
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
2. Basic and Diluted Earnings (Loss) Per Share
Basic earnings (loss) per common share (“basic EPS”) was computed by dividing net income (loss) attributed to common
shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common
and common equivalent share (“diluted EPS”) reflects the potential dilution that would occur if the outstanding options or other
contracts to issue common stock were exercised or converted and was computed by dividing net income (loss) attributed to common
shareholders by the weighted average number of shares of common stock outstanding and dilutive common equivalent shares. The
following is a reconciliation of the numerator (income or loss) and denominator (shares in thousands) used in the computation of
basic and diluted EPS:
Fiscal Year Ended April 30,
2003
2002
Weighted
Average
Shares
Per
Share
Amount
(Loss)
Weighted
Average
Shares
Per
Share
Amount
(Loss)
Basic EPS
Net income (loss)
Accretion on redeemable convertible preferred
stock
$(22,902)
852
$(98,251)
2001
Weighted
Average
Shares
Per
Share
Amount
Income
$31,013
Net income (loss) attributed to common
shareholders
Effect of dilutive securities
Convertible debt
Convertible preferred stock
Stock options
Warrants
Restricted stock
Shareholder common stock purchase
commitments
Diluted EPS
Net income (loss) attributed to common
shareholders plus dilutive common
equivalent Shares
$(23,754)
37,576
$
(0.63)
$(98,251)
37,547
$
(2.62)
$31,013
37,266
$
0.83
942
270
$(23,754)
37,576
$
(0.63)
$(98,251)
37,547
$
(2.62)
$31,013
38,478
$
0.81
For the fiscal years ended April 30, 2003 and 2002, assumed exercises or conversions have been excluded in computing the
diluted earnings per share since there were net losses for the years and their inclusion would be anti-dilutive.
F-14
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY4LCKGhŠ
1*
0C
1VF=3Z2JVY4LCKG
97534 FIN 15
HTM
IFV
Page 1 of 1
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
The following table adjusts net income (loss) and earnings (loss) per share for the impact of the implementation in fiscal 2002 of
SFAS No. 142, “Goodwill and Other Intangible Assets”:
Net income (loss)
Reported net income (loss)
Add back: goodwill amortization
Adjusted net income (loss)
Basic earnings (loss) per share
Reported net income (loss)
Goodwill amortization
Adjusted net income (loss)
Diluted earnings (loss) per share
Reported net income (loss)
Goodwill amortization
Adjusted net income (loss)
Year Ended April 30,
2002
2001
$(98,251) $31,013
11,526
$(98,251) $42,539
$
(2.62) $
0.83
0.31
$
(2.62) $
1.14
$
(2.62) $
0.81
0.30
$
(2.62) $
1.11
3. Shareholders’ Equity
The maximum number of shares of common stock reserved for issuance is thirteen million, subject to adjustment for certain
changes in the Company’s capital structure and other extraordinary events.
The Company’s employee stock option plans provide for option grants designated as either nonqualified, incentive stock options
or stock appreciation rights (“SARS”). Option grants to officers, non-employee directors and other key employees generally vest over
a three to five year period and generally expire ten years from the date of grant. Stock options are granted at a price that is equal to the
fair market value of the common stock on the date of grant. Key employees are eligible to receive a grant of stock options annually
with the number of shares generally determined by the employee’s performance level. In addition, certain management typically
receive a stock option grant upon commencement of employment.
F-15
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY4PF6GgŠ
1*
0C
1VF=3Z2JVY4PF6G
97534 FIN 16
HTM
IFV
Page 1 of 1
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
The status of stock options and SARs issued under the Company’s performance award plans are summarized below:
Weighted
Average
Exercise Price
Number of
Shares
(in thousands)
Outstanding at April 30, 2000
Granted
Exercised
Canceled/forfeited
Outstanding at April 30, 2001
Granted
Exercised
Canceled/forfeited
Canceled subject to exchange
Outstanding at April 30, 2002
Granted
Granted subject to exchange
Canceled/forfeited
Outstanding at April 30, 2003
3,829 $
4,125
(429)
(466)
7,059 $
2,176
(74)
(1,139)
(3,581)
4,441 $
2,745
1,418
(888)
16.40
23.71
13.65
20.47
20.66
15.79
13.70
22.03
22.03
16.94
7.43
7.38
14.03
7,716 $
12.13
Included in the table above are 118,385 SARs outstanding as of April 30, 2003 with a weighted average strike price of $11.04.
In March 2002, the Company accepted for exchange 3,580,641 options and SARs relating to shares of the Company’s common
stock. Subject to the terms and conditions of the exchange offer, the Company issued replacement options and SARs of 1,418,024
shares of the Company’s common stock to 347 option and SAR holders that participated in the exchange in September 2002, six
months and one day after the options were canceled.
Summary information about the Company’s stock options and SARs outstanding at April 30, 2003 is presented in the following
table:
Range of
Exercise Price
$6.16–$7.38
$7.38–$14.00
$14.00–$42.00
Outstanding
as of
4/30/03
3,665,000
1,910,000
2,141,000
7,716,000
Options Exercisable
Weighted
Average
Exercise Price
Excerciseable
as of
4/30/03
Weighted
Average
Exercise Price
$7.36
$13.16
$19.36
$12.13
501,000
1,720,000
1,108,000
3,329,000
$7.32
$13.60
$21.11
$15.15
Options Outstanding
Weighted
Average
Remaining
Contractual Life
8.6 Years
4.6 Years
7.1 Years
7.2 Years
F-16
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY4SGWGcŠ
1*
0C
1VF=3Z2JVY4SGWG
97534 FIN 17
HTM
IFV
Page 1 of 1
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
The status of the Company’s restricted common stock is summarized below:
Fiscal year 2002 issuances
Canceled/forfeited
Outstanding at April 30, 2002
Fiscal year 2003 issuances
Vested
Canceled/forfeited
Outstanding at April 30, 2003
Number of
Shares
310,333
(51,333)
259,000
45,000
(86,347)
(19,999)
197,654
Compensation expense related to these awards is charged to income (loss) on a straight-line basis over the 3 year vesting period
and totaled $1,294 and $1,152 for the fiscal years ending April 30, 2003 and 2002, respectively.
As of April 30, 2003, Futurestep had options and SARs outstanding of 660,470. All awards have been granted at an estimate of
the fair value on the date of grant, as determined by the Futurestep Board of Directors. The maximum number of shares which may be
awarded under the Futurestep Performance Award Plan is 3,500,000. In May 2003, the Company completed the buyout of Futurestep
minority shareholders (see Note 14). In conjunction with this transaction, the Company canceled all outstanding Futurestep stock
options and SARs.
4. Asset Impairment and Restructuring Charges
Based on deteriorating economic conditions the Company encountered in the beginning of fiscal 2002, the Company began
developing a series of restructuring initiatives to address the cost structure and to reposition the enterprise to gain market share and
take advantage of any potential economic up-trend. The immediate goals of these restructuring initiatives were to reduce losses,
preserve top employees and maintain high standards of client service.
In 2001, the Board began approving a series of business realignment initiatives designed to reduce the work force by nearly
30%, or over 850 employees. Such initiatives included consolidating back-office functions of Futurestep and executive recruitment,
exiting the college recruitment market, discontinuing the operations of JobDirect and the write-down of other related assets and
goodwill. These restructuring initiatives resulted in a total charge of $93,203 and $16,281 against operating results in fiscal 2002 and
2003, respectively.
F-17
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL redel0cm
WLA
18-Jul-2003 08:32 EST
ˆ1VF=3Z2JVY4ZL5GQŠ
2*
1C
1VF=3Z2JVY4ZL5G
97534 FIN 18
HTM
PMT
Page 1 of 1
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
Operating results include asset impairment and restructuring charges related to the following business segments:
Executive recruitment
North America
Europe
Asia/Pacific
Total executive recruitment
Futurestep
Corporate
Total
For the year ended April 30, 2003
Asset Impairment
Restructuring
Other
Severance
Facilities
Total
$
$
$
109 $ 2,313
809
312
$ 3,329
4,534
109 $ 3,434
761
689
(1,578) 1,078
$ 7,863
3,925
$ 5,751
5,343
312
$11,406
5,375
(500)
(780) $ 5,273
$11,788
$16,281
Executive recruitment severance of $3,434 includes 82 employees terminated. The facilities restructuring charge of $7,863
primarily relates to lease termination costs, net of estimated sublease income, for excess space in eight executive recruitment offices
due to the reduction of workforce and includes $1,042 related to the write-down of unamortized leasehold improvements. The other
asset impairment charge of $109 relates to the write-down of facility related assets to estimated fair value less costs to sell.
Futurestep severance of $761 includes 26 employees terminated. Facilities of $3,925 primarily relates to eight Futurestep offices
that were closed as employees were co-located with executive recruitment offices and includes $340 related to the write-down of
unamortized leasehold improvements. The other asset impairment charge of $689 relates to the write-down of facility related assets to
estimated fair value less costs to sell.
The Company recognized a $1,578 gain primarily related to a litigation settlement of a former subsidiary. The corporate
severance charge of $1,078 includes 11 employees terminated.
For the year ended April 30, 2002
Asset Impairment
Restructuring
Goodwill
Other
Severance
Facilities
Total
Executive recruitment
North America
Europe
Asia/Pacific
Total executive recruitment
Futurestep
JobDirect
Corporate
$13,975 $
$13,975 $
28,951
711 $ 7,897 $ 5,490 $28,073
7,350
1,846
4,833
1,761
2,517
70
15
12,958
1,369
726 $14,491 $ 8,077 $37,269
22,422
32,336
1,176
2,592
843
1,176
6,872
1,173
Total
$42,926 $15,053 $19,102 $16,122 $93,203
Executive recruitment goodwill impairment charge related to two prior year acquisitions, which were never integrated into the
Company’s operations, and for which there is no continuing business. All of the consultants were terminated in one of the acquired
entities and the other entity was re-acquired by the former shareholders.
F-18
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
18-Jul-2003 22:45 EST
ˆ1VF=3Z2JVYSB2DGmŠ
2*
1C
1VF=3Z2JVYSB2DG
97534 FIN 19
HTM
PMT
Page 1 of 1
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
The total goodwill write-off associated with these two acquisitions was $13,975 based on an analysis of future undiscounted cash
flows that indicated that goodwill was impaired. The charge represents the excess of the carrying value over the fair value, based on a
discounted cash flow method. The severance charge of $14,491 included 520 employees terminated. The facilities charge of $8,077
primarily related to lease termination costs, net of estimated sublease income, for excess space in ten executive recruitment offices
due to the reduction in workforce and included $330 related to the write-down of unamortized leasehold improvements. The other
asset impairment of $726 related to the write-down of excess furniture and equipment to fair value less costs to sell.
Futurestep severance costs of $2,592 included 149 employees terminated. The facilities charge of $6,872 primarily related to
lease termination costs, net of estimated sublease income, for excess space in six Futurestep offices that were closed as employees co-
located with executive recruitment and included $1,874 related to the write-down of unamortized leasehold improvements. The other
asset impairment charge of $12,958 included a recognized loss of $6,264 on an investment in a strategic relationship that will not be
developed with the integration of the Company’s support services and the write-off of a $4,000 investment that is no longer
considered strategic that management believed to be permanently impaired. The remaining charge primarily related to the write-off of
capitalized software costs due to the integration of information technology support services and the write-down of excess furniture,
fixtures and equipment to estimated fair value less costs to sell.
JobDirect goodwill impairment charge of $28,951 related to the exit of the college recruitment market and the discontinue of
JobDirect operations. Severance charges of $843 included 70 JobDirect employees terminated. Facilities charges of $1,173 primarily
related to lease termination costs, net of estimated sublease income, for three offices and included $61 related to the write-down of
unamortized leasehold improvements. The other asset impairment charge of $1,369 related to the write-down of excess furniture and
equipment to fair value less costs to sell.
Corporate severance charge of $1,176 included 20 corporate employees terminated.
A roll-forward of the restructuring liability at April 30, 2003 is as follows:
Liability as of April 30, 2001
Charged to expense
Non-cash items
Payments
Liability as of April 30, 2002
Charged to expense
Non-cash items
Payments
Severance
Facilities
Other
Total
$
$
$
$
19,102
(16,923)
16,122
(2,265)
(3,458)
57,979
(57,729)
(250)
93,203
(59,994)
(20,631)
$ 2,179 $10,399 $
5,273
(172)
(6,459)
11,788
(1,382)
(6,840)
$ 12,578
16,281
(2,352)
(11,721)
(780)
(798)
1,578
Liability as of April 30, 2003
$
821 $13,965 $
$ 14,786
The severance accrual includes amounts paid monthly and are expected to be paid in full by February 2004. The accrued liability
for facilities costs primarily relates to commitments under operating leases, net of sublease income, of which $10,334 is included in
other long-term liabilities, which will be paid over the next eight years.
F-19
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY57R4G-Š
1*
0C
1VF=3Z2JVY57R4G
97534 FIN 20
HTM
IFV
Page 1 of 1
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
5. Employee Profit-Sharing
The Company has an Employee Tax Deferred Savings Plan that covers eligible employees in the United States. The
discretionary accrued contribution to this plan was $0, $537 and $3,892 for fiscal 2003, 2002 and 2001, respectively.
6. Deferred Compensation and Retirement Plans, Pension Plan and Company Owned Life Insurance Policies
The Company has a defined benefit pension plan, referred to as the Worldwide Executive Benefit Plans (“WEB” plans),
covering all of its employees in the United States and certain employees in other countries. The WEB plans are designed to integrate
with government sponsored and local benefits and provide a monthly benefit to vice presidents upon retirement from the Company.
Each year a plan participant accrues and is fully vested in one-twentieth of the targeted benefits expressed as a percentage set by the
Company for that year. Upon retirement, a participant receives a monthly benefit payment equal to the sum of the percentages
accrued over such participant’s term of employment, up to a maximum of 20 years, multiplied by the participant’s highest average
monthly salary during any 36 consecutive months in the final 72 months of active full-time employment. The Company did not make
accruals for WEB plan participants for the years ending April 30, 2003 and 2002.
The Company also has established several deferred compensation plans for vice-presidents that provide defined benefit
payments to participants based on the deferral of current compensation subject to vesting and retirement or termination provisions.
The Enhanced Wealth Accumulation Plan (“EWAP”) was established in fiscal 1994. Certain vice presidents elect to participate
in a “deferral unit” that requires the contribution of current compensation for an eight year period in return for defined benefit
payments from the Company over a fifteen year period generally at retirement of age 65 or later. Participants may acquire additional
“deferral units” every five years. The EWAP replaced the Wealth Accumulation Plan (“WAP”) in fiscal 1994 and executives who did
not choose to roll over their WAP units into the EWAP continue to be covered under the earlier version in which participants
generally vest and commence receipt of benefit payments at retirement of age 65. In June 2003, the Company amended the EWAP
and WAP plans, so as not to allow new participants or the purchase of additional deferral units by existing participants.
The Company also maintains a Senior Executive Incentive Plan (“SEIP”) for participants elected by the Board. Generally, to be
eligible, the executive must be participating in the EWAP. Participation in the SEIP requires the participant to contribute a portion of
their compensation during a four-year period, or in some cases make an after tax contribution, in return for a defined benefit paid by
the Company generally over a fifteen year period after ten years of participation in the plan or such later date as may be elected by the
participant. In June 2003, the Company amended the SEIP plan, so as not to allow new participants or the purchase of additional
deferral units by existing participants.
Certain current and former employees also have individual deferred compensation arrangements with the Company which
provide for payment of defined amounts over certain periods commencing at specified dates or events.
For financial accounting purposes, the Company estimates the present value of the future benefits payable under these plans as
of the estimated payment commencement date. The Company also estimates the remaining
F-20
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY5BSTG{Š
1*
0C
1VF=3Z2JVY5BSTG
97534 FIN 21
HTM
IFV
Page 1 of 1
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
number of years a participant will be employed by the Company. Then, each year during the period of estimated employment, the
Company accrues a liability and recognizes expense for a portion of the future benefit using the “benefit/years of service” attribution
method for the SEIP, WAP and EWAP plans and the “projected unit credit” method for the WEB plan.
In calculating the accrual for future benefit payments, management has made assumptions regarding employee turnover,
participant vesting, violation of non-competition provisions, and the discount rate. Management periodically reevaluates all
assumptions. If assumptions change in future reporting periods, the changes may impact the measurement and recognition of benefit
liabilities and related compensation expense.
As of April 30, 2003 and 2002, the Company had unrecognized losses related to the deferred compensation plans of $6,740 and
$2,505, respectively, due primarily to changes in assumptions of the discount rate used for calculating the accruals for future benefits.
As of April 30, 2003 and 2002, the Company also had unrecognized gains related to the pension plan of $2,301 and $1,899,
respectively, due to changes in assumptions of the discount rate used for calculating the accruals for future benefits, changes in
assumptions related to the participant population and changes in assumptions related to WEB plan accrual amounts. The Company
amortizes unrecognized (gains) losses over the average remaining service period of active participants. The discount rate was 6.5% in
fiscal 2003 and 7.25% in fiscal 2002.
The Company also maintains various retirement plans statutorily required in six foreign jurisdictions. The aggregate of the long-
term benefit obligation accrued at April 30, 2003 and 2002 is $5,283 for 95 participants and $2,727 for 108 participants, respectively.
The Company’s contribution to these plans was $3,293 and $1,299 in fiscal 2003 and 2002, respectively.
The total long-term benefit obligations for the deferred compensation, retirement and pension plans were:
Deferred compensation plans
Retirement plans
Pension plans
Total long-term benefit obligation
F-21
Fiscal Year Ended
April 30,
2003
2002
$39,120 $36,583
2,727
5,283
5,496
5,541
$49,944 $44,806
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY5FVGGÇŠ
1*
0C
1VF=3Z2JVY5FVGG
97534 FIN 22
HTM
IFV
Page 1 of 1
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
The following tables reconcile the benefit obligation for the deferred compensation plans and the pension plan:
Deferred compensation plans:
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Actuarial loss
Total expense
Benefits paid
Benefit obligation at end of fiscal year
Less: current portion of benefit obligation
Long-term benefit obligation at end of year
Pension plan:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial gain
Total expense
Benefits paid
Benefit obligation at end of fiscal year
Less: current portion of benefit obligation
Long-term benefit obligation at end of year
Fiscal Year Ended
April 30,
2003
2002
$38,045 $34,673
2,814 2,788
1,700 1,225
1,372 1,629
332
278
$ 6,164 $ 5,974
(3,089) (2,602)
$41,120 $38,045
(2,000) (1,462)
$39,120 $36,583
Fiscal Year Ended
April 30,
2003
2002
$5,496 $4,942
576
97
243
204
(136)
(141)
$ 160 $ 683
(129)
(67)
$5,589 $5,496
(48)
$5,541 $5,496
The Company has purchased COLI contracts insuring participants and former participants in the deferred compensation and
pension plans. The gross CSV of these contracts of $119,667 and $112,915 is offset by outstanding policy loans of $66,524 and
$59,867, in the accompanying consolidated balance, sheets as of April 30, 2003 and 2002, respectively. Total death benefits payable,
net of loans under COLI contracts, were $232,571 and $238,425 at April 30, 2003 and 2002, respectively. Management intends to use
the future death benefits (if any) from these insurance contracts to fund the deferred compensation and pension arrangements;
however, there may not be a direct correlation between the timing of the future cash receipts and disbursements under these
arrangements. In addition, certain policies are held in trusts to provide additional benefit security for the deferred compensation and
pension plans. As of April 30, 2003, COLI contracts with a net cash surrender value of $44,027 and death benefits payable of
$183,125 were held in trust for these purposes.
F-22
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY5JX3GÇŠ
1*
0C
1VF=3Z2JVY5JX3G
97534 FIN 23
HTM
IFV
Page 1 of 2
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
7. Income Taxes
The provision for income taxes is based on reported income before income taxes. Deferred income tax assets and liabilities
reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes
and the amounts recognized for tax purposes, as measured by applying the currently enacted tax laws.
The provision for (benefit from) domestic and foreign income taxes consists of the following:
Current income taxes:
Federal
State
Total
Deferred income taxes:
Federal
State
Total
Foreign income taxes
Fiscal Year Ended April 30,
2003
2002
2001
$(3,369) $(14,186) $11,258
(4,092) 3,879
$(3,369) $(18,278) $15,137
$ 3,354
15
3,906 (4,231)
11
(841)
3,369
3,065 (4,220)
2,040
2,885 11,526
Provision for (benefit from) income taxes
$ 2,040 $(12,328) $22,443
The domestic and foreign components of income (loss) from continuing operations before domestic and foreign income and
other taxes and equity in earnings of unconsolidated subsidiaries were as follows:
Domestic
Foreign
Fiscal Year Ended April 30,
2003
2002
2001
$ (9,451) $ (82,478) $27,269
(29,242) 24,526
(13,186)
Income (loss) before provision for income taxes and equity in earnings of
unconsolidated subsidiaries
$(22,637) $(111,720) $51,795
The difference between the effective tax rate in the consolidated financial statements and the statutory federal income tax rate
can be attributed to the following:
Fiscal Year
Ended April 30,
2003
2002
2001
U.S. federal statutory tax rate
Foreign source dividend income
Foreign income tax credits utilized
Income subject to net higher foreign tax rates
COLI CSV decrease, net
Tax deductible goodwill amortization
Non-deductible goodwill amortization
Impairment of acquired net operating losses
Non-deductible restructuring expense
35.0% 35.0% 35.0%
(23.3)
(2.7) 13.2
(11.4)
0.3 5.3
1.3
(9.0)
5.3
1.6
4.2
(2.8)
(4.4)
(15.5)
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY5JX3GÇŠ
1*
0C
1VF=3Z2JVY5JX3G
97534 FIN 23
HTM
IFV
Page 2 of 2
CLN
Tax benefits related to losses on foreign investments
Displaced foreign tax credits
Other
Effective tax rate
17.5
(27.1)
(6.2)
(1.7) (4.3)
(9.0)% 11.0% 43.3%
F-23
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY5MYSGqŠ
1*
0C
1VF=3Z2JVY5MYSG
97534 FIN 24
HTM
IFV
Page 1 of 1
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
The significant components of deferred tax assets and liabilities are as follows:
Deferred income tax assets:
Deferred compensation
Allowance for doubtful accounts
Other accrued liabilities
Property and equipment
Loss and credit carryforwards
Other (foreign)
Total deferred tax asset
Less: valuation allowance
Net deferred tax asset
As of April 30,
2003
2002
$ 17,090 $17,462
1,640 1,582
949
1,092
3,104 3,471
2,283 2,912
18,023 12,766
$ 43,232 $39,142
(10,173) (7,012)
$ 33,059 $32,130
SFAS No. 109, “Accounting for Income Taxes”, requires that deferred tax assets be reduced by a valuation allowance if it is
more likely than not that some portion or all of the deferred tax asset will not be realized. Management believes sufficient uncertainty
exists regarding the realizability of the asset and has therefore established a valuation allowance. Realization of the deferred income
tax asset is dependent on the Company generating sufficient taxable income in future years as the deferred income tax charges
become currently deductible for tax reporting purposes. Although realization is not assured, management believes that it is more
likely than not that the net deferred income tax asset will be realized.
At April 30, 2003, the Company generated state net operating loss carryforwards of approximately $33,916 to offset future tax
liabilities in the states in which it has operations. The losses from the various states may be carried forward from 5 years to 20 years.
A valuation allowance has been established for the deferred state income tax benefit related to these carryforwards. This state net
operating tax loss was carried back to the tax years ended April 30, 2001 and April 30, 2002.
The Company has not provided for U.S. deferred income taxes on approximately $21,000 of undistributed earnings and
associated withholding taxes of the foreign subsidiaries as the Company has taken the position under Accounting Principles Board
Opinion No. 23, “Accounting for Income Taxes-Special Areas”, that its foreign earnings will be permanently reinvested offshore. If a
distribution of these earnings was to be made, the Company might be subject to both foreign withholding taxes and U.S. income
taxes, net of any allowable foreign tax credits or deductions. However, an estimate of these taxes is not practicable.
8. Property and Equipment and Long-lived Assets
Property and equipment is carried at cost, less accumulated depreciation. Leasehold improvements are amortized on a straight-
line basis over the estimated useful life of the asset, or the lease term, whichever is shorter. Software development costs for internal
use are capitalized in accordance with Statement of Position 98-1, “Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use” and, once placed in service, amortized using the straight-line method over the estimated useful life,
generally three years. All other property and equipment is depreciated or amortized on a straight-line basis over the estimated useful
lives of three to ten years.
F-24
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY5Q=FGÆŠ
1*
0C
1VF=3Z2JVY5Q=FG
97534 FIN 25
HTM
IFV
Page 1 of 1
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
Property and equipment consists of the following:
Property and equipment:
Computer equipment and software
Furniture and fixtures
Leasehold improvements
Automobiles
Less: Accumulated depreciation and amortization
Property and equipment, net
As of April 30,
2003
2002
$ 52,234 $ 49,627
22,789 22,325
22,150 23,357
815
1,056
98,229 96,124
(70,531) (55,876)
$ 27,698 $ 40,248
The Company reviews long-lived assets for impairment and whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable.
As a result of the restructuring initiatives in fiscal 2003 and 2002, the Company recognized an asset impairment charge of $798
and $4,789, respectively, related to the write-off of excess furniture and equipment to fair value less costs to sell and a restructuring
charge of $1,382 and $2,013, respectively, related to the write-off of leasehold improvements. See Note 4.
9. Mandatory Redeemable Convertible Securities
In June 2002, the Company issued 7.5% Convertible Subordinated Notes in an aggregate principal amount of $40.0 million,
10,000 shares of 7.5% Convertible Series A Preferred Stock at an aggregate purchase price of $10.0 million and warrants to purchase
272,727 shares of its common stock at an exercise price of $12.00. The warrants were recorded at fair value resulting in discounts on
the Notes and Preferred Stock (together “the securities”) of $1.2 million and $0.3 million, respectively, that are amortized over the life
of the securities. In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity” effective at the beginning of the first interim period after June 15, 2003. This Statement requires
mandatorily redeemable instruments be classified as liabilities. The Company will adopt this Statement in the first quarter of fiscal
2004 where convertible mandatorily redeemable preferred stock will be classified as a liability.
The securities may be redeemed at the option of the purchasers after June 13, 2008, the sixth anniversary of the closing date, at a
price equal to 101% of the issuance price plus all accrued interest and dividends. The securities are mandatorily redeemable if
outstanding on June 13, 2010, at a price equal to 101% of the issuance price plus accrued interest and dividends. From the third to the
sixth year, the securities are subject to optional redemption by the Company provided certain minimum price targets for our common
stock are achieved.
Interest and dividends are payable semi-annually with 1% payable in cash and 6.5% payable in additional Notes and Preferred
Stock for the first two year period from the date of issuance. Thereafter, interest and dividends are payable in either additional
securities or cash at the option of the Company. The Company also incurred issuance costs of $4.3 million that have been deferred
and are being amortized over the life of the
F-25
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY5V12G?Š
1*
0C
1VF=3Z2JVY5V12G
97534 FIN 26
HTM
IFV
Page 1 of 1
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
securities as interest expense with respect to $3.4 million allocated to the Notes and $0.9 million allocated to the Preferred Stock as a
charge against capital. The $0.9 million charge allocated to the Preferred Stock is being accreted to dividends over the life of the
Preferred Stock.
10. Notes Payable and Long-Term Debt
The Company’s long-term debt consists of the following:
As of April 30,
2003
2002
Convertible subordinated notes (Note 9)
Unsecured subordinated notes payable to shareholders due through fiscal 2004, bearing
$41,364
interest at various rates up to 8.50%
Total long-term debt
Less: current maturities
Long-term debt
5,099 $ 14,452
46,463 14,452
(5,099) (12,818)
$41,364 $ 1,634
The Company obtained a $30 million Senior Secured Revolving Credit Facility (the “Facility”) in February 2003 from Wells
Fargo Bank. The total amount available for borrowing by the Company is limited based on certain accounts receivable balances.
Borrowings under the line of credit bear interest, at management’s discretion, either at the bank’s prime rate plus 1.0% per annum or
at the Eurodollar rate plus 2.5% per annum, which were 5.25% and 3.8%, respectively, at April 30, 2003. The Facility is secured by
substantially all of the Company’s assets including certain accounts receivable balances and guarantees by and pledges of the capital
stock of significant subsidiaries. The financial covenants include a minimum fixed charge ratio, a maximum leverage ratio, a
minimum Earnings Before Income Taxes, Depreciation and Amortization (“EBITDA”), and quick ratio and other customary events of
default. The Company had no outstanding borrowings under its’ Facility at April 30, 2003.
The Company has outstanding borrowings against the cash surrender value of COLI contracts of $66,524 and $59,867 at April
30, 2003 and 2002, respectively. These borrowings are secured by the cash surrender value, principal payments are not scheduled and
interest is payable at least annually, at various fixed and variable rates ranging from 4.5% to 8.0%. See Note 6.
11. Business Segments
The Company operates in two global business segments in the retained recruitment industry, executive recruitment and
Futurestep. These segments are distinguished primarily by the method used to identify candidates and the candidates’ level of
compensation. The executive recruitment business segment is managed by geographic regional leaders. Revenue from strategic
management assessment and other consulting engagements is included in executive recruitment. Futurestep’s worldwide operations
are managed by the President of Futurestep. The geographic regional leaders and the President of Futurestep report directly to the
Chief Executive Officer of the Company.
F-26
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY5Y2RG-Š
1*
0C
1VF=3Z2JVY5Y2RG
97534 FIN 27
HTM
IFV
Page 1 of 1
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
A summary of the Company’s operations by business segment follows:
Fee revenue:
Executive recruitment:
North America
Europe
Asia/Pacific
South America
Total executive recruitment
Futurestep
JobDirect
Total fee revenue
Reimbursed out-of-pocket engagement expenses
Total revenue
Operating income (loss) before asset impairment and restructuring
charges:
Executive recruitment:
North America
Europe
Asia/Pacific
South America
Total executive recruitment
Futurestep
JobDirect
Corporate (1)
Subtotal operating income (loss) before asset impairment and
restructuring charges:
Asset impairment and restructuring charges (Note 4)
Total operating income (loss)
Fiscal Year Ended April 30,
2003
2002
2001
$162,309 $195,522 $332,541
131,980
78,990 92,098
52,146
33,523 37,546
16,382
7,616 10,794
282,438 335,960
32,674 40,079
1,386
533,049
76,335
4,683
315,112 377,425
23,354 29,310
614,067
37,523
$338,466 $406,735 $651,590
Fiscal Year Ended April 30,
2003
2002
2001
$ 23,173 $ 33,863 $ 87,605
(306) 27,033
9,285
3,315
1,901
(752)
5,567
2,351
(602)
30,489
(4,481)
(23,031)
36,120 125,824
(15,361) (26,023)
(5,833) (11,249)
(27,360) (33,479)
$ 2,977 $ (12,434) $ 55,073
16,281
93,203
$(13,304) $(105,637) $ 55,073
(1) In fiscal 2003, the Company has presented its segment operating results to reflect the business segments without allocations of
corporate overhead. Accordingly, prior year operating results have been reclassified to reflect segment operating results on the
same basis.
F-27
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
18-Jul-2003 22:53 EST
ˆ1VF=3Z2JVYS=F=GlŠ
2*
1C
1VF=3Z2JVYS=F=G
97534 FIN 28
HTM
PMT
Page 1 of 2
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
Depreciation and amortization:
Executive recruitment:
North America
Europe
Asia/Pacific
South America
Total executive recruitment
Futurestep
JobDirect
Corporate
Total depreciation and amortization
Fiscal Year Ended April 30,
2003
2002
2001
$ 6,716
3,943
1,839
292
12,790
2,404
967
$ 6,601
3,856
1,745
399
12,601
3,677
368
836
$11,908
4,825
1,794
385
18,912
5,329
2,074
559
$16,161
$17,482
$26,874
Goodwill amortization expense included in operating income (loss) by business segment in fiscal 2001 was: $5,753 in North America,
$1,866 in Europe, $286 in Asia/Pacific, $2,040 in Futurestep and $1,581 in JobDirect.
Identifiable assets by business segment are as follows:
Identifiable assets:
Executive recruitment:
North America
Europe
Asia/Pacific
South America
Total executive recruitment
Futurestep
JobDirect
Corporate
Total identifiable assets
As of April 30,
2003
2002
2001
$137,204
63,240
32,439
6,221
239,104
37,200
92,709
$149,339
64,091
32,952
8,504
254,886
34,320
315
88,053
$158,665
93,735
39,259
12,481
304,140
53,021
37,795
101,146
$369,013
$377,574
$496,102
A summary of long-lived assets included in identifiable assets by business segment in fiscal 2003, 2002 and 2001 follows:
Long-lived assets:
Executive recruitment:
North America
Europe
Asia/Pacific
South America
Total executive recruitment
Futurestep
As of April 30,
2003
2002
2001
$ 9,969
12,370
1,467
754
$15,040
14,334
2,168
945
$21,254
14,788
3,261
1,157
24,560
2,240
32,487
5,750
40,460
10,378
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
18-Jul-2003 22:53 EST
ˆ1VF=3Z2JVYS=F=GlŠ
2*
1C
1VF=3Z2JVYS=F=G
97534 FIN 28
HTM
PMT
Page 2 of 2
CLN
JobDirect
Corporate
Total long-lived assets
315
1,696
2,054
1,564
898
$27,698
$40,248
$54,456
F-28
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL redel0cm
WLA
18-Jul-2003 08:32 EST
ˆ1VF=3Z2JVY667QGcŠ
2*
1C
1VF=3Z2JVY667QG
97534 FIN 29
HTM
PMT
Page 1 of 1
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
A summary of goodwill, net included in identifiable assets by business segment in fiscal 2003, 2002 and 2001 follows:
As of April 30,
2003
2002
2001
Goodwill
North America
Europe
Asia/Pacific
Futurestep
JobDirect
$45,558 $45,558 $ 58,934
24,607 19,897 19,468
833
23,637 19,030 17,821
28,950
861
927
Total goodwill
$94,729 $85,346 $126,006
The Company’s clients were not concentrated in any specific geographic region and no single client accounted for a significant
amount of the Company’s revenue during fiscal 2003, 2002 or 2001.
12. Acquisitions
In fiscal 2001, the Company completed two acquisitions: Westgate Group, a leading executive recruitment firm, specializing in
financial services in the eastern United States and JobDirect, an on-line recruiting service focused on college graduates and entry-
level professionals. The aggregate purchase price of these acquisitions was $47,200, consisting of 154,923 shares of the Company’s
stock valued at $3,600, notes payable of $5,000 and cash of $38,600. These acquisitions were accounted for under the purchase
method and resulted in $42,500 of goodwill. Operating results of these businesses were included in the consolidated financial
statements from their acquisition dates. In fiscal 2002, the Company recognized a goodwill impairment charge of $40,200 million
related to these acquisitions. See Note 4.
The following selected unaudited pro forma information is provided to present a summary of the combined results of the
Company and these acquisitions for fiscal year 2001 as if the acquisition had occurred as of the beginning of the respective period,
giving effect to these purchases. The pro forma data is presented for informational purposes only and may not necessarily reflect the
results of operations of the Company had these companies operated as part of the Company for the period presented, nor are they
necessarily indicative of the results of future operations.
Fee revenue
Net income
Earnings per share
Basic
Diluted
13. Commitments and Contingencies
Fiscal Year
Ended April 30,
2001
$
615,756
29,016
0.78
0.75
The Company leases office premises and certain office equipment under leases expiring at various dates through 2011. Total
rental expense for fiscal years 2003, 2002 and 2001 amounted to $22,455, $28,513 and
F-29
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY6DC0G@Š
1*
0C
1VF=3Z2JVY6DC0G
97534 FIN 30
HTM
IFV
Page 1 of 1
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
$25,892, respectively. At April 30, 2003, minimum future commitments under noncancelable operating leases with lease terms in
excess of one year aggregated $88,546, excluding commitments accrued in the restructuring liability, as follows: $21,400 in 2004,
$18,161 in 2005, $13,914 in 2006, $11,750 in 2007, $8,275 in 2008 and $15,046 thereafter. As of April 30, 2003, the Company has
outstanding standby letters of credit of $5,746 in connection with office leases.
As of April 30, 2003 the Company has employment agreements with certain of its executive officers, with initial terms through
April 2004 that provide certain benefits if these executives are terminated or resign under certain limited circumstances. The
maximum amount payable under these agreements, in aggregate, is $4,500 and $7,100 prior to and following a change in control,
respectively. In addition, all outstanding options will immediately vest and remain exercisable for periods ranging from three months
to their original expiration date following termination of employment.
The Company has a policy of entering into offer letters of employment or letters of promotion with vice presidents which
provide for an annual base salary and discretionary and incentive bonus payments. Certain key vice presidents who typically have
been employed by the firm for several years also have a standard form employment contract. In addition, the Company has a
severance policy for all of its vice presidents that provides for minimum payments based on length of service. Upon termination
without cause, the Company is required to pay the greater of the amount due under the employment contract, if any, or the severance
policy. The Company also requires its vice presidents to agree in their employment letters and their employment contracts, if
applicable, not to compete with the Company both during the term of their employment, and for a period of up to two years after their
employment ends. For a period of two years after their employment with the Company, former vice presidents are prohibited from
soliciting employees of the Company for employment outside of the Company.
From time to time the Company has been and is involved in litigation incidental to its business. The Company is currently not a
party to any litigation, which if resolved adversely against the Company, would in the opinion of the Company, have a material
adverse effect on the Company’s business, financial position or results of operations.
14. Subsequent Event (unaudited)
In May 2003, the Company completed the purchase of Futurestep minority interest. The Company purchased 527,100 shares of
Futurestep common stock at $1.00 per share. The 660,470 Futurestep stock options outstanding were canceled at the time of purchase.
15. Impact of Restatement to Equity Method of Accounting for Mexico Subsidiaries
In years prior to fiscal 2002, the Company consolidated the accounts of its subsidiaries in Mexico, in which KFY believes it has
effective control but owns less than 50% of the shareholder voting interest. While the Company believes that this presentation
reflected the way in which these subsidiaries are managed and operate, the legal structure of these entities requires the use of the
equity method of accounting under accounting principles generally accepted in the United States (“GAAP”). This legal structure was
established in 1977, which at that time, limited foreign investment. Accordingly, the accompanying consolidated financial statements
for fiscal 2001 have been restated to comply with GAAP and reflect the operations of the Mexico subsidiaries under the equity
method of accounting. The restatement to properly apply the equity method of accounting for the
F-30
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
18-Jul-2003 22:53 EST
ˆ1VF=3Z2JVYT8LZGÇŠ
2*
1C
1VF=3Z2JVYT8LZG
97534 FIN 31
HTM
PMT
Page 1 of 2
CLN
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
April 30, 2003
(dollars in thousands, except per share amounts)
Mexico subsidiaries had no impact on net income, EPS or cash flow but did reduce previously reported revenue and expenses. This
restatement was reflected in the Company’s fiscal 2002 annual report.
The following tables illustrate the impact of the adjustments to restate the Company’s previously reported financial statements to
account for the Company’s investments in its Mexico subsidiaries under the equity method (restated) as required by GAAP, instead of
the consolidation method (previously reported).
Consolidated Statement of Operations
Fee revenue
Reimbursed out-of-pocket engagement expenses
Revenue
Compensation and benefits
General and administrative expenses
Out-of-pocket engagement expenses
Depreciation and amortization
Total operating expenses
Operating income (loss)
Interest income and other income, net
Interest expense
Income before provision for income taxes & non-controlling shareholders’ interest or equity in
earnings of unconsolidated subsidiaries
Provision for income taxes
Non-controlling shareholders’ interest
Equity in earnings of unconsolidated subsidiaries
Net income
Basic EPS
Diluted EPS
Consolidated Statement of Cash Flows
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash flows
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
Fiscal 2001
Previously
Reported
Increase
(Decrease)
Restated
$631,097
38,332
$(17,030)
(809)
$614,067
37,523
669,429
(17,839)
651,590
387,776
154,263
37,494
26,989
(4,499)
(4,607)
(784)
(115)
383,277
149,656
36,710
26,874
606,522
(10,005)
596,517
62,907
(7,834)
55,073
4,813
7,421
(691)
(21)
4,122
7,400
60,299
(8,504)
51,795
25,326
3,960
(2,883)
(3,960)
1,661
22,443
—
1,661
$ 31,013
$ —
$ 31,013
$
$
0.83
0.81
$
$
0.83
0.81
Fiscal 2001
Previously
Reported
Increase
(Decrease)
Restated
$ 63,436
(55,795)
(2,325)
(3,828)
$
412
108
—
—
$ 63,848
(55,687)
(2,325)
(3,828)
1,488
86,975
520
(3,322)
2,008
83,653
$ 88,463
$ (2,802)
$ 85,661
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
F-31
18-Jul-2003 22:53 EST
ˆ1VF=3Z2JVYT8LZGÇŠ
2*
1C
1VF=3Z2JVYT8LZG
97534 FIN 31
HTM
PMT
Page 2 of 2
CLN
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.6
PAL LOWED0CM
WLA
18-Jul-2003 06:56 EST
ˆ1VF=3Z2JVY6LGBG4Š
1*
0C
1VF=3Z2JVY6LGBG
97534 FIN 32
HTM
IFV
Page 1 of 1
CLN
SCHEDULE II
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)
Additions
Allowance for Doubtful Accounts
Year Ended April 30, 2003
Year Ended April 30, 2002
Year Ended April 30, 2001
Reserve for Severance and Costs Under Corporate
Restructuring Program
Year Ended April 30, 2003
Year Ended April 30, 2002
Reserve for Acquired Termination Costs
Year Ended April 30, 2001
Balance at
Beginning
of Year
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Deductions
Balance at
End of Year
$ 7,767
12,937
12,538
$ 5,846
10,853
22,581
$ 6,414
16,023
22,182
$
7,199
7,767
12,937
12,578
16,281
93,203
2,180
11,893
80,625
14,786
12,578
2,520
F-32
2,520
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:51 EST
ˆ1VF=3Z2JVY2WFRG*Š
3*
0C
97534 EX10_13 1
HTM
ESS
Page 1 of 1
1VF=3Z2JVY2WFRG
CLN
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
This SECOND AMENDMENT (this “Amendment”) TO THE EMPLOYMENT AGREEMENT dated as of May 24, 2001, as
amended as of December 1, 2001 (the “Agreement”) is made and entered into as of July 1, 2003, by and between KORN/FERRY
INTERNATIONAL, a Delaware corporation with its principal offices in Los Angeles, California (the “Company”), and PAUL C.
REILLY, an individual (the “Executive”).
A. Amendment to Term of Employment. Section 2 is hereby amended and restated to read in its entirety as follows:
Exhibit 10.13
Term of Employment. Executive’s employment under this Agreement will begin on June 30, 2001 and will continue for
an initial term ending June 30, 2006 (the “Initial Term”). At the end of the Initial Term, this Agreement will be
automatically renewed for successive three-year periods, until the first June 30th following the date on which Executive
reaches age 65, at which time the term will expire, provided, however, that either the Company or the Executive may
terminate this Agreement at the end of the Initial Term or any subsequent three-year extension to the Initial Term by
delivering to the other party at least 60 days’ prior written notice of its election not to renew this Agreement. (In this
Agreement, the delivery of such a notice shall be referred to as a “failure to renew” the Agreement.).
B. No Other Modification. Except as specifically modified herein, the remaining terms and provisions of the Agreement
shall be and remain in full force and effect in accordance with their terms. Any reference in the Agreement pertaining to any time
from and after the effective date of this Amendment shall be deemed a reference to the Agreement as modified and amended hereby.
C. Entire Agreement. This Amendment contains the entire understanding and agreement between the parties concerning the
subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether
written or oral, between the parties with respect thereto.
D. Counterparts. This Amendment may be executed in two or more counterparts with the same effect as if all parties had
signed the same document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and
the same instrument.
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:45 EST
ˆ1VF=3Z2JVY31K1GÊ
2*
0C
97534 EX10_13 2
HTM
ESS
Page 1 of 1
1VF=3Z2JVY31K1G
CLN
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first above written.
The Company:
KORN/FERRY INTERNATIONAL
By:
Its:
By:
Charles D. Miller,
Chair of the Compensation Committee
Executive:
PAUL C. REILLY
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:50 EST
ˆ1VF=3Z2JVY3QXNG8Š
2*
0C
97534 EX10_22 1
HTM
ESS
Page 1 of 1
1VF=3Z2JVY3QXNG
CLN
Exhibit 10.22
KORN/FERRY INTERNATIONAL
AMENDMENTS
TO
PERFORMANCE AWARD PLAN
The following sets forth the amendments and modifications to the Korn/Ferry International Performance Award Plan as of July
14, 2003. Terms used herein and not otherwise defined have the meaning set forth in the Plan. These amendments and modifications
have been adopted by the Board and, as applicable, the shareholders of the Company.
Subject to stockholder approval, Section 4.3 was amended to read in its entirety as follows:
“Limit on Number of Restricted Shares. In no event shall more than 700,000 shares of Common Stock covered by the Plan be
available for Awards issued (or reissued) under this Plan as time-based Restricted Stock Awards for nominal or no consideration
other than the par value. This limit on Restricted Shares does not apply to shares issued principally for past services, to shares issued
in respect of compensation earned but deferred, or to shares issued in respect of Performance-Based Awards under Section 5.2.”
Section 8.5 was amended to read in its entirety as follows:
“Termination of Directorship. If a Non-Employee Director’s services as a member of the Board terminate for any reason, an
Option granted pursuant to this Section 8 and then held by the director, to the extent the Option is then exercisable, will remain
exercisable for 60 months after the date of termination or until the expiration of the stated term of the Option, whichever first occurs.
Any portion of an Option granted pursuant to this Section 8 that is not exercisable at the time of the termination of service will
terminate upon termination of service.”
Except as set forth above, the Plan remains in full force and effect.
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:26 EST
ˆ1VF=3Z2JVX=XVDGJŠ
4*
0C
97534 EX10_29 1
HTM
ESS
Page 1 of 1
1VF=3Z2JVX=XVDG
CLN
KORN/FERRY INTERNATIONAL
EMPLOYEE STOCK PURCHASE PLAN
Exhibit 10.29
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 13:16 EST
ˆ1VF=3Z2JVY05=CGmŠ
5*
0C
97534 EX10_29 2
HTM
ESS
Page 1 of 1
1VF=3Z2JVY05=CG
CLN
TABLE OF CONTENTS
1. PURPOSE
2. DEFINITIONS
3. ELIGIBILITY
4. STOCK SUBJECT TO THIS PLAN; SHARE LIMITATIONS
5. OFFERING PERIODS
6. PARTICIPATION
7. METHOD OF PAYMENT OF CONTRIBUTIONS
8. GRANT OF OPTION
9. EXERCISE OF OPTION
10. DELIVERY
11. TERMINATION OF EMPLOYMENT; CHANGE IN ELIGIBLE STATUS
12. ADMINISTRATION
13. DESIGNATION OF BENEFICIARY
14. TRANSFERABILITY
15. USE OF FUNDS; INTEREST
16. REPORTS
17. ADJUSTMENTS OF AND CHANGES IN THE STOCK
18. POSSIBLE EARLY TERMINATION OF PLAN AND OPTIONS
19. TERM OF PLAN; AMENDMENT OR TERMINATION
20. NOTICES
21. CONDITIONS UPON ISSUANCE OF SHARES
22. PLAN CONSTRUCTION
23. EMPLOYEES’ RIGHTS
24. MISCELLANEOUS
25. EFFECTIVE DATE
26. TAX WITHHOLDING
27. NOTICE OF SALE
28. ARBITRATION
- i -
Page
1
1
4
4
4
5
5
7
7
8
8
9
10
11
11
11
11
12
12
13
13
13
14
14
15
15
16
16
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:28 EST
ˆ1VF=3Z2JVXW15YGBŠ
4*
0C
97534 EX10_29 3
HTM
ESS
Page 1 of 1
1VF=3Z2JVXW15YG
CLN
KORN/FERRY INTERNATIONAL
EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the Korn/Ferry International Employee Stock Purchase Plan (the “Plan”).
1.
PURPOSE
The purpose of this Plan is to assist Eligible Employees in acquiring a stock ownership interest in the Corporation, at a favorable price
and upon favorable terms, pursuant to a plan which is intended to qualify as an “employee stock purchase plan” under Section 423 of
the Code. This Plan is also intended to encourage Eligible Employees to remain in the employ of the Corporation (or a Subsidiary
which may be designated by the Committee as “Participating Subsidiary”) and to provide them with an additional incentive to
advance the best interests of the Corporation.
2.
DEFINITIONS
Capitalized terms used herein which are not otherwise defined shall have the following meanings.
“Account” means the bookkeeping account maintained by the Corporation, or by a recordkeeper on behalf of the
Corporation, for a Participant pursuant to Section 7(a).
“Board” means the Board of Directors of the Corporation.
“Code” means the Internal Revenue Code of 1986, as amended from time to time.
“Committee” means the committee appointed by the Board to administer this Plan pursuant to Section 12.
“Common Stock” means the Common Stock, par value $0.01 per share, of the Corporation, and such other securities or
property as may become the subject of Options pursuant to an adjustment made under Section 17.
“Company” means, collectively, the Corporation, its Parent and its Subsidiaries (if any).
“Compensation” means an Eligible Employee’s regular gross pay. Compensation includes any amounts contributed as
salary reduction contributions to a plan qualifying under Section 401(k), 125 or 129 of the Code. Any other form of
remuneration is excluded from Compensation, including (but not limited to) the following: bonuses (including sign-on and
continuation bonuses), overtime payments, commissions, prizes, awards, relocation or housing allowances, stock option
exercises, stock appreciation rights, restricted stock exercises, performance awards, auto allowances, tuition reimbursement
and other
1
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:28 EST
ˆ1VF=3Z2JVXWBBXGtŠ
4*
0C
97534 EX10_29 4
HTM
ESS
Page 1 of 1
1VF=3Z2JVXWBBXG
CLN
forms of imputed income, incentive compensation, special payments, fees and allowances. Notwithstanding the foregoing,
Compensation shall not include any amounts deferred under or paid from any nonqualified deferred compensation plan
maintained by the Company.
“Contributions” means all bookkeeping amounts credited to the Account of a Participant pursuant to Section 7(a).
“Corporation” means Korn/Ferry International, a Delaware corporation, and its successors.
“Effective Date” means October 1, 2003, the date designated by the Board upon its adoption of this Plan.
“Eligible Employee” means any employee of the Corporation, or of any Subsidiary which has been designated in writing
by the Committee as a “Participating Subsidiary” (including any Subsidiaries which have become such after the date that
this Plan is approved by the stockholders of the Corporation). Notwithstanding the foregoing, “Eligible Employee” shall
not include any employee:
(a) who has been employed by the Corporation or a Subsidiary for less than six months; or
(b) whose customary employment is for 20 hours or less per week.
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.
“Exercise Date” means, with respect to an Offering Period, the last day of that Offering Period.
“Fair Market Value” on any date means:
(a) if the Common Stock is listed on the New York Stock Exchange or on another national securities exchange, the
closing price of a Share on the New York Stock Exchange or such other exchange on such date, or, if there is no
trading of the Common Stock as quoted on the New York Stock Exchange or such other exchange on such date, then
the closing price of a Share as quoted on the New York Stock Exchange or such other exchange on the next preceding
date on which there was trading in the Shares;
(b) if the Common Stock is not listed or admitted to trade on a national securities exchange, the last/closing price for a
Share on such date, as furnished by the National Association of Securities Dealers, Inc. (“NASD”) through the
NASDAQ National Market Reporting System or a similar organization if the NASD is no longer reporting such
information;
2
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:28 EST
ˆ1VF=3Z2JVXWMHWGjŠ
4*
0C
97534 EX10_29 5
HTM
ESS
Page 1 of 1
1VF=3Z2JVXWMHWG
CLN
(c) if the Common Stock is not listed or admitted to trade on a national securities exchange and is not reported on the
National Market Reporting System, the mean between the bid and asked price for a Share on such date, as furnished
by the NASD or a similar organization; or
(d) if the Common Stock is not listed or admitted to trade on a national securities exchange, is not reported on the
National Market Reporting System and if bid and asked prices for the Common Stock are not furnished by the NASD
or a similar organization, the value as established by the Committee at such time for purposes of this Plan.
“Grant Date” means the first day of each Offering Period, as determined by the Committee and announced to potential
Eligible Employees.
“Offering Period” means the six-consecutive month period commencing on each Grant Date; provided, however, that the
Committee may declare, as it deems appropriate and in advance of the applicable Offering Period, a shorter (not to be less
than three months) Offering Period or a longer (not to exceed 27 months) Offering Period; provided further that the Grant
Date for an Offering Period may not occur on or before the Exercise Date for the immediately preceding Offering Period.
“Option” means the stock option to acquire Shares granted to a Participant pursuant to Section 8.
“Option Price” means the per share exercise price of an Option as determined in accordance with Section 8(b).
“Parent” means any corporation (other than the Corporation) in an unbroken chain of corporations ending with the
Corporation in which each corporation (other than the Corporation) owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one or more of the other corporations in the chain.
“Participant” means an Eligible Employee who has elected to participate in this Plan and who has filed a valid and
effective Subscription Agreement to make Contributions pursuant to Section 6.
“Plan” means this Korn/Ferry International Employee Stock Purchase Plan, as amended from time to time.
“Rule 16b-3” means Rule 16b-3 as promulgated by the Securities Exchange Commission under Section 16, as amended
from time to time.
“Share” means a share of Common Stock.
“Subscription Agreement” means the written agreement filed by an Eligible Employee with the Corporation pursuant to
Section 6 to participate in this Plan.
3
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:28 EST
ˆ1VF=3Z2JVXWXNVGŠ
4*
0C
97534 EX10_29 6
HTM
ESS
Page 1 of 1
1VF=3Z2JVXWXNVG
CLN
“Subsidiary” means any corporation (other than the Corporation) in an unbroken chain of corporations (beginning with the
Corporation) in which each corporation (other than the last corporation) owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one or more of the other corporations in the chain.
3.
ELIGIBILITY
Any person employed as an Eligible Employee as of a Grant Date shall be eligible to participate in this Plan during the Offering
Period in which such Grant Date occurs, subject to the Eligible Employee satisfying the requirements of Section 6.
4.
STOCK SUBJECT TO THIS PLAN; SHARE LIMITATIONS
(a) Subject to the provisions of Section 17, the capital stock that may be delivered under this Plan will be shares of the
Corporation’s authorized but unissued Common Stock and any of its shares of Common Stock held as treasury shares. The
maximum number of Shares that may be delivered pursuant to Options granted under this Plan is 1,500,000 Shares, subject
to adjustments pursuant to Section 17 (the “Plan Limit”).
In the event that all of the Shares made available under this Plan are subscribed prior to the expiration of this Plan, this
Plan shall terminate at the end of that Offering Period and the Shares available shall be allocated for purchase by
Participants in that Offering Period on a pro-rata basis determined with respect to Participants’ Account balances.
(b) The maximum number of Shares that any one individual may acquire upon exercise of his or her Option with respect to
any one Offering Period is 12,500, subject to adjustments pursuant to Section 17 (the “Individual Limit”); provided,
however, that the Committee may amend such Individual Limit, effective no earlier than the first Offering Period
commencing after the adoption of such amendment, without stockholder approval. The Individual Limit shall be
proportionately adjusted for any Offering Period of less than six months, and may, at the discretion of the Committee, be
proportionately increased for any Offering Period of greater than six months.
5.
OFFERING PERIODS
During the term of this Plan, the Corporation will offer Options to purchase Shares in each Offering Period to all Participants in
that Offering Period. Unless otherwise specified by the Committee in advance of the Offering Period, an Offering Period that
commences on or about July 1 will end the following December 31 and an Offering Period that commences on or about January
1 will end the following June 30. Each Option shall become effective on the Grant Date. The term of each Option shall be the
duration of the related Offering Period and shall end on the Exercise Date. The first Offering Period shall commence as of a date
determined by the Board or Committee, but
4
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:28 EST
ˆ1VF=3Z2JVXX5TTG.Š
4*
0C
97534 EX10_29 7
HTM
ESS
Page 1 of 1
1VF=3Z2JVXX5TTG
CLN
no earlier than the Effective Date. Offering Periods shall continue until this Plan is terminated in accordance with Section 18 or
19, or, if earlier, until no Shares remain available for Options pursuant to Section 4.
6.
PARTICIPATION
(a) An Eligible Employee may become a participant in this Plan by completing a Subscription Agreement on a form approved
by and in a manner prescribed by the Committee (or its delegate). To become effective, a Subscription Agreement must be
signed by the Eligible Employee and filed with the Corporation at the time specified by the Committee, but in all cases
prior to the start of the Offering Period with respect to which it is to become effective, and must set forth a whole
percentage (or, if the Committee so provides, a stated amount) of the Eligible Employee’s Compensation to be credited to
the Participant’s Account as Contributions each pay period.
(b) Notwithstanding the foregoing, a Participant’s Contribution election shall be subject to the following limitations:
(i) the 5% ownership and the $25,000 annual purchase limitations set forth in Section 8(c);
(ii) a Participant may not elect to contribute more than fifteen percent (15%) of his or her Compensation each
pay period as Plan Contributions, provided, however, that the Committee shall have discretion to establish a higher
contribution percentage limit for any Offering Period that is less than six (6) months; and
(iii) such other limits, rules, or procedures as the Committee may prescribe.
(c) Subscription Agreements shall contain the Eligible Employee’s authorization and consent to the Corporation’s withholding
from his or her Compensation the amount of his or her Contributions. An Eligible Employee must execute and file with the
Corporation a new Subscription Agreement, and his or her participation election and withholding consent thereon, for each
Offering Period as a condition for participation in that Offering Period, unless the Committee expressly adopts a policy
allowing Subscription Agreements to remain in effect for subsequent Offering Periods. If the Committee adopts such a
policy, Subscription Agreements will remain in effect for subsequent Offering Periods until (i) the Eligible Employee’s
participation terminates pursuant to the terms hereof, or (ii) the Eligible Employee files a new Subscription Agreement that
becomes effective.
7.
METHOD OF PAYMENT OF CONTRIBUTIONS
(a) The Corporation shall maintain on its books, or cause to be maintained by a recordkeeper, an Account in the name of each
Participant. The Compensation
5
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:28 EST
ˆ1VF=3Z2JVXXGZSGxŠ
4*
0C
97534 EX10_29 8
HTM
ESS
Page 1 of 1
1VF=3Z2JVXXGZSG
CLN
elected to be applied as Contributions by a Participant shall be deducted from such Participant’s Compensation on each
payday during the period for payroll deductions set forth below and such payroll deductions shall be credited to that
Participant’s Account as soon as administratively practicable after such date. A Participant may not make any additional
payments to his or her Account. A Participant’s Account shall be reduced by any amounts used to pay the Option Price of
Shares acquired, or by any other amounts distributed pursuant to the terms hereof.
(b) Subject to such other rules as the Committee may adopt, payroll deductions with respect to an Offering Period shall
commence as of the first pay date which coincides with or immediately follows the applicable Grant Date and shall end on
the last pay date which coincides with or immediately precedes the applicable Exercise Date, unless sooner terminated by
the Participant as provided in this Section 7 or until his or her participation terminates pursuant to Section 11.
(c) A Participant may terminate his or her Contributions during an Offering Period (and receive a distribution of the balance of
his or her Account in accordance with Section 11) by completing and filing with the Corporation, in such form and on such
terms as the Committee (or its delegate) may prescribe, a written withdrawal form which shall be signed by the Participant.
Such termination shall be effective as soon as administratively practicable after its receipt by the Corporation. A
withdrawal election pursuant to this Section 7(c) with respect to an Offering Period shall only be effective, however, if it is
received by the Corporation prior to the Exercise Date of that Offering Period (or such earlier deadline that the Committee
may reasonably require to process the withdrawal prior to the applicable Exercise Date). Partial withdrawals of Accounts,
and other modifications or suspensions of Subscription Agreements, except as provided in Section 7(e) or 7(f), are not
permitted.
(d) During leaves of absence approved by the Corporation and meeting the requirements of Regulation Section 1.421-7(h)(2)
under the Code, a Participant may continue participation in this Plan by cash payments to the Corporation on his normal
paydays equal to the reduction in his Plan Contributions caused by his leave.
(e) A Participant may increase or decrease the level of his or her Contributions (within Plan limits) by completing and filing
with the Corporation, on such terms as the Committee (or its delegate) may prescribe, a new Subscription Agreement
which indicates such election. Subject to any other timing requirements that the Committee may impose, an election
pursuant to this Section 7(e) shall be effective with the first Offering Period that commences after the Corporation’s receipt
of such election.
(f) A Participant may discontinue (but not increase or otherwise decrease the level of) his or her Contributions, by filing with
the Corporation, on such terms as the Committee (or its delegate) may prescribe, a new Subscription Agreement that
6
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:28 EST
ˆ1VF=3Z2JVXXS3RG4Š
4*
0C
97534 EX10_29 9
HTM
ESS
Page 1 of 1
1VF=3Z2JVXXS3RG
CLN
indicates such election. Unless otherwise provided by the Committee, an election pursuant to this Section 7(f) shall be
effective no earlier than the first payroll period that starts after the Corporation’s receipt of such election.
8.
GRANT OF OPTION
(a) On each Grant Date, each Eligible Employee who is a participant during that Offering Period shall be granted an Option to
purchase a number of Shares. The Option shall be exercised on the Exercise Date. The number of Shares subject to the
Option shall be determined by dividing the Participant’s Account balance as of the applicable Exercise Date by the Option
Price, subject to the maximum determined pursuant to Section 4(b).
(b) The Option Price per Share of the Shares subject to an Option for an Offering Period shall be the lesser of: (i) 85% of the
Fair Market Value of a Share on the applicable Grant Date; or (ii) 85% of the Fair Market Value of a Share on the
applicable Exercise Date.
(c) Notwithstanding anything else contained herein, a person who is otherwise an Eligible Employee shall not be granted any
Option (or any Option granted shall be subject to compliance with the following limitations) or other right to purchase
Shares under this Plan to the extent:
(i) it would, if exercised, cause the person to own “stock” (as such term is defined for purposes of Section
423(b)(3) of the Code) possessing 5% or more of the total combined voting power or value of all classes of stock of
the Corporation, or of any Parent, or of any Subsidiary; or
(ii) such Option causes such individual to have rights to purchase stock under this Plan and any other plan of
the Corporation, any Parent, or any Subsidiary which is qualified under Section 423 of the Code which accrue at a
rate which exceeds $25,000 of the fair market value of the stock of the Corporation, of any Parent, or of any
Subsidiary (determined at the time the right to purchase such Stock is granted, before giving effect to any discounted
purchase price under any such plan) for each calendar year in which such right is outstanding at any time.
For purposes of the foregoing, a right to purchase stock accrues when it first become exercisable during the calendar year.
In determining whether the stock ownership of an Eligible Employee equals or exceeds the 5% limit set forth above, the
rules of Section 424(d) of the Code (relating to attribution of stock ownership) shall apply, and stock which the Eligible
Employee may purchase under outstanding options shall be treated as stock owned by the Eligible Employee.
9.
EXERCISE OF OPTION
Unless a Participant’s Plan participation is terminated as provided in Section 11, his or
7
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:28 EST
ˆ1VF=3Z2JVXY18QGvŠ
4*
0C
97534 EX10_29 10
HTM
ESS
Page 1 of 1
1VF=3Z2JVXY18QG
CLN
her Option for the purchase of Shares shall be exercised automatically on the Exercise Date for that Offering Period, without any
further action on the Participant’s part, and the maximum number of whole Shares subject to such Option (subject to the
Individual Limit set forth in Section 4(b) and the limitations contained in Section 8(c)) shall be purchased at the Option Price
with the balance of such Participant’s Account.
If any amount which is not sufficient to purchase a whole Share remains in a Participant’s Account after the exercise of his or
her Option on the Exercise Date: (i) such amount shall be credited to such Participant’s Account for the next Offering Period, if
he or she is then a Participant; or (ii) if such Participant is not a Participant in the next Offering Period, or if the Committee so
elects, such amount shall be refunded to such Participant as soon as administratively practicable after such date. If the Share
limit of Section 4(a) is reached, any amount that remains in a Participant’s Account after the exercise of his or her Option on the
Exercise Date to purchase the number of Shares that he or she is allocated shall be refunded to the Participant as soon as
administratively practicable after such date.
If any amount which exceeds the Individual Limit set forth in Section 4(b) or one of the limitations set forth in Section 8(c)
remains in a Participant’s Account after the exercise of his or her Option on the Exercise Date, such amount shall be refunded to
the Participant as soon as administratively practicable after such date.
10. DELIVERY
As soon as administratively practicable after the Exercise Date, the Corporation shall deliver to each Participant a certificate
representing the Shares purchased upon exercise of his or her Option. The Corporation may make available an alternative
arrangement for delivery of Shares to a recordkeeping service. The Committee (or its delegate), in its discretion, may either
require or permit Participants to elect that such certificates representing the Shares purchased or to be purchased under the Plan
be delivered to such recordkeeping service. In the event the Corporation is required to obtain from any commission or agency
authority to issue any such certificate, the Corporation will seek to obtain such authority. If the Corporation is unable to obtain
from any such commission or agency authority which counsel for the Corporation deems necessary for the lawful issuance of
any such certificate, or if for any other reason the Corporation can not issue or deliver Shares and satisfy Section 21, the
Corporation shall be relieved from liability to any Participant except that the Corporation shall return to each Participant the
amount of the balance credited to his or her Account.
11. TERMINATION OF EMPLOYMENT; CHANGE IN ELIGIBLE STATUS
(a) Except as provided in the next paragraph, if a Participant ceases to be an Eligible Employee for any reason, or if the
Participant elects to terminate and withdraw Contributions pursuant to Section 7(c), at any time prior to the last day of an
Offering Period in which he or she participates, such Participant’s Account shall be paid to him or her in cash (or, in the
event of the Participant’s death, to the person or persons entitled thereto under Section 13 in cash) as soon as
8
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:28 EST
ˆ1VF=3Z2JVXYBFPGNŠ
4*
0C
97534 EX10_29 11
HTM
ESS
Page 1 of 1
1VF=3Z2JVXYBFPG
CLN
administratively practicable but in no event more than sixty (60) days following such cessation or such election, and such
Participant’s Option and participation in the Plan shall be automatically terminated.
If a Participant (i) ceases to be an Eligible Employee during an Offering Period but remains an employee of the Company
through the Exercise Date, (ii) discontinues Contributions pursuant to Section 7(f), or (iii) during an Offering Period
commences a sick leave, military leave, or other leave of absence approved by the Company, and the leave meets the
requirements of Treasury Regulation Section 1.421-7(h)(2) and the Participant is an employee of the Company or on such
leave as of the applicable Exercise Date, such Participant’s Contributions shall cease (subject to Section 7(d)), and the
Contributions previously credited to the Participant’s Account for that Offering Period shall be used to exercise the
Participant’s Option as of the applicable Exercise Date in accordance with Section 9 (unless the Participant makes a timely
election to terminate and withdraw Contributions in accordance with Section 7(c), in which case such Participant’s
Account shall be paid to him or her in cash in accordance with the foregoing paragraph).
(b) A Participant’s termination from Plan participation precludes the Participant from again participating in this Plan during
that Offering Period. However, such termination shall not have any effect upon his or her ability to participate in any
succeeding Offering Period, provided that the applicable eligibility and participation requirements are again then met. A
Participant’s termination from Plan participation shall be deemed to be a revocation of that Participant’s Subscription
Agreement and such Participant must file a new Subscription Agreement to resume Plan participation in any succeeding
Offering Period.
(c) For purposes of this Plan, if a Participating Subsidiary ceases to be a Subsidiary, each person employed by that Subsidiary
will be deemed to have terminated employment for purposes of this Plan and will no longer be an Eligible Employee,
unless the person continues as an Eligible Employee in respect of another Company entity.
12. ADMINISTRATION
(a) The Board shall appoint the Committee, which shall be composed of not less than two members of the Board. The Board
may, at any time, increase or decrease the number of members of the Committee, may remove from membership on the
Committee all or any portion of its members, and may appoint such person or persons as it desires to fill any vacancy
existing on the Committee, whether caused by removal, resignation, or otherwise. The Board may also, at any time, assume
the administration of this Plan, in which case references to the “Committee” shall be deemed to be references to the Board.
(b) The Committee shall supervise and administer this Plan and shall have full power and discretion to adopt, amend and
rescind any rules deemed desirable and
9
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:29 EST
ˆ1VF=3Z2JVXYMLNG6Š
4*
0C
97534 EX10_29 12
HTM
ESS
Page 1 of 1
1VF=3Z2JVXYMLNG
CLN
appropriate for the administration of this Plan and not inconsistent with the terms of this Plan, and to make all other
determinations necessary or advisable for the administration of this Plan. The Committee shall act by majority vote or by
unanimous written consent. No member of the Committee shall be entitled to act on or decide any matter relating solely to
himself or herself or solely to any of his or her rights or benefits under this Plan. The Committee shall have full power and
discretionary authority to construe and interpret the terms and conditions of this Plan, which construction or interpretation
shall be final and binding on all parties including the Company, Participants and beneficiaries. The Committee may
delegate ministerial non-discretionary functions to third parties, including individuals who are officers or employees of the
Corporation.
(c) Subject only to compliance with the express provisions hereof, the Board and Committee may act in their absolute
discretion in matters within their authority related to this Plan. Any action taken by, or inaction of, the Corporation, any
Participating Subsidiary, the Board or the Committee relating or pursuant to this Plan shall be within the absolute
discretion of that entity or body and will be conclusive and binding upon all persons. In making any determination or in
taking or not taking any action under this Plan, the Board or Committee, as the case may be, may obtain and may rely on
the advice of experts, including professional advisors to the Corporation. No member of the Board or Committee, or officer
or agent of the Company, will be liable for any action, omission or decision under the Plan taken, made or omitted in good
faith.
13. DESIGNATION OF BENEFICIARY
(a) A Participant shall file, on a form and in a manner prescribed by the Committee (or its delegate), a written designation of a
beneficiary who is to receive any Shares or cash from such Participant’s Account under this Plan in the event of such
Participant’s death. If a Participant’s death occurs subsequent to the end of an Offering Period but prior to the delivery to
him or her of any Shares deliverable under the terms of this Plan, such Shares and any remaining balance of such
Participant’s Account shall be paid to such beneficiary (or such other person as set forth in Section 13(b)) as soon as
administratively practicable after the Corporation receives notice (in a form acceptable to the Committee) of such
Participant’s death and any outstanding unexercised Option shall terminate. If a Participant’s death occurs at any other
time, the balance of such Participant’s Account shall be paid to such beneficiary (or such other person as set forth in
Section 13(b)) in cash as soon as administratively practicable after the Corporation receives notice of such Participant’s
death and such Participant’s Option shall terminate. If a Participant is married and the designated beneficiary is not his or
her spouse, spousal consent shall be required for such designation to be effective unless it is established (to the satisfaction
of the Committee or its delegate) that there is no spouse or that the spouse cannot be located. The Committee may rely on
the last designation of a beneficiary filed by a Participant in accordance with this Plan.
10
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:29 EST
ˆ1VF=3Z2JVXYXRMG,Š
4*
0C
97534 EX10_29 13
HTM
ESS
Page 1 of 1
1VF=3Z2JVXYXRMG
CLN
(b) Beneficiary designations may be changed by the Participant (and his or her spouse, if required) at any time on forms
provided and in the manner prescribed by the Committee (or its delegate). If a Participant dies with no validly designated
beneficiary under this Plan who is living at the time of such Participant’s death, the Corporation shall deliver all Shares
and/or cash payable pursuant to the terms hereof to the executor or administrator of the estate of the Participant, or if no
such executor or administrator has been appointed, the Corporation, in its discretion, may deliver such Shares and/or cash
to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is
known to the Corporation, then to such other person as the Corporation may designate.
14. TRANSFERABILITY
Neither Contributions credited to a Participant’s Account nor any Options or rights with respect to the exercise of Options or
right to receive Shares under this Plan may be anticipated, alienated, encumbered, assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and distribution, or as provided in Section 13) by the Participant.
Any such attempt at anticipation, alienation, encumbrance, assignment, transfer, pledge or other disposition shall be without
effect and all amounts shall be paid and all Shares shall be delivered in accordance with the provisions of this Plan. Amounts
payable or Shares deliverable pursuant to this Plan shall be paid or delivered only to the Participant or, in the event of the
Participant’s death, to the Participant’s beneficiary pursuant to Section 13.
15. USE OF FUNDS; INTEREST
All Contributions received or held by the Corporation under this Plan will be included in the general assets of the Corporation
and may be used for any corporate purpose. Notwithstanding anything else contained herein to the contrary, no interest will be
paid to any Participant or credited to his or her Account under this Plan (in respect of Account balances, refunds of Account
balances, or otherwise).
16. REPORTS
Statements shall be provided to Participants as soon as administratively practicable following each Exercise Date. Each
Participant’s statement shall set forth, as of such Exercise Date, that Participant’s Account balance immediately prior to the
exercise of his or her Option, the Option Price, the number of whole Shares purchased and his or her remaining Account
balance, if any.
17. ADJUSTMENTS OF AND CHANGES IN THE STOCK
Upon or in contemplation of any reclassification, recapitalization, stock split (including a stock split in the form of a stock
dividend), or reverse stock split; any merger, combination, consolidation, or other reorganization; split-up, spin-off, or any
similar extraordinary dividend distribution in respect of the Common Stock (whether in the form of securities or property); any
exchange of Common Stock or other securities of the
11
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:29 EST
ˆ1VF=3Z2JVXZ5XLGoŠ
5*
0C
97534 EX10_29 14
HTM
ESS
Page 1 of 1
1VF=3Z2JVXZ5XLG
CLN
Corporation, or any similar, unusual or extraordinary corporate transaction in respect of the Common Stock; or a sale of
substantially all the assets of the Corporation as an entirety occurs; then the Committee shall, in such manner, to such extent (if
any) and at such time as it deems appropriate and equitable in the circumstances:
(a) proportionately adjust any or all of (i) the number and type of Shares or the number and type of other securities that
thereafter may be made the subject of Options (including the specific maxima and numbers of Shares set forth elsewhere in
this Plan), (ii) the number, amount and type of Shares (or other securities or property) subject to any or all outstanding
Options, (iii) the Option Price of any or all outstanding Options, or (iv) the securities, cash or other property deliverable
upon exercise of any outstanding Options; or
(b) make provision for a cash payment or for the substitution or exchange of any or all outstanding Options for cash, securities
or property to be delivered to the holders of any or all outstanding Options based upon the distribution or consideration
payable to holders of the Common Stock upon or in respect of such event.
The Committee may adopt such valuation methodologies for outstanding Options as it deems reasonable in the event of a cash
or property settlement and, without limitation on other methodologies, may base such settlement solely upon the excess (if any)
of the amount payable upon or in respect of such event over the exercise or strike price of the Option.
In any of such events, the Committee may take such action sufficiently prior to such event to the extent that the Committee
deems the action necessary to permit the Participant to realize the benefits intended to be conveyed with respect to the
underlying shares in the same manner as is or will be available to stockholders generally.
18. POSSIBLE EARLY TERMINATION OF PLAN AND OPTIONS
Upon a dissolution of the Corporation, or any other event described in Section 17 that the Corporation does not survive, the Plan
shall terminate, and if such event occurs prior to the last day of an Offering Period, any outstanding Option granted with respect
to that Offering Period shall also terminate. However, termination of the Plan or of any Option under this Section 18 shall be
subject to any provision that has been expressly made by the Board for the survival, substitution, assumption, exchange or other
settlement of the Plan and Options. In the event a Participant’s Option is terminated pursuant to this Section 18 without a
provision having been made by the Board for a substitution, exchange or other settlement of the Option, such Participant’s
Account shall be paid to him or her in cash without interest.
19. TERM OF PLAN; AMENDMENT OR TERMINATION
(a) This Plan shall become effective as of the Effective Date. No new Offering Periods shall commence on or after the day
before the tenth anniversary of the Effective Date and this Plan shall terminate as of the Exercise Date on or
12
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:29 EST
ˆ1VF=3Z2JVXZH1KGÊ
4*
0C
97534 EX10_29 15
HTM
ESS
Page 1 of 1
1VF=3Z2JVXZH1KG
CLN
immediately following such date unless sooner terminated pursuant to Section 4, Section 18, or this Section 19.
(b) The Board may, at any time, terminate or, from time to time, amend, modify or suspend this Plan, in whole or in part,
without notice (including, without limitation, the limits of Sections 4(b), 6(b)(ii), and 6(b)(iii)). Stockholder approval for
any amendment or modification shall not be required, except to the extent required by applicable law or required under
Section 423 of the Code in order to preserve the intended tax consequences of this Plan, or otherwise deemed necessary or
advisable by the Board. No Options may be granted during any suspension of this Plan or after the termination of this Plan,
but the Committee will retain jurisdiction as to Options then outstanding in accordance with the terms of this Plan. No
amendment, modification, or termination pursuant to this Section 19(b) shall, without written consent of the Participant,
affect in any manner materially adverse to the Participant any rights or benefits of such Participant or obligations of the
Corporation under any Option granted under this Plan prior to the effective date of such change. Changes contemplated by
Section 17 or Section 18 shall not be deemed to constitute changes or amendments requiring Participant consent.
Notwithstanding the foregoing, the Committee shall have the right to designate from time to time the Subsidiaries whose
employees may be eligible to participate in this Plan and such designation shall not constitute any amendment to this Plan
requiring stockholder approval.
20. NOTICES
All notices or other communications by a Participant to the Corporation contemplated by this Plan shall be deemed to have been
duly given when received in the form and manner specified by the Committee (or its delegate) at the location, or by the person,
designated by the Committee (or its delegate) for that purpose.
21. CONDITIONS UPON ISSUANCE OF SHARES
This Plan, the granting of Options under this Plan and the offer, issuance and delivery of Shares are subject to compliance with
all applicable federal and state laws, rules and regulations (including but not limited to state and federal securities laws) and to
such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Corporation, be
necessary or advisable in connection therewith. The person acquiring any securities under this Plan will, if requested by the
Corporation and as a condition precedent to the exercise of his or her Option, provide such assurances and representations to the
Corporation as the Committee may deem necessary or desirable to assure compliance with all applicable legal and accounting
requirements.
22. PLAN CONSTRUCTION
(a) It is the intent of the Corporation that transactions involving Options under this Plan in the case of Participants who are or
may be subject to the prohibitions of Section 16 of the Exchange Act satisfy the requirements for applicable
13
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:29 EST
ˆ1VF=3Z2JVXZS6JGhŠ
4*
0C
97534 EX10_29 16
HTM
ESS
Page 1 of 1
1VF=3Z2JVXZS6JG
CLN
exemptions under Rule 16 promulgated by the Securities Exchange Commission under Section 16 of the Exchange Act so
that such persons (unless they otherwise agree) will be entitled to the exemptive relief of Rule 16b-3 or other exemptive
rules under Section 16 of the Exchange Act in respect of those transactions and will not be subject to avoidable liability
thereunder.
(b) This Plan and Options are intended to qualify under Section 423 of the Code.
(c) If any provision of this Plan or of any Option would otherwise frustrate or conflict with the intents expressed above, that
provision to the extent possible shall be interpreted so as to avoid such conflict. If the conflict remains irreconcilable, the
Committee may disregard the provision if it concludes that to do so furthers the interest of the Corporation and is
consistent with the purposes of this Plan as to such persons in the circumstances.
23. EMPLOYEES’ RIGHTS
(a) Nothing in this Plan (or in any other documents related to this Plan) will confer upon any Eligible Employee or Participant
any right to continue in the employ or other service of the Company, constitute any contract or agreement of employment
or other service or effect an employee’s status as an employee at will, nor shall interfere in any way with the right of the
Company to change such person’s compensation or other benefits or to terminate his or her employment or other service
with or without cause. Nothing contained in this Section 23(a), however, is intended to adversely affect any express
independent right of any such person under a separate employment or service contract other than a Subscription
Agreement.
(b) No Participant or other person will have any right, title or interest in any fund or in any specific asset (including Shares) of
the Company by reason of any Option hereunder. Neither the provisions of this Plan (or of any related documents), nor the
creation or adoption of this Plan, nor any action taken pursuant to the provisions of this Plan will create, or be construed to
create, a trust of any kind or a fiduciary relationship between the Company and any Participant or other person. To the
extent that a Participant or other person acquires a right to receive payment pursuant to this Plan, such right will be no
greater than the right of any unsecured general creditor of the Corporation. No special or separate reserve, fund or deposit
will be made to assure any such payment.
(c) A Participant will not be entitled to any privilege of stock ownership as to any Shares not actually delivered to and held of
record by the Participant. No adjustment will be made for dividends or other rights as a stockholder for which a record date
is prior to such date of delivery.
24. MISCELLANEOUS
(a) This Plan, the Options, and related documents shall be governed by, and construed in accordance with, the laws of the
State of Delaware. If any provision
14
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:29 EST
ˆ1VF=3Z2JVX=1CHG!Š
4*
0C
97534 EX10_29 17
HTM
ESS
Page 1 of 1
1VF=3Z2JVX=1CHG
CLN
shall be held by a court of competent jurisdiction to be invalid and unenforceable, the remaining provisions of this Plan
shall continue in effect.
(b) Captions and headings are given to the sections of this Plan solely as a convenience to facilitate reference. Such captions
and headings shall not be deemed in any way material or relevant to the construction of interpretation of this Plan or any
provision hereof.
(c) The adoption of this Plan shall not affect any other Company compensation or incentive plans in effect. Nothing in this
Plan will limit or be deemed to limit the authority of the Board or Committee (i) to establish any other forms of incentives
or compensation for employees of the Company (with or without reference to the Common Stock), or (ii) to grant or
assume options (outside the scope of and in addition to those contemplated by this Plan) in connection with any proper
corporate purpose; to the extent consistent with any other plan or authority.
(d) Benefits received by a Participant under an Option granted pursuant to this Plan shall not be deemed a part of the
Participant’s compensation for purposes of the determination of benefits under any other employee welfare or benefit plans
or arrangements, if any, provided by the Company, except where the Committee or the Board expressly otherwise provides
or authorizes in writing.
25. EFFECTIVE DATE
Notwithstanding anything else contained herein to the contrary, the effectiveness of this Plan is subject to the approval of this
Plan by the stockholders of the Corporation within twelve months of the Effective Date. Notwithstanding anything else
contained herein to the contrary, no Shares shall be issued or delivered under this Plan until such stockholder approval is
obtained and, if such stockholder approval is not obtained within such twelve-month period of time, all Contributions credited to
a Participant’s Account hereunder shall be refunded to such Participant (without interest) as soon as practicable after the end of
such twelve-month period.
26. TAX WITHHOLDING
Notwithstanding anything else contained in this Plan herein to the contrary, the Company may deduct from a Participant’s
Account balance as of an Exercise Date, before the exercise of the Participant’s Option is given effect on such date, the amount
of any taxes which the Company reasonably determines it may be required to withhold with respect to such exercise. In such
event, the maximum number of whole Shares subject to such Option (subject to the other limits set forth in this Plan) shall be
purchased at the Option Price with the balance of the Participant’s Account (after reduction for the tax withholding amount).
Should the Company for any reason be unable, or elect not to, satisfy its tax withholding obligations in the manner described in
the preceding paragraph with respect to a Participant’s exercise of an Option, or should the Company reasonably determine that
it has a tax withholding obligation with respect to a disposition of Shares acquired pursuant
15
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:29 EST
ˆ1VF=3Z2JVX=BJGGlŠ
4*
0C
97534 EX10_29 18
HTM
ESS
Page 1 of 1
1VF=3Z2JVX=BJGG
CLN
to the exercise of an Option prior to satisfaction of the holding period requirements of Section 423 of the Code, the Company
shall have the right at its option to (i) require the Participant to pay or provide for payment of the amount of any taxes which the
Company reasonably determines that it is required to withhold with respect to such event or (ii) deduct from any amount
otherwise payable to or for the account of the Participant the amount of any taxes which the Company reasonably determines
that it is required to withhold with respect to such event.
27. NOTICE OF SALE
Any person who has acquired Shares under this Plan shall give prompt written notice to the Corporation of any sale or other
transfer of the Shares if such sale or transfer occurs (i) within the two-year period after the Grant Date of the Offering Period
with respect to which such Shares were acquired, or (ii) within the twelve-month period after the Exercise Date of the Offering
Period with respect to which such Shares were acquired.
28. ARBITRATION
Any controversy arising out of or relating to this Plan, and/or the Subscription Agreement, their enforcement or interpretation, or
because of an alleged breach, default, or misrepresentation in connection with any of their provisions, or any other controversy
arising out of or related to the Option, including, but not limited to, any state or federal statutory claims, shall be submitted to
arbitration in Los Angeles County, California, before a sole arbitrator selected from Judicial Arbitration and Mediation Services,
Inc., Los Angeles County, California, or its successor (“JAMS”), or if JAMS is no longer able to supply the arbitrator, such
arbitrator shall be selected from the American Arbitration Association, and shall be conducted in accordance with the provisions
of California Code of Civil Procedure §§ 1280 et seq. as the exclusive forum for the resolution of such dispute; provided,
however, that provisional injunctive relief may, but need not, be sought by any interested party to this Plan and/or the
Subscription Agreement in a court of law while arbitration proceedings are pending, and any provisional injunctive relief
granted by such court shall remain effective until the matter is finally determined by the arbitrator. Final resolution of any
dispute through arbitration may include any remedy or relief which the arbitrator deems just and equitable, including any and all
remedies provided by applicable state or federal statutes. At the conclusion of the arbitration, the arbitrator shall issue a written
decision that sets forth the essential findings and conclusions upon which the arbitrator’s award or decision is based. Any award
or relief granted by the arbitrator hereunder shall be final and binding on the parties hereto and may be enforced by any court of
competent jurisdiction. The parties acknowledge and agree that they are hereby waiving any rights to trial by jury in any action,
proceeding or counterclaim brought by either of the parties against the other in connection with any matter whatsoever arising
out of or in any way connected with any of the matters referenced in the first sentence above. The parties agree that Corporation
shall be responsible for payment of the forum costs of any arbitration hereunder, including the arbitrator’s fee. The parties
further agree that in any proceeding with respect to such matters, each party shall bear its own attorney’s fees and costs (other
than forum costs
16
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:29 EST
ˆ1VF=3Z2JVX=MPFGbŠ
4*
0C
97534 EX10_29 19
HTM
ESS
Page 1 of 1
1VF=3Z2JVX=MPFG
CLN
associated with the arbitration) incurred by it or him or her in connection with the resolution of the dispute.
17
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:21 EST
ˆ1VF=3Z2JVY0P7NGaŠ
2*
0C
97534 EX21_1 1
HTM
ESS
Page 1 of 1
1VF=3Z2JVY0P7NG
CLN
Subsidiaries
1. Korn Ferry International S.A.
2. Korn/Ferry International Pty Limited
3.
Futurestep (Australia) Pty Ltd
4. Korn/Ferry International Limited GmbH
5. Korn/Ferry International Futurestep (Osrerreich) GmbH
6. Korn/Ferry International Futurestep (Belgium) BVBA
7. Korn/Ferry International S/C Ltda.
8. Korn/Ferry Canada, Inc.
9. Korn/Ferry International Futurestep (Canada) Inc.
10. Korn/Ferry International Limited
11. Korn/Ferry International, S.A.
12. Korn/Ferry International (China) Limited
13. Korn/Ferry International Consulting (Beijing) Limited
14. Korn/Ferry International Management Consulting (Shanghai) Company Limited
15. Korn/Ferry International A/S
16. Korn/Ferry International Futurestep (Denmark) ApS
17. Korn/Ferry International Oy
18. Korn/Ferry International Futurestep (Finland)
Exhibit 21.1
Jurisdiction
Argentina
Australia
Australia
Austria
Austria
Belgium
Brazil
Canada
Canada
Ontario, Canada
Chile
China
Beijing, China
Shanghai, China
Denmark
Denmark
Finland
Finland
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
17-Jul-2003 11:21 EST
ˆ1VF=3Z2JVY0WBZGPŠ
2*
0C
97534 EX21_1 2
HTM
ESS
Page 1 of 1
1VF=3Z2JVY0WBZG
CLN
Subsidiaries
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
Korn/Ferry International & Cie, S.N.C.
Korn/Ferry International Futurestep (France) SARL
Hofman, Herbold & Partner Management Beratung
Gabriele 7 Vermögensberatungs GmbH
Hofmann, Herbold & Partners Beteiligungs GmbH
Korn/Ferry International GmbH
Korn/Ferry International Futurestep (Deutschland) GmbH
Korn/Ferry International Futurestep Multimedia Advertising GmbH
Korn/Ferry International SA
Korn/Ferry International (Asia Pacific) Limited
Korn/Ferry International (H.K.) Limited
Futurestep (Hong Kong) Ltd
Korn/Ferry International Budapest Personnel Consulting and Service Ltd.
Korn/Ferry Consultants (India) Private Limited
PT. Korn/Ferry International
Korn/Ferry International Futurestep (Ireland) Ltd
Korn/Ferry International S.R.L.
Korn/Ferry International Futurestep (Italy) S.r.l.
Nippon Korn/Ferry International
Futurestep (Japan) K.K.
Korn/Ferry International (Korea) Limited
Korn/Ferry International Futurestep (Luxembourg) SARL
Jurisdiction
France
France
Germany
Germany
Germany
Germany
Germany
Germany
Greece
Hong Kong
Hong Kong
Hong Kong
Hungary
India
Indonesia
Ireland
Italy
Italy
Japan
Japan
Korea
Luxembourg
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
Subsidiaries
John Stork BV
41. Agensi Pekerjaan Futurestep Worldwide (M) Sdn. Bhd.
42. Agensi Pekerjaan Korn/Ferry International (Malaysia) Sdn. Bhd.
43. Korn/Ferry Investment India Limited (Mauritius OCB)
44. Korn/Ferry Internacional del Norte, S.A. de C.V.
45. Korn/Ferry International S.A. de C.V.
46.
Postgraduados y Especialistas S.A. de C.V.
Servicios Romac S.A. de C.V.
47.
48. Korn/Ferry International B.V.
49. Korn/Ferry International Futurestep (Holdings) B.V.
50.
51. Korn Ferry International NZ Limited
Futurestep (New Zealand) Ltd
52.
53. Korn/Ferry International A/S
54. Korn/Ferry International Futurestep (Norge) AS
55. Korn/Ferry International – Peru S.A.
56. Korn/Ferry International Sp.z.o.o.
57. Korn/Ferry International Pte. Ltd.
Futurestep (Singapore) Pte Ltd
58.
59. Korn/Ferry International, spol.s.r.o. LLC
60. Korn/Ferry International S.A.
17-Jul-2003 11:46 EST
ˆ1VF=3Z2JVY14HYG,Š
3*
0C
97534 EX21_1 3
HTM
ESS
Page 1 of 1
1VF=3Z2JVY14HYG
CLN
Jurisdiction
Malaysia
Malaysia
Mauritius
Mexico
Mexico
Mexico
Mexico
Netherlands
Netherlands
Netherlands
New Zealand
New Zealand
Norway
Norway
Peru
Poland
Singapore
Singapore
Slovakia
Spain
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
Subsidiaries
61. Korn/Ferry International Futurestep (Espana), S.L.
62. Korn/Ferry International AB
63. Korn/Ferry International Futurestep (Sweden) AB
64. Korn/Ferry (Schweiz) AG
65. REMCO Research & Management Consulting Services S.A.
66. Korn/Ferry International Futurestep (Schweiz) Gmbh
67. Korn-Ferry International S.A.
68. Korn-Ferry S.A. (Geneva)
69. DRF-DR-MIRO Korn/Ferry International
70. DRF Beteiligungs AG
71. BGU AG
72. DR MIRO AG
73. Korn/Ferry (Thailand) Limited
74. Korn/Ferry International Executive Recruitment (Thailand) Limited
Futurestep (UK) Limited
75.
76. Korn/Ferry International, Limited
77. K/FI (UK) Limited
78.
79. Carre, Orban & Partners Ltd.
80. Carre, Orban & Partners Two Ltd.
81. Continental American Management Corp.
Pintab Associates Limited
17-Jul-2003 11:32 EST
ˆ1VF=3Z2JVY1BM7GnŠ
2*
0C
97534 EX21_1 4
HTM
ESS
Page 1 of 1
1VF=3Z2JVY1BM7G
CLN
Jurisdiction
Spain
Sweden
Sweden
Switzerland
Switzerland
Switzerland
Geneva, Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Thailand
Thailand
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United States
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
paldoc
7.9.12
PAL bunne0cm
WLA
Subsidiaries
Pearson, Caldwell & Farnsworth, Inc.
Strategic Compensation Associates
82.
Strategic Associate Consulting
83. Korn/Ferry International Holding India
84. Korn/Ferry S.A.
85.
86.
87. Avery & Associates, Inc.
88. KFI-LK, Inc.
89. Korn/Ferry International Futurestep, Inc.
90. Korn/Ferry International Futurestep (Holdings) Inc.
91. Korn/Ferry International Worldwide, Inc.
92.
93. Korn/Ferry Careerlink
94. Korn/Ferry International Consultores Asociados, C.A.
95. K/F Konexion, C.A.
96. Korn/Ferry International de Venezuela, C.A.
JobDirect.com, Inc.
17-Jul-2003 11:34 EST
ˆ1VF=3Z2JVY1JQKG~Š
2*
0C
97534 EX21_1 5
HTM
ESS
Page 1 of 1
1VF=3Z2JVY1JQKG
CLN
Jurisdiction
United States
United States, California
United States, California
United States, California
United States, California
United States, California
United States, Delaware
United States, Delaware
United States, Delaware
United States, Delaware
United States, Delaware
United States
Venezuela
Venezuela
Venezuela
KORN/FERRY INTERNATI
FORM 10-K
R.R. Donnelley ProFile
172.21.5.197
7.9.12
PAL rawas0pa
WLA
18-Jul-2003 23:14 EST
ˆ1VF=3Z2JVYYKYHG}Š
6*
1C
97534 EX23_1 1
HTM
ESS
Page 1 of 1
1VF=3Z2JVYYKYHG
CLN
CONSENT OF INDEPENDENT AUDITORS
Exhibit 23.1
We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-49580 and 333-73147)
pertaining to the Korn/Ferry International Performance Award Plan of our report dated May 27, 2003, except for Note 6, which date
is June 2, 2003, with respect to the consolidated financial statements and financial statement schedule of Korn Ferry International as
of April 30, 2003, and for the two-year period then ended, included in the Company’s Annual Report (Form 10-K) for the year ended
April 30, 2003.
/s/ ERNST & YOUNG LLP
Los Angeles, California
July 18, 2003