<PAGE>
As filed with the Securities and Exchange Commission on November 3, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KORN/FERRY INTERNATIONAL
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 7361 95-2623879
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1800 Century Park East, Suite 900
Los Angeles, California 90067
(310) 552-1834
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
---------------
Peter L. Dunn
1800 Century Park East, Suite 900
Los Angeles, California 90067
(310) 843-4100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Steven B. Stokdyk Kenneth M. Doran
Sullivan & Cromwell Gibson, Dunn & Crutcher LLP
1888 Century Park East 333 South Grand Avenue
Los Angeles, California 90067 Los Angeles, California 90071
(310) 712-6600 (213) 229-7000
</TABLE>
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered Per Share(1) Offering Price(1) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share....... 3,450,000 shares $34.50 $119,025,000 $31,423
</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) of the Securities Act of 1933, as amended. Pursuant to Rule
457, the maximum offering price of the shares of Korn/Ferry Common Stock
being registered is $34.50 per share, the average of the high and low
reported sales prices of a share of Korn/Ferry Common Stock reported on
the New York Stock Exchange Composite Tape on October 30, 2000, and the
maximum aggregate offering price is the product of $34.50 and the number
of shares of Korn/Ferry Common Stock being registered.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The Information in this prospectus is not complete and may be changed. The +
+selling stockholders may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus is not an offer to sell these securities and the selling +
+stockholders are not soliciting offers to buy these securities in any state +
+where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued November , 2000
3,000,000 Shares
[LOGO OF] KORN/FERRY INTERNATIONAL
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COMMON STOCK
-----------
The selling stockholders are offering 3,000,000 shares of common stock of
Korn/Ferry International. We will not receive any of the proceeds from the sale
of the shares of our common stock in this offering.
-----------
Our common stock is listed on the New York Stock Exchange under the symbol
"KFY." On November 2, 2000, the reported last sale price of our common stock on
the New York Stock Exchange was $38.00 per share.
-----------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 5.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
Price Underwriting Proceeds to
to Discounts and Selling
Public Commissions Stockholders
------ ------------- ------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total......................................... $ $ $
</TABLE>
The selling stockholders have granted the underwriters the right to purchase up
to an additional 450,000 shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined whether this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 2000.
-----------
MORGAN STANLEY DEAN WITTER
PAINEWEBBER INCORPORATED
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
Special Note Regarding Forward-Looking Statements........................ 10
Use of Proceeds.......................................................... 11
Dividend Policy.......................................................... 11
Common Stock Price Range................................................. 11
Capitalization........................................................... 12
Selected Consolidated Financial Data..................................... 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 14
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business................................................................... 23
Management................................................................. 31
Principal and Selling Stockholders......................................... 33
Description of Capital Stock............................................... 35
Underwriters............................................................... 38
Validity of Common Stock................................................... 40
Experts.................................................................... 40
Where You Can Find More Information........................................ 40
Index to Consolidated Financial Statements................................. F-1
</TABLE>
----------------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you
with information different from that contained or incorporated by reference in
this prospectus. We are offering to sell, and seeking offers to buy, common
stock only in jurisdictions where offers and sales are permitted. The
information contained or incorporated by reference in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or any sale of our common stock.
In this prospectus, "Korn/Ferry," the "Company," "we," "us," and "our" refer
to Korn/Ferry International and our consolidated subsidiaries and affiliates.
All references to "Futurestep" refer to Korn/Ferry International Futurestep,
Inc., our subsidiary, or the Internet based search service offered by us
through that subsidiary. Our fiscal year ends on April 30 of each calendar
year.
We have not taken any action to permit a public offering of the shares of
common stock outside the United States or to permit the possession or
distribution of this prospectus outside the United States. Persons outside the
United States who come into possession of this prospectus must inform
themselves about and observe any restrictions relating to the offering of the
shares of common stock and the distribution of this prospectus outside of the
United States.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our financial statements and notes thereto incorporated or
included elsewhere in this prospectus.
KORN/FERRY INTERNATIONAL
We are the preeminent recruitment firm with the broadest global presence in
the recruitment industry. We have three primary lines of business, executive
recruitment, middle management recruitment and other technology based services,
including services addressing the college recruitment market.
Executive Recruitment
We have approximately 530 executive recruitment consultants across 40
countries. Our global reputation, strong client relationships, senior-level
search expertise, innovation and technological leadership provide us with
distinct competitive advantages. We have been ranked first in worldwide revenue
among Hunt-Scanlon's top executive recruitment firms based in North America
through fiscal 1999 and believe we currently generate the highest revenue of
any executive recruitment firm. In fiscal 2000, we had total revenue of $500.7
million and performed over 7,700 assignments for more than 4,900 clients,
including nearly half of the companies in the Fortune 500. 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 governmental and not-
for-profit organizations.
Middle Management Recruitment
We are a leading innovator in addressing the fundamental transformation of
the marketplace caused by the combined impact of advanced technology and the
Internet. In anticipation of these changing industry dynamics, and in response
to clients' demand for middle management recruitment services, we introduced
Futurestep, an Internet based recruitment service. Futurestep combines our
search expertise with exclusive candidate assessment tools and the reach of the
Internet to accelerate recruitment of candidates for middle management
positions and assess cultural compatibility. Futurestep performed over 800
assignments and generated $21.6 million in revenue during the first quarter of
fiscal 2001. As of October 31, 2000, over 840,000 candidates have completed a
detailed online profile with Futurestep.
Other Technology Based Services
Our track record of leadership and innovation is further demonstrated as we
continue to invest in technology to extend our market position and bring a
broader set of capabilities and services to new and existing clients. These
include:
. JobDirect.com, Inc., our Internet based college recruiting service
company that provides an entry level recruiting solution to employers,
college career offices and students;
. Our minority investment in Jungle Interactive Media, Inc., a company
providing Internet based information, entertainment, products and
services to targeted groups within higher education;
. Our minority investment in Webhire, Inc., a company that designs,
develops, markets, implements and supports Internet and intranet based
recruiting solutions to automate candidate sourcing, Internet job
posting and recruitment management at corporations, organizations,
Internet portals and online career sites; and
. Our management assessment service, which is directed towards helping
corporate leadership evaluate the individual and collective performance
of their senior management teams.
1
<PAGE>
Our Growth Strategy
Our objective is to expand our position as the preeminent global recruitment
firm by offering a broad range of solutions to address our clients' recruitment
needs. The principal elements of our strategy include:
. Expanding our market reach and presence through technology and
assessment solutions;
. Leveraging our leadership and brand name in executive recruitment; and
. Pursuing strategic acquisitions and investments.
Corporate Information
We were incorporated in November 1969 under the laws of the State of
California. On September 22, 1999, we changed our state of incorporation to
Delaware. Our principal executive offices are located at 1800 Century Park
East, Suite 900, Los Angeles, California 90067, and our telephone number is
(310) 552-1834. Our website address is www.kornferry.com, Futurestep's website
address is www.futurestep.com and JobDirect's website address is
www.jobdirect.com. The information contained in our websites, Futurestep's
websites and JobDirect's websites shall not be deemed to be a part of this
prospectus.
2
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Shares offered by the selling stockholders.. 3,000,000 shares
Over-allotment option....................... The selling stockholders have
granted the underwriters the
right to purchase up to an
additional 450,000 shares to
cover over-allotments.
Shares outstanding after this offering...... 37,445,292 shares
Use of proceeds............................. We will not receive any of the
proceeds from sales of common
stock by the selling stockholders
in this offering.
Dividend Policy............................. We do not intend to pay dividends
on our shares in the foreseeable
future.
New York Stock Exchange symbol.............. KFY
</TABLE>
The total number of shares outstanding after this offering is based on
information as of October 31, 2000, and excludes:
. 7,157,967 shares of common stock issuable upon exercise of options
outstanding under our performance award plan at a weighted average
exercised price of $20.52 per share; and
. 5,046,475 shares available for future issuance under our performance
award plan.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data are derived from our
financial statements included or incorporated by reference into this
prospectus.
<TABLE>
<CAPTION>
Fiscal Year Ended April Three Months
30, Ended July 31,
--------------------------- -----------------
2000 1999 1998 2000 1999
-------- -------- -------- -------- --------
(in thousands, except share and per share
data)
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenue......................... $500,743 $356,075 $300,954 $173,623 $104,780
Compensation and benefits....... 298,908 226,568 197,790 106,559 64,733
General and administrative
expenses....................... 147,030 94,860 87,797 48,524 29,802
Non-recurring charges........... -- 89,202 -- -- --
-------- -------- -------- -------- --------
Operating profit (loss)......... 54,805 (54,555) 15,367 18,540 10,245
Interest and other income
(expense)...................... 2,966 (285) (1,411) 44 688
Income (loss) before provision
for income taxes and non-
controlling stockholders'
interest....................... 57,771 (54,840) 13,956 18,584 10,933
Provision for income taxes...... 24,126 9,026 6,687 7,806 4,591
Non-controlling stockholders'
interest....................... 2,834 2,560 2,025 771 738
-------- -------- -------- -------- --------
Net income (loss)............... $ 30,811 $(66,426) $ 5,244 $ 10,007 $ 5,604
======== ======== ======== ======== ========
Net income (loss) per share:
Basic......................... $ .85 $ (2.37) $ .24 $ .27 $ .16
Diluted....................... .82 (2.37) .23 .26 .15
Weighted average common shares
outstanding:
Basic......................... 36,086 28,086 21,885 36,890 35,755
Diluted....................... 37,680 28,086 23,839 38,285 36,268
Revenue by Business Segment:
Executive recruitment:
North America................. $271,313 $185,525 $154,903 $ 96,131 $ 57,227
Europe........................ 112,045 101,515 81,543 33,893 25,151
Asia/Pacific.................. 48,603 35,024 34,411 13,182 11,139
Latin America................. 30,488 29,673 30,097 8,836 7,288
Futurestep..................... 38,294 4,338 -- 21,581 3,975
</TABLE>
<TABLE>
<CAPTION>
As of April 30, As of
-------------------------- July 31,
2000 1999 1998 2000
-------- -------- -------- --------
(in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents........... $ 86,975 $113,741 $ 32,358 $ 66,665
Working capital..................... 83,048 117,922 26,573 52,401
Total assets........................ 475,994 304,124 176,371 479,565
Total long-term debt................ 16,916 2,360 6,151 18,109
Total mandatorily redeemable stock
and stockholders' equity........... 231,224 172,686 58,754 250,331
</TABLE>
4
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones 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. The trading price of our
common stock could decline due to any of these risks, and you may lose all or
part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including the risks faced by us described below and elsewhere in this
prospectus.
Risks Relating To Our Business
Competition in our industry could result in our losing market share and our
charging lower prices for our services, which could reduce our revenues.
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. and Spencer
Stuart & Associates, and newer technology based competitors include TMP
Worldwide. 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, particularly
for our Futurestep and other technology based operations. Increased
competition may lead to characterization of executive search services as
fungible, resulting in pricing pressures, requiring us to execute more
searches or execute searches more efficiently in order to remain competitive.
Such pricing pressures could reduce our revenues.
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. Our
failure to identify and hire consultants with the requisite experience, skills
and established client relationships could harm our business. Although
executive search firms strive to provide benefits and incentives to retain
their search consultants, many firms have experienced consultant turnover.
Consultants are paid salaries with the potential to earn substantially greater
performance based bonuses. A majority of our revenues have been and will
continue to be utilized to pay consultant compensation. 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
revenues, 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.
If we fail to retain consultants, we may lose revenue from some clients.
Our success depends upon the ability of our consultants to develop and
maintain relationships with our clients. Despite the existence of a non-
competition agreement, when a consultant leaves one search firm and joins
another, clients that have established relationships with the departing
consultant may move their business to the consultant's new employer. The loss
of one or more clients is more likely to occur if the departing consultant
enjoys widespread name recognition or has developed a reputation as a
specialist in executing searches in a particular industry. 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 client
business.
5
<PAGE>
Economic disturbance in the geographic regions and the industries from which
we derive a significant portion of our revenues 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 or financial
condition. Approximately 23% of our total assignments were in the advanced
technology industry, and 16% of our total assignments were in the financial
services 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 41 countries and generate approximately half our total 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;
. difficulties in staffing and managing global operations;
. problems in collecting accounts receivable;
. political instability;
. fluctuations in currency exchange rates;
. 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, recruitment firms frequently 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 length of the client relationship, the frequency with
which the recruitment firm has been engaged to perform searches for the client
and the amount of revenue the recruitment firm has generated or expects to
generate from the client. Some of our clients are recognized as industry
leaders and employ a significant number of qualified candidates who are
potential recruitment candidates for other companies. 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.
6
<PAGE>
We face significant uncertainty associated with our acquisition-related
growth, and our acquisitions may prove less successful than we anticipated.
Our ability to grow and remain competitive may depend on our ability to
consummate strategic acquisitions of other executive search firms and other
recruitment and technology companies. Although we evaluate possible
acquisitions, we cannot assure you that we will be successful in identifying,
financing and completing such acquisitions. An acquired business may not
achieve desired levels of revenue, profitability or productivity or otherwise
perform as expected. In addition, growth through acquisition of existing firms
involves risks such as:
. diversion of management's attention;
. difficulties in the integration of acquired operations;
. difficulties in retaining personnel;
. actual or perceived change of strategy;
. increased off-limits conflicts;
. assumption of liabilities not known at the time of acquisition; and
. tax and accounting issues.
We may finance future acquisitions in whole or in part with common stock,
indebtedness or cash, which could cause dilution or increase our leverage.
If we fail to promote our technology based services, our business may not grow
as anticipated.
The growth of some of our services, including Futurestep and other
technology based services, depends on the relationships that our executive
recruitment consultants have with clients. These relationships were typically
developed through our executive recruitment business. If our executive
recruitment consultants do not promote these other services to our clients,
the revenue growth and profitability of these services could be harmed.
In the future, we may be unable to manage our growth effectively, which could
harm our business.
Our future growth will result in new and increased responsibilities for our
management personnel as well as increased demands on our internal systems,
procedures and controls, and our managerial, financial, marketing, information
and other resources. These new responsibilities and demands may adversely
affect our performance. We also intend to continue to develop new practice
areas or lines of business complementary to our core services, which may have
start-up and maintenance costs that could be substantial. Our failure to
continue to improve our internal systems, procedures and controls, or
otherwise to manage growth successfully could harm our business, results of
operations or financial condition.
Our financial results may suffer if Futurestep does not become profitable.
Futurestep has incurred operating losses of $45.8 million from inception
through July 31, 2000 and is currently not profitable. The limited operating
history of Futurestep makes the prediction of future results of operations
difficult and we cannot assure you that Futurestep's operating losses will not
increase in the future or that Futurestep will ever achieve or sustain
profitability. If Futurestep does not become profitable, our financial results
may suffer. The success of Futurestep is dependent on the use of the Internet
by candidates, our ability to attract candidates to Futurestep's website and
client acceptance of Futurestep's recruitment services.
Any termination of our business relationship with The Wall Street Journal
could harm Futurestep's business.
We believe the contract among us, Futurestep and The Wall Street Journal is
important for attracting candidates and clients to Futurestep. The initial
term of the contract extends through June 2001. The contract
7
<PAGE>
with The Wall Street Journal obligates Futurestep and us to make minimum
annual payments to The Wall Street Journal for print and online advertising
during its initial term and requires significant payments by Futurestep and us
in the event the contract is terminated prior to expiration of the initial
term or any renewal term. Premature termination or nonrenewal of the contract
with The Wall Street Journal could harm the growth of Futurestep's business,
results of operations or financial condition.
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. In addition, we have not yet appointed a permanent chief executive
officer or a chief financial officer to manage the business and financial
operations of Futurestep. Changes in management of either Korn/Ferry or
Futurestep could also lead to changes in our strategy or operations.
We rely heavily on our information systems and if we lose that technology, or
fail to further develop our technology, our business could be harmed.
Our success depends in large part upon our ability to store, retrieve,
process and manage substantial amounts of information, including our client
and candidate databases. To achieve our strategic objectives and to remain
competitive, we must continue to develop and enhance our information systems.
This may require the acquisition of equipment and software and the
development, either internally or through independent consultants, of new
proprietary software. Our inability 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 or financial condition.
Our success depends on our ability to maintain our professional reputation and
brand name.
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. Failure 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 recruitment 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.
8
<PAGE>
Risks Relating To This Offering
Future sales of our common stock could cause the price of our shares to
decline.
After the offering, we will have an aggregate of 37,445,292 shares of common
stock outstanding, of which 17,536,695 will be subject to restrictions on sale
pursuant to a contractual liquidity schedule between us and the stockholders.
Under the terms of the liquidity schedule the selling stockholders could sell
additional shares in February 2002 and 2003. We have also issued unexercised
options to purchase 7,157,967 shares and may issue options to purchase an
additional 5,046,475 shares under our performance award plan. We may also
amend this plan in the future to provide for more issuable shares. Future
sales of substantial amounts of our stock, or the perception that such sales
could occur, could adversely affect the market price of our stock and could
impair our future ability to raise capital through the sale of our equity
securities. In addition, we have the authority to issue additional shares of
our common stock and shares of one or more series of preferred stock. The
issuance of additional shares or options could result in the dilution of the
voting power of the shares of your common stock purchased in this offering,
and could have a dilutive effect on earnings per share.
The anti-takeover measures we have adopted may reduce the likelihood of an
acquisition of us, and may adversely affect the market value of our stock.
Our certificate of incorporation, bylaws and applicable law contain
provisions that could have the effect of inhibiting a non-negotiated merger or
other business combination. In particular, our certificate provides for a
staggered board of directors and does not permit cumulative voting. In
addition, our certificate authorizes our board to issue shares of preferred
stock, and fix the rights and preferences thereof, without a vote of our
stockholders. Although no shares of preferred stock are presently outstanding,
and we have no present plans to issue any shares of preferred stock, your
rights as a holder of common stock may be adversely affected by the rights of
holders of any preferred stock that may be issued in the future. Some of these
provisions may have anti-takeover effects and may delay, deter or prevent a
change in control that you might otherwise consider in your best interests.
Moreover, the existence of these provisions may depress the market price of
our common stock. Our bylaws also limit your ability to raise certain matters
at a meeting of stockholders without giving advance notice.
Our stock price may fluctuate and may trade below the price in this offering.
The market price of our common stock has fluctuated since our initial public
offering, and could continue to fluctuate after this offering. The factors
described in this prospectus could lead to these fluctuations, as well as
volatility in the stock market in general. As a result, the trading price of
our stock could be less than the price in this offering.
9
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have included or incorporated by reference in this prospectus statements
that may constitute "forward-looking statements" within the meaning of the
safe harbor provisions of The Private Securities Litigation Reform Act of
1995. These forward-looking statements are not historical facts but instead
represent only our belief regarding future events, many of which, by their
nature, are inherently uncertain and outside of our control. It is possible
that our actual results may differ, possibly materially, from the anticipated
results indicated in these forward-looking statements.
Information regarding important factors that could cause actual results to
differ, perhaps materially, from those in our forward-looking statements is
contained under the captions "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" in
this prospectus. These factors include, among others:
. our future revenue opportunities with existing and future clients;
. our future expense levels, including, sales and marketing and general
and administrative expenses and amortization of goodwill and other
intangibles;
. our future acquisitions and investments;
. our future capital needs; and
. future financial pronouncements.
When we use words such as "believe," "expect," "anticipate" or similar
words, we are making forward-looking statements. You should not rely on these
forward-looking statements, which apply only as of the date of this
prospectus. Our actual actions and strategies and our future results,
performance or achievements could differ materially from those expressed in,
or implied by, any such forward-looking statements.
10
<PAGE>
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares of our
common stock by the selling stockholders in this offering.
We are undertaking this offering to address four important objectives:
. provision of liquidity to our stockholders;
. orderly entry of shares into the market;
. increased public float; and
. broader ownership of our common stock.
DIVIDEND POLICY
Since our initial public offering, we have not paid any dividends. Future
dividend policy will depend on our earnings, capital requirements, financial
condition and other factors considered relevant by our board of directors. We
intend to retain future earnings to finance our operations and growth, and do
not anticipate declaring or paying any cash dividends on our common stock in
the foreseeable future. Our credit facility also contains provisions that may
limit our ability to pay dividends.
COMMON STOCK PRICE RANGE
Our common stock commenced trading on the New York Stock Exchange under the
symbol "KFY" on February 12, 1999. Prior to that date, there was no public
market for our common stock. The following table sets forth, for the periods
indicated, the high and low sales prices of our common stock as reported on
the New York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
Common Stock
Price
-------------
High Low
------ ------
<S> <C> <C>
Fiscal Year Ended April 30, 1999
Fourth Quarter.............................................. $14.63 $11.00
Fiscal Year Ended April 30, 2000
First Quarter............................................... 17.00 11.75
Second Quarter.............................................. 25.25 12.50
Third Quarter............................................... 39.00 20.75
Fourth Quarter.............................................. 44.13 21.38
Fiscal Year Ended April 30, 2001
First Quarter............................................... 36.63 21.13
Second Quarter.............................................. 40.44 29.69
Third Quarter (through November 2, 2000).................... 38.00 34.44
</TABLE>
A recent reported last sale price per share for our common stock on the New
York Stock Exchange is set forth on the cover page of this prospectus. As of
October 31, 2000, there were 452 holders of record of our common stock.
11
<PAGE>
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of July 31, 2000.
<TABLE>
<CAPTION>
As of
July 31, 2000
--------------
(in thousands,
except share
and per share
data)
<S> <C>
Cash and cash equivalents....................................... $ 66,665
========
Long-term debt.................................................. $ 18,109
Stockholders' equity:
Preferred stock, par value $0.01; 50,000,000 shares
authorized, no shares issued and outstanding................. --
Common stock, par value $0.01; 150,000,000 shares authorized,
37,189,817 shares issued and outstanding..................... 290,040
Deficit....................................................... (25,608)
Accumulated other comprehensive loss.......................... (6,484)
Notes receivable from stockholders............................ (7,617)
--------
Total stockholders' equity...................................... 250,331
--------
Total capitalization............................................ $268,440
========
</TABLE>
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data with respect to each of
the years in the five-year period ended April 30, 2000, have been derived from
our consolidated financial statements. The data provided as of and for the
three months ended July 31, 1999 and 2000 are unaudited, but in the opinion of
management include all adjustments consisting only of normal recurring
accruals and other adjustments that management considers necessary for a fair
statement of the results for these periods. The information set forth below is
not necessarily indicative of the results of future operations and should be
read together with the consolidated financial statements and notes that are
included in this prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Three Months
Fiscal Year Ended April 30, Ended July 31,
----------------------------------------------- -----------------
2000 1999 1998 1997 1996 2000 1999
-------- -------- -------- -------- -------- -------- --------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement (unaudited)
of Operations Data:
Revenue................. $500,743 $356,075 $300,954 $259,067 $218,069 $173,623 $104,780
Compensation and
benefits............... 298,908 226,568 197,790 166,854 140,721 106,559 64,733
General and
administrative
expenses............... 147,030 94,860 87,797 74,153 63,774 48,524 29,802
Non-recurring charges... -- 89,202 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating profit
(loss)................. 54,805 (54,555) 15,367 18,060 13,574 18,540 10,245
Interest and other
income (expense)....... 2,966 (285) (1,411) (815) (911) 44 688
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
provision for income
taxes and non-
controlling
stockholders'
interest............... 57,771 (54,840) 13,956 17,245 12,663 18,584 10,933
Provision for income
taxes.................. 24,126 9,026 6,687 6,658 3,288 7,806 4,591
Non-controlling
stockholders'
interest............... 2,834 2,560 2,025 1,588 1,579 771 738
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 30,811 $(66,426) $ 5,244 $ 8,999 $ 7,796 $ 10,007 $ 5,604
======== ======== ======== ======== ======== ======== ========
Net income (loss) per
share:
Basic................. $ .85 $ (2.37) $ .24 $ .42 $ .38 $ .27 $ .16
Diluted............... .82 (2.37) .23 .40 .36 .26 .15
Weighted average common
shares outstanding:
Basic................. 36,086 28,086 21,885 21,382 20,390 36,890 35,755
Diluted............... 37,680 28,086 23,839 23,481 23,019 38,285 36,268
Revenue by Business
Segment:
Executive recruitment:
North America........ $271,313 $185,525 $154,903 $125,767 $103,558 $ 96,131 $ 57,227
Europe............... 112,045 101,515 81,543 74,891 67,504 33,893 25,151
Asia/Pacific......... 48,603 35,024 34,411 33,547 28,168 13,182 11,139
Latin America........ 30,488 29,673 30,097 24,862 18,839 8,836 7,288
Futurestep............ 38,294 4,338 -- -- -- 21,581 3,975
</TABLE>
<TABLE>
<CAPTION>
As of April 30, As of
-------------------------------------------- July 31,
2000 1999 1998 1997 1996 2000
-------- -------- -------- -------- -------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data: (unaudited)
Cash and cash
equivalents............ $ 86,975 $113,741 $ 32,358 $ 25,298 $ 26,640 $ 66,665
Working capital......... 83,048 117,922 26,573 20,051 22,006 52,401
Total assets............ 475,994 304,124 176,371 148,405 126,341 479,565
Total long-term debt.... 16,916 2,360 6,151 3,206 3,922 18,109
Total mandatorily
redeemable stock and
stockholders' equity... 231,224 172,686 58,754 50,812 43,075 250,331
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with the consolidated
financial statements and notes appearing elsewhere in this prospectus. This
prospectus contains forward-looking statements that may involve risks and
uncertainties. Actual results may differ materially from those indicated in
these forward-looking statements.
Results of Operations
The following table summarizes the results of our operations as a percentage
of revenue for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Year
Ended Three Months
April 30, Ended July 31,
---------------- -----------------
2000 1999 1998 2000 1999
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue................................ 100% 100% 100% 100% 100%
Compensation and benefits.............. 60 64 66 61 62
General and administrative expenses.... 29 27 29 28 28
Non-recurring charges.................. -- 25 -- -- --
Operating profit (loss) (1)............ 11 (15) 5 11 10
Net income (loss)...................... 6 (19) 2 6 5
</TABLE>
--------
(1) For the fiscal years ended April 30, 2000 and 1999, operating profit as a
percentage of revenue excluding Futurestep and non-recurring charges is
17% and 13%, respectively. For the three months ended July 31, 2000 and
1999, operating profit as a percentage of revenue excluding Futurestep
losses of $8.5 million and $5.7 million is 18% and 16%, respectively.
We experienced growth in executive recruitment revenue in all geographic
regions from fiscal 1998 through the three months ended July 31, 2000, except
for Latin America in fiscal 1999 due primarily to the devaluation of the
Brazilian Real. The following tables summarize our revenue and operating
profit (loss), excluding non-recurring items in fiscal 1999, by geographic
region for the periods indicated. We include executive recruitment revenue
generated from our operations in Mexico with Latin America.
<TABLE>
<CAPTION>
Fiscal Year Ended April 30, Three Months Ended July 31,
-------------------------------------------------- ---------------------------------
2000 1999 1998 2000 1999
---------------- ---------------- ---------------- ---------------- ----------------
Dollars Percent Dollars Percent Dollars Percent Dollars Percent Dollars Percent
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Executive recruitment:
North America.......... $271,313 54% $185,525 52% $154,903 52% $ 96,131 55% $ 57,227 55%
Europe................. 112,045 22 101,515 29 81,543 27 33,893 20 25,151 24
Asia/Pacific........... 48,603 10 35,024 10 34,411 11 13,182 8 11,139 10
Latin America.......... 30,488 6 29,673 8 30,097 10 8,836 5 7,288 7
Futurestep.............. 38,294 8 4,338 1 21,581 12 3,975 4
-------- --- -------- --- -------- --- -------- --- -------- ---
Total Revenue.......... $500,743 100% $356,075 100% $300,954 100% $173,623 100% $104,780 100%
======== === ======== === ======== === ======== === ======== ===
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended April 30, Three Months Ended July 31,
----------------------------------------------- ---------------------------------
2000 1999 1998 2000 1999
--------------- --------------- --------------- ---------------- ----------------
Dollars Margin Dollars Margin Dollars Margin Dollars Percent Dollars Percent
------- ------ ------- ------ ------- ------ ------- ------- ------- -------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Profit (loss)
excluding non-recurring
charges (1)
Executive recruitment:
North America.......... $52,783 19.5% $27,435 14.8% $10,138 6.5% $18,176 18.9% $10,046 17.6%
Europe................. 13,034 11.6 8,331 8.2 (540) (0.7) 4,857 14.3 3,169 12.6
Asia/Pacific........... 5,174 10.6 3,543 10.1 620 1.8 1,774 13.5 1,055 9.5
Latin America.......... 7,692 25.2 7,916 26.7 5,973 19.8 2,247 25.4 1,636 22.4
Futurestep.............. (23,878) (12,578) (824) (8,514) (5,661)
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total Operating
Profit................ $54,805 10.9% $34,647 9.7% $15,367 5.1% $18,540 10.7% $10,245 9.8%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
--------
(1) Operating profit (loss) by geographic region in fiscal 1999 excludes non-
recurring charges of: $83,829 in North America, $4,514 in Europe and $859
in Asia/Pacific.
Three Months Ended July 31, 2000 Compared to Three Months Ended July 31,
1999
Revenue. Revenue increased $68.8 million, or 66%, to $173.6 million for the
three months ended July 31, 2000 from $104.8 million for the three months
ended July 31, 1999. The increase in revenue was primarily the result of an
increase in the number of engagements with a corresponding increase in the
number of consultants, an increase in the average fee per engagement and
revenue from Futurestep in the current three month period.
In North America, executive recruitment revenue increased $38.9 million, or
68%, to $96.1 million for the three months ended July 31, 2000 from $57.2
million for the comparable period in fiscal 2000. This revenue growth is due
mainly to an increase in both the number of engagements and the average fee
per engagement compared to the prior fiscal year and includes revenue of
approximately $10.7 million related to businesses acquired in the prior fiscal
year. The Advanced Technology, Financial Services and Industrial specialty
practices delivered particularly strong performances. In Europe, executive
recruitment revenue increased $8.7 million, or 35%, to $33.9 million for the
three months ended July 31, 2000 from $25.2 million for the three months ended
July 31, 1999. Excluding the negative effects of foreign currency translation
into the U.S. dollar, revenue would have increased approximately 48% on a
constant dollar basis. This revenue growth is due mainly to particular
strength in France and United Kingdom in the current three month period and
revenue related to the business in Germany acquired in the prior year third
quarter. Executive recruitment revenue in Asia/Pacific increased $2.0 million,
or 18%, to $13.2 million for the three months ended July 31, 2000 from $11.1
million for the comparable period in the prior year primarily due to an
increase in average fee per engagement. The increase in executive recruitment
revenue in Latin America of $1.5 million, or 21%, to $8.8 million for the
three months ended July 31, 2000 from $7.3 million for the comparable three
month period in fiscal 2000 is attributable primarily to continued strong
performance in Mexico and the improvement in the Brazilian economy compared to
the prior year three month period. The effect of foreign currency translation
into the U.S. dollar was not material to reported revenue in Asia/Pacific or
Latin America.
Futurestep revenue of $21.6 million for the three months ended July 31, 2000
is primarily attributable to an increase in new engagements and reflects
substantial completion of the worldwide roll-out of the business and the
acquisition of the ESS business of PA Consulting in the three months ended
January 31, 2000.
Compensation and Benefits. Compensation and benefits expense increased $41.9
million, or 65%, to $106.6 million for the three months ended July 31, 2000
from $64.7 million for the comparable period ended July 31, 1999 due primarily
to an increase in the number of employees from the prior year. Excluding the
increase in Futurestep expenses of $14.5 million, compensation and benefits as
a percentage of revenue decreased slightly to 60.6% in the most recent three
month period from 61.2% in the three months ended July 31, 1999.
15
<PAGE>
General and Administrative Expenses. General and administrative expenses
consist of occupancy expense associated with our leased premises, information
and technology infrastructure, marketing and other general office expenses.
General and administrative expenses increased $18.7 million, or 63%, to $48.5
million for the three months ended July 31, 2000 from $29.8 million for the
three months ended July 31, 1999. As a percentage of revenue, general and
administrative expenses, excluding Futurestep related expenses, declined to
21.6% for the three months ended July 31, 2000 from 23.0% for the comparable
period in 1999. The decrease primarily reflects the higher percentage increase
in revenue in the current three month period.
Operating Profit. Operating profit increased $8.3 million in the three
months ended July 31, 2000, to $18.5 million, or 10.7% of revenue from $10.2
million, or 9.8% of revenue in the prior year three month period. Excluding
the Futurestep loss of $8.5 million, operating profit for the three months
ended July 31, 2000 increased $11.1 million, or 70% to $27.1 million compared
to the three months ended July 31, 1999. Operating profit, excluding
Futurestep, as a percentage of revenue was 17.8% and 15.8% for the three
months ended July 31, 2000 and 1999, respectively. For the current three month
period, operating margins, on this same basis, increased in all regions
compared to the prior year three month period due primarily to the increase in
revenue in all regions and a decline in general and administrative expense as
a percentage of revenue in all regions except Latin America.
Interest expense. Interest expense increased $.9 million in the three months
ended July 31, 2000, to $1.7 million from $.8 million in the prior year,
primarily due to an increase in notes payable to shareholders resulting from
acquisitions in the fourth quarter of fiscal 2000.
Provision for Income Taxes. The provision for income taxes increased $3.2
million to $7.8 million for the three months ended July 31, 2000 from $4.6
million for the comparable period ended July 31, 1999. The effective tax rate
was 42% for the current and the prior year three month periods.
Non-controlling Shareholders' Interest. Non-controlling shareholders'
interest is comprised of the non-controlling shareholders' majority interest
in our Mexico subsidiaries. Non-controlling shareholders' interests remained
relatively flat at $0.8 million in the current three month period and $.7
million in the comparable prior year period.
Year Ended April 30, 2000 Compared to Year Ended April 30, 1999
Revenue. Revenue increased $144.6 million, or 41%, to $500.7 million for
fiscal 2000 from $356.1 million for fiscal 1999. The increase in revenue was
primarily the result of a 17% increase in the number of executive recruitment
engagements, supported by a 10% increase in the average number of executive
recruitment consultants; a 13% increase in the average fee per executive
recruitment engagement; and revenue from Futurestep and acquisitions in fiscal
2000.
In North America, executive recruitment revenue increased $85.8 million, or
46%, to $271.3 million for fiscal 2000 from $185.5 million for fiscal 1999. In
Asia/Pacific, executive recruitment revenue increased $13.6 million, or 39% to
$48.6 million for fiscal 2000 compared to $35.0 million in the prior fiscal
year. Executive recruitment revenue growth in North America and Asia/Pacific
was attributable primarily to an increase in the number of engagements,
supported by an increase in the average number of consultants. In North
America, this revenue growth was also driven by an increase of 16% in the
average fee per engagement compared to the prior fiscal year and revenue from
acquisitions in the current fiscal year. In Europe, executive recruitment
revenue increased $10.5 million, or 10%, to $112.0 million in fiscal 2000 from
$101.5 million in the prior fiscal year. Excluding the negative effects of
foreign currency translation into the U.S. dollar, and the acquisition in
Germany, executive recruitment revenue increased approximately 6% on a
constant dollar basis primarily due to an increase in the number of
engagements and average fee per engagement. In Latin America, total executive
recruitment revenue increased approximately 3% in fiscal 2000 as compared to
fiscal 1999. Excluding the negative effects of foreign currency translation
into the U.S. dollar, revenue increased 9% on a constant dollar basis
primarily due to an increase in the number of engagements.
16
<PAGE>
Futurestep revenue of $38.3 million for fiscal 2000, including $7.3 million
related to the acquisition of the ESS business of PA, is primarily
attributable to an increase in the number of engagements in the current year
and reflects substantial completion of the worldwide roll-out of the business.
Futurestep has increased its worldwide presence from one country, the United
States, at April 30, 1999 to 20 countries at April 30, 2000.
Compensation and Benefits. Compensation and benefits increased $72.3
million, or 32%, to $298.9 million in fiscal 2000 from $226.6 million in
fiscal 1999, mainly due to an increase in the number of employees from the
prior fiscal year. Excluding the increase in Futurestep expenses of $17.6
million, compensation and benefits increased $54.7 million in fiscal 2000
versus the prior fiscal year, primarily due to a 10% increase in the average
number of executive recruitment consultants. On the same basis, excluding
Futurestep related expenses, compensation and benefits as a percentage of
revenue, decreased to 59.6% in fiscal 2000 from 60.1% in fiscal 1999.
General and Administrative Expenses. General and administrative expenses
consist of occupancy expenses associated with our leased premises, information
and technology infrastructure, marketing and other general office expenses.
General and administrative expenses increased $52.1 million, or 55%, to $147.0
million in fiscal 2000 from $94.9 million in fiscal 1999. This increase was
attributable largely to an increase in Futurestep expenses of $27.7 million,
primarily related to advertising and business development in the current year
and the cost of facilities to support the international expansion. As a
percentage of revenue, general and administrative expenses, excluding
Futurestep related expenses, declined to 23.4% in fiscal 2000 from 26.5% in
fiscal 1999. The decrease primarily reflects a higher percentage increase in
revenue in the current fiscal year.
Operating Profit. Operating profit was $54.8 million, or 11% of revenue
compared to an operating loss of $54.6 million in the prior fiscal year.
Excluding the Futurestep operating losses of $23.9 million and $12.6 million
in fiscal 2000 and 1999, respectively, and the one-time non-recurring items of
$89.2 million in fiscal 1999 ("comparable basis"), operating profit for the
current fiscal year increased $31.5 million, or 67% to $78.7 million compared
to $47.2 million in the prior fiscal year. Operating profit, on a comparable
basis, as a percentage of revenue excluding Futurestep revenue was 17% for the
twelve months ended April 30, 2000 and 13% for the same period in 1999. For
fiscal 2000, operating margins, on the same basis, increased in all regions
except Latin America compared to the prior fiscal year. The increase in North
America was due primarily to the increase in revenue and the decline in
general and administrative expense as a percentage of revenue. The increase in
Europe was due primarily to the decline in general and administrative expense
as a percentage of revenue.
The percentage of our operating profit, on a comparable basis, contributed
by North America increased to 67% for the current fiscal year from 58% in the
prior fiscal year, driven primarily by the increase in revenue. The percentage
of our operating profit contributed by the European and Asia/Pacific regions
remained relatively flat at 17% and 7%, respectively, in the current and prior
fiscal years. The Latin America region contribution decreased to 10% for the
current fiscal year from 17% in the prior fiscal year due primarily to the
increased contribution of operating profit by North America in fiscal 2000.
Interest Income and Other Income, Net. Interest income and other income, net
includes interest income of $6.7 million and $3.8 million for fiscal 2000 and
1999, respectively. The increase in interest income of $2.9 million is due
primarily to interest income from the investment of proceeds received in the
initial public offering in marketable securities, largely short term
municipals.
Provision for Income Taxes. The provision for income taxes increased $15.1
million to $24.1 million in fiscal 2000 from $9.0 million in fiscal 1999. The
effective tax rate for fiscal 2000 remained relatively flat at 41.8%, compared
to 42.0% in the prior fiscal year.
Non-controlling Shareholders' Interest. Non-controlling shareholders'
interest is comprised of the non-controlling shareholders' majority interest
in our Mexico subsidiaries. Non-controlling shareholders' interest increased
$0.2 million to $2.8 million in fiscal 2000 from $2.6 million in fiscal 1999
and primarily reflects a corresponding increase in net income generated by our
Mexico subsidiaries in fiscal 2000.
17
<PAGE>
Year Ended April 30, 1999 Compared to Year Ended April 30, 1998
Revenue. Revenue increased $55.1 million, or 18.3%, to $356.1 million for
fiscal 1999 from $301.0 million for fiscal 1998. The increase in revenue was
primarily the result of a 15% increase in the number of assignments, supported
by a 14% increase in the average number of consultants, and revenue from
Futurestep in fiscal 1999.
In North America, revenue increased $30.6 million, or 19.8%, to $185.5
million for fiscal 1999 from $154.9 million for fiscal 1998. In Europe,
revenue increased $20.0 million, or 24.5%, to $101.5 million in fiscal 1999
from $81.5 million in the prior fiscal year. In Asia/Pacific and Latin
America, total revenue remained relatively flat in fiscal 1999 as compared to
fiscal 1998 with an increase of 1.8% and a decrease of 1.4% in these regions,
respectively.
Revenue growth in North America and Europe was attributable mainly to a 26%
and 19% increase, respectively, in the number of engagements driven by an
increase of 16% and 12%, respectively, in the average number of consultants.
In North America, the growth in revenue also reflects Futurestep revenue of
$4.3 million in fiscal 1999. The growth in revenue in Europe primarily
reflects the additional revenue generated from the acquisition of businesses
in France and Switzerland completed in the beginning of fiscal 1999 and two
offices that were opened in late fiscal 1998. The relatively flat total
revenue for Asia/Pacific and Latin America in fiscal 1999 and fiscal 1998 were
attributable to economic uncertainties in these regions. The economic
conditions in Asia/Pacific that began in late fiscal 1998 broadly impacted the
region while the Latin American region was primarily impacted by a sharp
decline in the Brazilian economy in the third quarter of fiscal 1999.
Compensation and Benefits. Compensation and benefits increased $28.8
million, or 14.6%, to $226.6 million in fiscal 1999 from $197.8 million in
fiscal 1998. For fiscal 1999, the bonus component of compensation and benefits
expense was reduced by approximately 26% as a result of the implementation of
our revised compensation program effective as of May 1, 1998 upon completion
of the initial public offering, as compared to the prior year compensation
program. Excluding Futurestep related expenses and reflecting the bonus
reduction in fiscal 1998, compensation and benefits as a percentage of
revenue, increased slightly to 60.0% in fiscal 1999 from 59.4% in fiscal 1998.
The $32.9 million increase, on the same basis, reflected an 11.2% increase in
the average number of executive recruitment consultants in fiscal 1999
compared to the prior fiscal year.
General and Administrative Expenses. General and administrative expenses
increased $7.1 million, or 8.1%, to $94.9 million in fiscal 1999 from
$87.8 million in fiscal 1998. This increase was attributable largely to
Futurestep expenses of $11.0 million in fiscal 1999, primarily related to
business development. As a percentage of revenue, general and administrative
expenses, excluding Futurestep related expenses, declined to 26.5% in fiscal
1999 from 29.1% in fiscal 1998. The decrease primarily reflects the higher
percentage increase in revenue and the elimination of excess costs in fiscal
1999.
Operating Profit. The operating loss of $54.6 million in fiscal 1999
represents a decrease of $70.0 million from operating profit of $15.4 million
in fiscal 1998. The fiscal 1999 operating loss includes Futurestep losses of
$12.6 million and non-recurring charges of $89.2 million. Excluding Futurestep
revenue and expenses and the non-recurring charges, operating profit, as a
percentage of revenue, increased to 13.4% in fiscal 1999 from 5.4% in fiscal
1998. For fiscal 1999, operating margins on this same basis increased in all
regions compared to fiscal 1998 due to the increase in revenue and the reduced
level of bonus expense previously discussed.
Excluding the Futurestep loss and the non-recurring charges, the percentage
of our operating profit contributed by North America decreased slightly to
58.1% from 62.6% in fiscal 1998. The Latin America region contribution
decreased to 16.8% in fiscal 1999 from 36.9% in fiscal 1998 largely due to the
percentage decline in revenue in the third and fourth quarters of fiscal 1999
while operating costs remained relatively constant. The percentage of our
operating profit contributed by the European and Asia/Pacific regions
increased to approximately 17.6% and 7.5%, respectively, in fiscal 1999 from
(3.3%) and 3.8%, respectively, in fiscal 1998, primarily reflecting the
decrease in the contribution by Latin America and the 24.5% increase in
revenue in Europe in fiscal 1999.
18
<PAGE>
Interest Income and Other Income, Net. Interest income and other income, net
includes interest income of $3.8 million and $2.8 million for fiscal 1999 and
1998 respectively. The increase in interest income of $1.0 million is due
primarily to interest income from the investment of proceeds received in the
initial public offering in marketable securities.
Provision for Income Taxes. The provision for income taxes increased $2.3
million to $9.0 million in fiscal 1999 from $6.7 million in fiscal 1998. The
effective tax rate for fiscal 1999 was 42.0%, excluding $76.3 million of non-
recurring charges that are not tax deductible, compared to 47.9% in the prior
fiscal year. The decrease in the effective tax rate resulted primarily from a
decrease in foreign cash remittances which are treated as taxable income in
the United States when received.
Non-controlling Shareholders' Interest. Non-controlling shareholders'
interest is comprised of the non-controlling shareholders' majority interest
in our Mexico subsidiaries. Non-controlling shareholders' interest increased
$.6 million to $2.6 million in fiscal 1999 from $2.0 million in fiscal 1998
and primarily reflects a corresponding increase in net income generated by our
Mexico subsidiaries in fiscal 1999.
Quarterly Results
The following table sets forth selected unaudited statement of operations
data for the periods indicated. 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. Results for any of these fiscal
quarters are not necessarily indicative of results for the full fiscal year or
for any future fiscal quarter.
<TABLE>
<CAPTION>
Quarters Ended
------------------------------------------------------------------------------------
Fiscal
2001 Fiscal 2000 Fiscal 1999
-------- ----------------------------------- ------------------------------------
July 31 July 31 Oct. 31 Jan. 31 April 30 July 31 Oct. 31 Jan. 31 April 30
-------- -------- -------- -------- -------- ------- ------- ------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $173,623(3) $104,780 $116,322 $122,075 $157,566 $84,745 $91,175 $88,466 $ 91,689
Operating profit
(loss)................. 18,540(3) 10,245 11,517 14,397 18,646 3,641 2,256 10,228(1) (70,680)(2)
Net income (loss)....... 10,007 5,604 6,502 8,285 10,420 1,519 (147) 5,105(1) (72,903)(2)
Net income (loss) per
share
Basic................. .27 .16 .18 .23 .29 .06 (.01) .19 (2.15)
Diluted............... .26 .15 .17 .22 .27 .05 (.01) .19 (2.15)
</TABLE>
--------
(1) Fiscal 1999 third quarter results include a reduction in bonus expense of
$10.2 million related to the first and second fiscal 1999 quarters and
$5.4 million related to the third fiscal quarter, resulting from the
implementation of our revised compensation program effective May 1, 1998
upon completion of the initial public offering, and non-recurring charges
of $8.4 million related to improving operating efficiencies and the
resignation of the former President and Chief Executive Officer.
(2) We recognized a non-recurring compensation and benefits expense of $79.3
million in the fourth quarter of fiscal 1999, at the completion of the
initial public offering, comprised of (a) $49.3 million representing the
difference between the issuance price of the shares issued by us in the
period beginning twelve months before the initial filing date of the
registration statement relating to the initial public offering and the
fair market value of the shares at the date of grant, (b) $25.7 million
from the completion of the redemption by us 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
additional non-recurring charges of $1.5 million related to costs,
primarily severance and benefits expense, incurred to achieve operating
efficiencies in fiscal 1999.
(3) Fiscal 2001 first quarter results include JobDirect revenue and operating
loss of $.2 million and $.4 million, respectively.
19
<PAGE>
Liquidity and Capital Resources
We finance operating expenditures primarily through cash flows from
operations. The following table presents selected financial information as of
the end of the periods indicated:
<TABLE>
<CAPTION>
As of April 30, As of July 31,
------------------------ ----------------
2000 1999 1998 2000 1999
------- -------- ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Working capital(1)............... $83,048 $117,922 $26,573 $52,401 $120,148
Total long-term debt, net of
current maturities.............. 16,916 2,360 6,151 18,109 1,442
Borrowings under life insurance
policies........................ 44,928 42,655 37,638 45,706 43,678
</TABLE>
--------
(1) In February 1999, we received $124.3 million upon completion of our
initial public offering.
To manage timing differences between cash receipts and disbursements and
provide additional liquidity, we maintain a $50 million credit facility with
Mellon Bank, N.A. and Bank of America National Trust and Savings Association.
The credit facility is an unsecured revolving facility that matures on
February 12, 2002 and includes a standby letter of credit subfacility.
Outstanding borrowings will bear interest at various rates based, at our
option, on either a LIBOR index plus 1.4% or the bank's prime lending rate.
The financial covenants include a minimum tangible net worth, maximum leverage
ratio, interest coverage ratios and customary events of default. As of July
31, 2000 we had $28 million of outstanding borrowings under the revolving
credit facility. There were no outstanding borrowings under the credit
facility as of April 30, 2000 and 1999 and July 31, 1999.
During the three months ended July 31, 2000 and 1999, cash used in operating
activities was $64.0 million and $27.4 million, respectively, primarily for
payment of bonuses accrued at each prior fiscal year end and an increase in
accounts receivable reflecting the 66% increase in revenue in the current
three month period.
Cash provided by operating activities was $74.3 million, $38.7 million and
$18.5 million for fiscal 2000, 1999 and 1998, respectively. The $35.6 million
increase in operating cash flow in fiscal 2000 compared to the prior fiscal
year is due primarily to an increase in net income of $13.3 million, excluding
the non-recurring charges in the prior fiscal year and an increase in
adjustments for non-cash expenses of $18.2 million in the current fiscal year.
Net cash provided by operating activities in fiscal 2000 includes an increase
in accounts payable and accrued liabilities compared to the prior year of
$48.2 million due primarily to an increase in bonus expense, that was largely
offset by an increase in accounts receivable and prepaid expenses of $44.2
million. The $20.2 million increase in operating cash flow in fiscal 1999
compared to the fiscal 1998 was due primarily to an increase in net income
excluding non-recurring charges of $12.2 million and an increase in accounts
payable and accrued liabilities of $13.6 million; offset by approximately $4.6
million of cash used for non-recurring charges consisting of severance and
benefit payments related to staff downsizing, modification to existing stock
repurchase agreements and office rationalization in fiscal 1999. See "Notes to
Consolidated Financial Statements."
Capital expenditures totaled $5.0 million and $3.6 million for the three
months ended July 31, 2000 and 1999, respectively. These expenditures
consisted primarily of systems hardware and software costs, upgrades to
information systems and leasehold improvements. The $1.4 million increase in
capital expenditures in the three months ended July 31, 2000 compared to the
prior year period, primarily relates to increased fixed asset spending at
Futurestep to support its worldwide infrastructure.
Capital expenditures totaled approximately $22.9 million, $8.1 million and
$9.9 million for fiscal 2000, 1999 and 1998, respectively. These expenditures
consisted primarily of systems hardware and software costs, upgrades to
information systems and leasehold improvements. The $14.8 million increase in
capital expenditures in fiscal 2000 over the prior fiscal year, primarily
relates to the installation of a new financial system in the United States.
The overseas implementation of this system began in Europe in fiscal 2001 at
an estimated additional cost to completion of approximately $5 million.
20
<PAGE>
Cash provided by investing activities was $11.3 million for the current
three month period and cash used in investing activities was $.6 million for
the three months ended July 31, 1999. In the current three month period, the
increase in cash provided is due mainly to proceeds from the sale of
marketable securities in excess of cash used in business acquisitions in the
current year. Proceeds from the sale of marketable securities were
$61.1 million and $7.8 million for the current and prior year three month
periods, respectively. Purchases of marketable securities were $31.0 million
in both fiscal 2000 and 1999. We invest in marketable securities to manage
short-term cash flow requirements. We do not have any investments in
marketable securities at July 31, 2000, but intend to continue to invest in
these securities as cash from operations accumulates during the year.
In the first quarter of fiscal 2001, we acquired the assets and liabilities
of Westgate Group and JobDirect.com resulting in a net cash outflow of $36.8
million. In addition we paid $5.4 million related to two acquisitions in
Canada in April 2000. In the first quarter of fiscal 2000, we acquired the
assets and liabilities of the Australian business of Amrop International
resulting in a net cash outflow of $1.8 million.
In fiscal 2000, we completed ten acquisitions: seven in North America, one
in Europe, one in Asia/Pacific, and the ESS business of PA for Futurestep.
These acquisitions resulted in cash outflows of $42.6 million. In fiscal 1999,
we purchased two executive recruitment firms in Europe which resulted in a net
cash outflow of $1.3 million.
In February 1996, we divested our 47% interest in Strategic Compensation
Associates for a cash payment of $.4 million and $3.2 million in notes
receivable with interest. The outstanding balance of the notes receivable at
December 31, 1998 was paid in full, resulting in a net cash inflow of $2.3
million in fiscal 1999.
Included in cash flows from investing activities are premiums paid on
corporate-owned life insurance, or COLI, contracts. We purchase COLI contracts
to provide a funding vehicle for anticipated payments due under our deferred
executive compensation programs. For the three months ended July 31, 2000 and
1999, premiums on these COLI contracts were $2.7 million and $2.9 million,
respectively. Premiums on these COLI contracts were $10.6 million,
$12.4 million and $12.4 million in fiscal 2000, 1999 and 1998, respectively.
Generally, we borrow against the cash surrender value of the COLI contracts to
fund the COLI premium payments to the extent interest expense on the
borrowings is deductible for U.S. income tax purposes. The fluctuation in
premium payments over the past three fiscal years is attributable to the
timing of payments.
Cash provided by financing activities during the three month period ended
July 31, 2000 was $31.6 million, comprised primarily of borrowings under our
line of credit of $28.0 million, proceeds from stock options exercised of $1.9
million and receipts on shareholder notes of $1.5 million. Cash provided by
financing activities during the three month period ended July 31, 1999 was
$2.2 million which included borrowings from COLI contracts of $1.0 million and
proceeds from sales of common stock of the Company to newly hired and promoted
consultants and payments on the related promissory notes of $1.7 million.
During fiscal 2000, cash provided by financing activities was $8.7 million,
comprised primarily of borrowings under COLI contracts of $3.3 million,
proceeds from stock options exercised of $6.1 million and sales of common
stock of $2.3 million, offset by $1.0 million paid to repurchase common stock
and make payments on the related notes.
Cash provided by financing activities was $92.9 million during fiscal 1999,
resulting primarily from net proceeds raised in the initial public offering of
$124.3 million and $3.0 million from certain selling shareholders received in
repayment of outstanding notes receivable; offset by $14.4 million used to
repay our term loan and all outstanding indebtedness under our credit
facility, $27.1 million to complete the redemption of shares of our capital
stock, primarily shares owned by shareholders under the terms of a 1994 stock
redemption agreement and the outstanding shares of Series A and B preferred
stock and $4.3 million to pay existing obligations to former holders of
phantom units and stock appreciation rights, resulting in net proceeds
available for investment of $81.5 million. Prior to the initial public
offering, we issued approximately 6.6 million shares of common stock to newly
hired and promoted consultants for $36.1 million of which $16.7 million was
received in cash and
21
<PAGE>
repurchased approximately 2.6 million shares of common stock from terminated
employees for $21.9 million. In fiscal 1999, we also borrowed $6.0 million
under COLI contracts and repaid bank borrowings and other debt aggregating
$8.7 million.
For the three months ended July 31, 2000 and 1999 total outstanding
borrowings under life insurance policies were $45.7 million and $43.6 million,
respectively. Total outstanding borrowings under life insurance policies were
$44.9 million, $42.7 million and $37.6 million as of April 30, 2000, 1999 and
1998, respectively. These borrowings are secured by the cash surrender value
of the life insurance policies, do not require principal payments and bear
interest at various variable rates.
We believe that cash on hand, investments in marketable securities, funds
from operations and available borrowings under our credit facility will be
sufficient to meet our anticipated working capital, capital expenditures, and
general corporate requirements for the foreseeable future.
Euro Conversion
As of January 1, 1999, several member countries of the European Union
established fixed conversion rates among their existing local currencies, and
adopted the Euro as their new common legal currency. The Euro trades on
currency exchanges and the legacy currencies will remain legal tender in the
participating countries for a transition period which expires January 1, 2002.
During the transition period, cashless payments can be made in the Euro, and
parties can elect to pay for goods and services and transact business using
either the Euro or a legacy currency. Between January 1, 2002 and July 1,
2002, the participating countries will introduce Euro notes and coins and
withdraw all legacy currencies so that they will no longer be available.
We have assessed our information technology systems and determined that they
allow for transactions to take place in both the legacy currencies and the
Euro and accommodate the eventual elimination of the legacy currencies. We
will continue to evaluate and upgrade our systems during the conversion
period. Our currency risk may be affected as the legacy currencies are
converted to the Euro. Accounting, tax and governmental legal and regulatory
guidance generally has not been provided in final form and we will continue to
evaluate issues involving introduction of the Euro throughout the transition
period. The conversion to the Euro has not had a significant impact on our
operations to date.
Recent Events
In August 2000, we invested $8.0 million for a 16% equity investment in
Webhire, the leading business services and technology solutions provider in
the Internet recruitment marketplace.
Recently Issued Accounting Standards
During 1998, FASB issued Statement of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes new standards for reporting derivative and hedging information.
The standard is effective for periods beginning after June 15, 2000 and will
be adopted by us as of May 1, 2001. We do not expect that the adoption of this
standard will have an impact on our consolidated financial statements or
require additional disclosure since we do not currently utilize derivative
instruments or participate in structured hedging activities.
During fiscal 2000, we adopted the American Institute of Certified Public
Accountants Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Cost
of Computer Software Developed or Obtained for Internal Use." and in the
quarter ended July 31, 2000, we adopted the related Emerging Issues Task Force
Issue No: 00-2 ("EITF 00-2"), "Accounting for Web Site Development Costs." The
adoption of SOP 98-1 and EITF 00-2 did not have a material effect on the
consolidated financial statements or our capitalization policy.
22
<PAGE>
BUSINESS
Business Overview
We are the preeminent 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 77 cities across 41 countries. In 1998 we extended
our market reach into the middle management market with the introduction of
Futurestep, our technology based recruitment service. Recently we have
expanded our technology based services to enter the college recruitment and
recruitment software markets. As of July 31, 2000, we have over 2,400
employees, including 639 consultants who are primarily responsible for our
client relationships. 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 provide
the following recruitment services:
Executive Recruitment. Executive recruitment, our core business, focuses on
board level, chief executive and other senior executive positions for clients
predominantly in the advanced technology, consumer goods, industrial,
financial services, healthcare and professional services industries. We
employed 532 executive recruitment consultants as of July 31, 2000, who
performed over 2,200 assignments and generated $152.0 million in revenue
during the three months ended July 31, 2000. Our worldwide executive
recruitment databases contain the profiles of over 1,500,000 executives and
over 400,000 companies which allow our consultants to quickly obtain
information, communicate effectively with each other and provide more
efficient service to our clients. The relationships that we develop through
this business are valuable for introducing our other service offerings to
clients.
Middle Management Recruitment. Futurestep, our leading online middle
management recruitment business, leverages technology, assessment tools, our
brand name and search expertise combined with the reach of the Internet to
provide a wide range of technology based recruitment services.
Futurestep performed over 800 assignments and generated $21.6 million in
revenue during the quarter ended July 31, 2000. As of October 31, 2000, the
Futurestep database contained over 840,000 candidates. We view this business
and our ability to scale this market opportunity through the use of technology
as a key component of our growth strategy.
Other Technology Based Services. We continue to invest in technology to
extend our market position and bring a broader set of capabilities and
services to new and existing clients.
. In July 2000, we acquired JobDirect, a leading online college
recruitment company that provides technology outsourcing tools to our
clients that enable them to track college graduates throughout the
entire recruitment process.
. In May 2000, we invested in Jungle Interactive Media, a company that
provides Internet based information, entertainment, products and
services to targeted groups within higher education, such as graduate
school candidates, in order to facilitate student interaction with
schools, recruiters, advertisers and other students.
. In August 2000, we made a strategic investment in Webhire, the leading
business services and technology solutions provider in the Internet
recruitment marketplace.
. In fiscal 2001, we intend to expand our global management assessment
practice to cover North America and Latin America. This service is
directed towards helping corporate leadership evaluate the individual
and collective performance of their senior management teams.
We intend to continue aggressively investing in technology solutions that
open up new markets for us and enable us to provide a greater set of services
to our clients and candidates.
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<PAGE>
Industry Overview
We have historically operated in the executive search market and have
aggressively used technology to expand our presence into the middle management
search and college recruitment markets.
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. Kennedy Information estimates that revenues for the executive
recruitment market in North America will exceed $10 billion in 2000. The
industry is extremely fragmented, comprising approximately 4,000 firms, the
top 10 of whom accounted for 11% of the total market in 1998. According to
Executive Recruiter News, more than 80% of the retained firms and
approximately 90% of the contingency firms each generated less than $2 million
in revenue in 1998.
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. These firms 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 online
recruiting services are becoming more important.
College Recruitment. The college recruitment market focuses on placing
undergraduate and graduate students in entry level positions with employers.
We estimate that revenues for this market will exceed $3 billion in 2000. Most
of this market is characterized by the hiring of large numbers, often hundreds
or thousands, of students by Fortune 3000 corporations and other large
organizations. Communicating with students, coordinating with career offices
and managing the process are critical to successful hiring in this market.
In addition to the executive, middle management and college recruitment
markets, we believe that technology based recruitment and human resource
management software tools address a significant and largely undeveloped
market. As the labor markets continue to evolve, we believe that companies
will increasingly use technology to become more effective in recruiting and
hiring employees and in lowering their overall recruitment costs.
Industry Trends
We believe that a number of favorable trends will contribute to the growth
of the recruitment industry:
One-Stop Shopping of Multiple Service Offerings. In choosing their
recruitment and human resource service providers, companies are increasingly
looking to those companies who can address all of their requirements from
high-end executive search to college and intern recruiting. Clients,
therefore, expect a broader range of service offerings to be performed by a
fewer number of providers or a one-stop service provider of multiple service
offerings to achieve lower cost through economies of scale. Since companies
view human capital as a key element of their success, they seek to partner
with companies who not only find and assess candidates and employees but also
manage the movement of this strategic resource.
Increased Use of Advanced Technology. The emphasis of the recruitment
business is shifting from candidate identification to candidate assessment and
placement. The emphasis on assessment and placement has
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<PAGE>
largely been driven by enhancements in technology as it has become easier to
identify candidates in online and offline databases. In addition, information
technology and the Internet are creating efficient ways to manage the
recruitment process and identify, recruit and assess 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. The current shortage of qualified management-level candidates have
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 the costs required to maintain and train a recruiting department
in a rapidly changing industry;
. Benefit from the most updated industry and specific geographic market
information;
. Access leading search technology software; and
. Maintain management focus on strategic business issues.
Globalization of Business. As the world 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 increasingly challenges
multinational and local companies to identify qualified executives with the
right combination of skills, experience and cultural compatibility. Clients
are increasingly turning only to those firms that have the necessary proven
expertise and intimate knowledge of key industries and local markets that
enables them to address their clients' 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;
. 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 the preeminent global recruitment
firm. The principal elements of our strategy include:
Expanding our Market Reach and Presence through Technology and Assessment
Solutions. An advanced technology infrastructure has become a critical element
of the recruitment business. We continue to invest in Futurestep and have
invested in other recruitment technology solutions addressing the college and
recruitment software markets. In the executive recruitment market, we have
invested almost $40 million over the past three fiscal years to develop a
state-of-the-art technology infrastructure, including a worldwide network and
Searcher, our proprietary executive recruitment software. Recently, we
introduced a pilot version of e-Korn/Ferry, our executive search Internet tool
that allows executives to submit relevant employment information to us. This
feature efficiently makes candidates accessible to our consultants, and over
25,000 candidates have participated in this pilot program to date. We will
continue to invest aggressively in technology, including our exclusive
candidate assessment tools, in order to further 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.
25
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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. We
also believe that our brand name will allow us to market services, such as
career management, directly to executives and other candidates who are
actively seeking to manage their careers and build communities of candidates.
Pursuing Strategic Acquisitions and Investments. We view strategic
acquisitions and investments as a key component of our long-term growth
strategy and will actively pursue opportunities that enhance and expand our
technology position, consultancy expertise and specialization, geographic
presence, client relationships and databases. In fiscal 2000, we completed a
total of ten acquisitions. In executive recruitment, we completed four
acquisitions in the United States, three in Canada, one in Germany and one in
Australia. We also significantly expanded the international footprint of
Futurestep through the acquisition of a business in the United Kingdom, with a
presence in 17 countries in Europe and Asia/Pacific. In fiscal 1999, we
completed the acquisition of two European executive recruitment firms with
operations in France and Switzerland. Recently, we have acquired JobDirect and
made investments in Webhire and Jungle Interactive Media.
Overview of Our Services
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 used to fill executive-
level positions, such as boards 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 2000, we
performed over 7,700 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
sources, 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 sources, and our
databases that contain profiles of over 1,500,000 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.
Usually, the finalists for the position 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 so that there is
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confidence 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 the client apprised of progress.
Industry Specialization. Consultants in our ten 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,
strategic hiring in targeted growth areas and selected acquisitions. In fiscal
2000, the acquisition of Levy Kerson and Helstrom Turner significantly
strengthened our retail practice and the acquisition of Pearson, Caldwell and
Farnsworth enhanced our consistently strong financial services practice.
Percentage of Fiscal 2000 Assignments by Industry Specialization:
<TABLE>
<S> <C>
Advanced Technology...................................................... 23%
Consumer Goods........................................................... 18
Industrial............................................................... 16
Financial Services/Investments........................................... 16
Healthcare (Products and Providers)...................................... 10
Professional Services.................................................... 6
Entertainment & Media Practice........................................... 4
Governmental and Not-for-profit.......................................... 4
Energy & Utilities....................................................... 3%
</TABLE>
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 board of 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 effective, knowledgeable and cohesive boards 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 their
board bases 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. In
fiscal 2000, we acquired Crist Partners, a premier senior executive and board
level recruitment firm, adding both a renowned firm franchise and key new
management to our board services practice. Members of functional groups are
located throughout our regions and across our specialty practice groups.
Percentage of Fiscal 2000 Assignments by Functional Expertise:
<TABLE>
<S> <C>
Board Level/CEO/CFO/Senior Executive and General Management.............. 49%
Marketing and Sales...................................................... 22
Finance and Control...................................................... 8
Manufacturing/Engineering/R&D/Technology................................. 8
Human Resources and Administration....................................... 7
Information Systems...................................................... 6%
</TABLE>
Client Base. Our clients are many of the world's largest and most
prestigious public and private companies, including Chase Manhattan, Credit
Suisse Group, Deutsche Bank, Ford, General Electric, Hewlett-Packard Company,
Lucent Technologies, Mattel and Morgan Stanley Dean Witter. In fiscal 2000,
approximately 6.2% of our total revenue was derived from our top ten
customers. We have established strong client loyalty; more than 82% of the
executive recruitment assignments we performed in the last three fiscal years
were on behalf of clients for whom we had conducted multiple assignments over
the last three fiscal years.
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Competition. We are the preeminent global executive recruitment firm. Other
multinational executive recruitment firms include Heidrick & Struggles
International, Inc. and Spencer Stuart & Associates. Although these firms are
our primary competitors, we also compete against 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. Our Futurestep subsidiary combines our extensive executive
recruitment expertise, our brand name, exclusive candidate assessment tools
and the reach of the Internet to recruit candidates for middle management
positions. Futurestep is fundamentally different from other Internet based job
placement services, which do not employ Futurestep's sophisticated filtering
process or utilize recruitment professionals to interact with candidates and
clients.
We recognize that the cost of lost productivity as a result of middle
management vacancies is significant. By pre-building an inventory of qualified
candidates prior to receiving a client assignment and by keeping that
inventory current through communication enabled by technology, we can quickly
generate a select list of candidates, which significantly reduces search cycle
time.
To register with Futurestep, candidates complete an online assessment
profile that details their work history, management experience, preferred
career path and management style. The assessment tools, which Futurestep has
licensed on an exclusive basis in its market, have been validated using a
cross-section of senior managers over ten years and give reliable feedback on
decision making style, communication style, cultural preferences and career
and personal motivation. Clients complete a similar profile to determine
company culture and the type of manager who will succeed in the open position.
We believe that cultural compatibility is critical to the successful placement
of a candidate and that these proprietary tools may have applicability to
other areas of executive recruitment. To encourage candidates to register with
Futurestep, we provide career management feedback on a candidate's salary
potential, leadership skills, the industries and functions for which the
candidate is most qualified and the most compatible corporate culture.
Futurestep offers additional support to candidates through editorial content
appearing on the website of CNBC.com.
When we receive an assignment from a client, a preliminary list of
candidates is selected from the Futurestep database and the most qualified
candidates are contacted by a Futurestep recruitment consultant for further
evaluation. The consultant schedules a 45-minute to one-hour video interview
with selected candidates. The consultant then identifies the top candidates
and provides the client with excerpts of the video-taped interviews, a written
report summarizing the candidates' credentials, the results of the assessment
profile and other background information for comparison. The Futurestep
consultant typically organizes the client interviews with the candidate, and
advises and consults throughout the negotiation process to structure the final
offer package and position responsibilities.
Confidentiality for both candidates and clients is paramount. When
candidates register with Futurestep, they do not know who the Futurestep
clients are or which positions are available. Companies do not have access to
candidate information until a candidate gives a Futurestep consultant explicit
permission to release the information to the client.
In June 1998, we entered into a three-year exclusive contract with The Wall
Street Journal, which provides Futurestep with reduced advertising rates,
requires the purchase of a minimum amount of print and online advertising and
permits the use of The Wall Street Journal name in connection with promotion
of the Futurestep service. In return, The Wall Street Journal is obligated to
use reasonable commercial efforts to offer each employer which advertises
positions in The Wall Street Journal the option of retaining Futurestep's
services. The contract is the first of its kind in the recruitment industry.
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In June 2000, we entered into an agreement with The Graduate Management
Admission Council. Futurestep will create a website targeted at future and
current MBA students, and those registering for the GMAT will be given the
opportunity to register with Futurestep at the same time.
Client Base. A majority of Futurestep's business is currently sourced
through existing relationships that have been built during Korn/Ferry's 30
years of experience in executive recruitment. We believe that this represents
only a portion of the available market and continue to aggressively target and
market prospective and current clients.
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;
. in the technology based middle management recruitment industry, with
firms such as TMP Worldwide; and
. to a lesser extent, with recruiting technology services such as job
boards.
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.
Other Technology Based Services
College Recruitment Services. In July 2000, we completed the acquisition of
JobDirect, which has allowed us to begin providing outsourced technology
services to our clients for tracking and evaluating college candidates.
JobDirect is an Internet based recruiting company that provides an entry-level
recruiting solution to employers, college career offices and students to
reduce the inefficiencies and costs of entry-level recruiting. JobDirect
maintains contracts with over 500 corporate clients and has established
several significant marketing relationships to develop co-branded and
integrated websites that can be used to extend the Korn/Ferry brand to the
student market. JobDirect has developed a software tool called Resume
Exchange, which is given to college career offices to automate their career
placement service and create a link between those offices and JobDirect
Internet applications. This proprietary software tool is currently used in
over 350 college career offices.
In May 2000, we invested in Jungle Interactive Media, a company providing
Internet based information, entertainment, products and services to groups
within higher education. Their mission is to facilitate the efficient
interaction of students with schools, recruiters, advertisers and other
students. Jungle will create separate but co-branded websites that will target
undergraduate, business, law and medical students and Jungle branded magazines
will act as marketing vehicles that will drive traffic to these sites. Under a
strategic alliance agreement with Jungle we will be the only recruitment firm
to sponsor Jungle's websites and we will have exclusive access among our
competitors to Jungle's resume database.
Recruitment Management Services. In August 2000, we made a strategic
investment in Webhire, the leading business services and technology solutions
provider in the Internet recruitment marketplace. This strategic investment
was undertaken in recognition of the increasing importance to clients of the
need for a corporate human resource application service provider and allows us
to enhance and expand our Internet based services. Webhire designs, markets,
implements and supports Internet and intranet based recruiting solutions to
automate candidate sourcing, Internet job posting and recruitment management
at corporations, organizations, Internet portals and online career sites.
Webhire's Internet recruiting software tools, offered on an application
service provider basis, are designed to help employers use the Internet
quickly and cost-effectively to post job openings, collect incoming resumes
into searchable databases, search through external resume pools for potential
candidates and manage the hiring process.
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Management Assessment. Our global management assessment practice is growing
rapidly in Europe and we intend to expand this service to cover North America
and Latin America in fiscal 2001. This service is directed towards helping
corporate leadership evaluate the individual and collective performance of
their senior management team. This service, which further extends the range of
leadership capital solutions we can offer to clients, is a valuable tool for
the chief executive, board of directors and other senior offers to use to
pursue organizational transformation and top leadership alignment in keeping
with their strategic goals. This service is in direct response to our clients'
needs for an assessment tool to meet the challenges of changes in company
relationships and global restructuring and, for venture capital investment
firms, to evaluate the strengths of the leadership team in existing or
prospective portfolio companies. The assessment will be performed by
consultants who have years of experience in interviewing and evaluating the
most senior level executives and who understand the relevant business and
industry challenges. With our global network and assessment technology, we
will be able to effectively evaluate a company's senior management team.
Technology
Our technology is designed to enhance the functionality, speed and quality
of our information management. It also represents a long-term strategic
initiative and is designed to create competitive advantages and sustained
growth.
Central to our technology infrastructure is the maintenance of
professionally-managed data storage facilities. We currently maintain two
facilities for our executive search databases. The primary facility is located
in Burbank, California and is managed by Qwest. We manage a secondary facility
in Century City, California. We also maintain a separate data storage facility
in downtown Los Angeles, California for Futurestep which is managed by
Genuity. 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.
We use in-house developers to develop much of our technology, including
Searcher, our executive management databases that are accessible and
searchable by all our consultants. Our technology is designed to be scalable
and accommodate future growth in our current services, as well as the addition
of new services. Following acquisitions of recruitment companies, we either
replace their existing systems with ours or enable their systems to operate
with ours.
Organization
Our executive recruitment business is managed on a geographic basis through
four regions: North America, Europe, Asia/Pacific and Latin America, including
Mexico. Futurestep is managed on a worldwide basis with operations in North
America, Europe and Asia/Pacific. The following table sets forth the number of
offices and consultants as of July 31, 2000:
<TABLE>
<CAPTION>
Number of Number of
Offices as of Consultants as of
July 31, 2000 July 31, 2000
------------- -----------------
(in millions)
<S> <C> <C>
Executive Recruitment:
North America.............................. 23 283
Europe..................................... 27 154
Asia/Pacific............................... 14 61
Latin America.............................. 9 34
Futurestep................................... 31 107
</TABLE>
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<PAGE>
MANAGEMENT
The following table sets forth, as of October 31, 2000, the names, ages and
positions of our executive officers and directors.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Richard M. Ferry(1)..... 63 Chair of the Board and Director
Windle B. Priem(1)...... 63 Chief Executive Officer, President and Director
Peter L. Dunn(1)........ 55 Vice Chair, General Counsel and Director
Elizabeth S.C.S.
Murray(1).............. 44 Chief Financial Officer, Treasurer and Executive Vice President
Gary C. Hourihan........ 52 Executive Vice President--Organizational Development
Michael D. Bekins....... 46 Chief Operating Officer and Executive Vice President
James E. Barlett........ 56 Director
Frank V. Cahouet........ 68 Director
Timothy K. Friar........ 42 Director
Sakie Fukushima......... 51 Director
Patti S. Hart........... 44 Director
Scott E. Kingdom........ 41 Director
Charles D. Miller....... 72 Director
Gerhard Schulmeyer...... 62 Director
Mark C. Thompson........ 43 Director
</TABLE>
--------
(1) Member of the Office of the Chief Executive.
The Board of Directors is divided into three classes. Each director serves a
three-year term and one class is elected each year by our stockholders.
Directors hold office until their terms expire and their successors are
elected and qualified. The terms of the current directors will expire as
follows: Messrs. Bartlett, Ferry, Friar and Kingdom and Ms. Fukushima, in
2001, Messrs. Cahouet, Dunn, Miller and Shulmeyer, in 2002, and Messrs. Priem
and Thompson and Ms. Hart, in 2003.
Richard M. Ferry is a founder of Korn/Ferry International, has been Chairman
of the Board since 1991 and is also a member of the Office of the Chief
Executive. Mr. Ferry served as Chief Executive Officer from May 1991 to April
1997. He also serves on the Board of Directors of Avery Dennison Corp., Dole
Food Company, Mrs. Fields' Original Cookies, Inc. and Pacific Life Insurance
Company. Mr. Ferry has been a director since 1969.
Windle B. Priem has been Chief Executive Officer and President since
December 1998 and is also a member of the Office of the Chief Executive. From
May 1997 to December 1998, he served as Vice Chairman and Chief Operating
Officer. From May 1995 to 1997 he was the President of the North America
region. Mr. Priem joined us in 1976. Mr. Priem has been a director since 1993.
Peter L. Dunn serves as Vice Chair and General Counsel and is also a member
of the Office of the Chief Executive. Mr. Dunn also serves as Corporate
Secretary. Mr. Dunn is currently the acting Chief Executive Officer of our
subsidiary, Futurestep. Mr. Dunn joined us in 1981. Mr. Dunn has been a
director since 1992.
Elizabeth S.C.S. Murray has been the Executive Vice President, Chief
Financial Officer and Treasurer since July 1998 and is also a member of the
Office of the Chief Executive. In January 1998, she joined us as
Vice President and Chief Financial Officer and Treasurer. Prior to joining us,
Ms. Murray served as Executive Vice President and Chief Financial Officer of
Tycom Inc. from June 1997 to December 1997. From 1994 to June 1997 she was the
Chief Financial Officer and Vice President of Hughes Communications, Inc., a
subsidiary of Hughes Electronics Corporation. Prior to 1994, Ms. Murray served
in various other positions in the worldwide operations of Hughes Electronics
Corporation, including Corporate Director of Planning.
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<PAGE>
Gary C. Hourihan has been the Executive Vice President--Organizational
Development since January 1999. He is responsible for all human resource
functions and assisting with mergers and acquisitions, among other functions.
Prior to joining us Mr. Hourihan was co-founder, Chairman, and Chief Executive
Officer of SCA Consulting, L.L.C., a leading executive compensation consulting
firm in the U.S., where he was employed from November 1984 until joining us.
Michael D. Bekins has been the Chief Operating Officer and Executive Vice
President since May 2000. He was most recently President of the European
region and, previously served as President of the Asia/Pacific region. Mr.
Bekins joined us in September 1980 as a senior associate and became Vice
President in May 1992.
James E. Barlett is Chairman, President and Chief Executive Officer of
Galileo International. From 1994 to 1997, Mr. Barlett was President and Chief
Executive Officer of Galileo International. He is also a director of TeleTech
Holdings, Inc. Mr. Barlett has been a director since 1999.
Frank V. Cahouet retired as Chairman, President and Chief Executive Officer
of Mellon Financial Corporation in 1998, positions which he had held since
1987. Mr. Cahouet is a director of Avery Dennison Corporation, Allegheny
Technologies, Inc., Saint-Gobain Corporation and Teledyne Technologies
Incorporated. Mr. Cahouet has been a director since 1999.
Timothy K. Friar has been a Vice President since 1995. He is currently
responsible for managing our New York, Princeton and Philadelphia offices. He
also serves on our Professional Development Committee. Mr. Friar joined us in
1993. Mr. Friar has been a director since 1998.
Sakie Fukushima has been a Vice President since 1993. She is currently
responsible for managing the Tokyo office and our Consumer/Retail Practice in
Japan. Ms. Fukushima joined us in 1991. Ms. Fukushima has been a director
since 1995.
Patti S. Hart is President, Chief Executive Officer and a director of
Telocity, Inc. From 1994 through 1999, Ms. Hart was President and Chief
Operating Officer of Sprint's Long Distance Division. Ms. Hart is also a
director of Brigade Solutions, Mariner Networks and Plantronics. Ms. Hart
began her term as a director in 2000.
Scott E. Kingdom has been a Vice President since 1993. He is currently
responsible for managing our Austin, Chicago, Dallas, Denver, Houston and
Minneapolis offices and for executing senior-level search engagements. Mr.
Kingdom joined us in 1988 and has 13 years of executive search experience. Mr.
Kingdom has been a director since 1998.
Charles D. Miller retired as Chairman of Avery Dennison Corporation in April
2000. From April 1983 through April 1998, Mr. Miller was Chairman and Chief
Executive Officer of Avery Dennison Corporation. Mr. Miller is also Chairman
of Nationwide Health Properties, Inc., and a director of The Air Group, Avery
Denison Corporation, Edison International and Pacific Life Insurance Company.
Mr. Miller has been a director since 1999.
Gerhard Schulmeyer is President and Chief Executive Officer of Siemens
Corporation. From 1994 through 1998, Mr. Schulmeyer was President and Chief
Executive Officer of Siemens Nixdorf, Munich/Paderborn. Mr. Schulmeyer is also
a director of Alcan Aluminum Ltd., FirePond, Inc., Ingram Micro, Inc. and
Zurich Financial Services. Mr. Schulmeyer has been a director since 1999.
Mark C. Thompson is Chairman of Integration Technology, Inc. From 1988 to
2000, he was an officer of The Charles Schwab Corporation, where he was most
recently Executive Producer and Senior Vice President. Mr. Thompson is also a
director of Integration Associates, Inc., Best Buy Co., Inc., Eloquent, Inc.,
Esurance, Inc., Interwoven, Inc., Investorplus.com and Rioport, Inc. Mr.
Thompson began his term as a director in 2000.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of Korn/Ferry's common stock as of October 31, 2000, and as adjusted
to reflect the sale of the shares offered hereby by:
. each person who is known by us to own beneficially more than 5% of our
common stock;
. each of our directors and executive officers;
. all directors and executive officers as a group; and
. each selling stockholder, almost all of whom are our employees or former
employees.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Prior to Owned After
Offering Offering(2)
----------------- Shares -----------------
Name and Address of Beneficial Being
Owner(1) Number Percent Offered Number Percent
------------------------------ --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Richard M. Ferry(3)............... 1,031,456 2.7% -- 1,031,456 2.7%
Windle B. Priem(4)................ 736,084 1.9 -- 736,084 1.9
Peter L. Dunn(5).................. 343,543 * -- 343,543 *
Elizabeth S.C.S. Murray........... 109,124 * -- 109,124 *
Gary C. Hourihan(6)............... 56,113 * -- 56,113 *
Michael D. Bekins(7).............. 213,778 * -- 213,778 *
James E. Barlett(8)............... 2,000 * -- 2,000 *
Frank V. Cahouet(8)............... 19,200 * -- 19,200 *
Timothy K. Friar(9)............... 128,458 * -- 128,458 *
Sakie Fukushima(10)............... 115,076 * -- 115,076 *
Patti S. Hart..................... 0 * -- 0 *
Scott E. Kingdom(11).............. 107,924 * -- 107,924 *
Charles D. Miller(12)............. 32,000 * -- 32,000 *
Gerhard Schulmeyer(6)............. 2,000 * -- 2,000 *
Mark C. Thompson.................. 0 * -- 0 *
All directors and executive
officers as a group
(15 persons)(13)................. 2,840,643 7.7 -- 2,840,643 7.7
Selling stockholders:
</TABLE>
--------
* Less than 1%.
(1) The persons named in the table have sole voting and investment power with
respect to all shares of common stock shown and beneficially owned by them,
subject to community property laws where applicable and the information
contained in the table and these notes. The address of each is c/o
Korn/Ferry International, 1800 Century Park East, Suite 900, Los Angeles,
CA 90067.
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<PAGE>
(2) Assuming no exercise of the Underwriters' over-allotment option.
(3) Holding includes 658,184 shares of common stock held by the trustees of
the Korn/Ferry Employee Tax Deferred Savings Plan, or the 401(k) plan, for
the benefit of the listed individual.
(4) Holding includes 215,015 shares of common stock held by the trustees of
the 401(k) plan for the benefit of the listed individual and right to
acquire beneficial ownership of 109,717 shares of common stock within 60
days through the exercise of option granted under our performance award
plan.
(5) Holding includes 19,985 shares of common stock held by the trustees of the
401(k) Plan for the benefit of the listed individual and right to acquire
beneficial ownership of 6,834 shares of common stock within 60 days
through the exercise of option granted under our performance award plan.
(6) Holding includes right to acquire beneficial ownership of 4,501 shares of
common stock within 60 days through the exercise of option granted under
our performance award plan.
(7) Holding includes 3,763 shares of common stock held by the trustees of the
401(k) Plan for the benefit of the listed individual and right to acquire
beneficial ownership of 10,167 shares of common stock within 60 days
through the exercise of option granted under our performance award plan.
(8) Holding includes right to acquire beneficial ownership of 2,000 shares of
common stock within 60 days through the exercise of option granted under
our performance award plan.
(9) Holding includes right to acquire beneficial ownership of 16,334 shares of
common stock within 60 days through the exercise of option granted under
our performance award plan.
(10) Holding includes right to acquire beneficial ownership of 15,084 shares
of common stock within 60 days through the exercise of option granted
under our performance award plan.
(11) Holding includes right to acquire beneficial ownership of 15,000 shares
of common stock within 60 days through the exercise of option granted
under our performance award plan.
(12) Holding includes 30,000 shares of common stock held by the Miller Family
Trust dated September 8, 1988 and right to acquire beneficial ownership
of 2,000 shares of common stock within 60 days through the exercise of
option granted under our performance award plan.
(13) Total holding as a group includes 896,947 shares of common stock held by
the trustees of the 401(k), 30,000 shares of common stock held by the
Miller Family Trust dated September 8, 1988, and right to acquire
beneficial ownership of a total of 185,637 shares of common stock within
60 days through the exercise of options granted under our performance
award plan.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 200,000,000 shares, each with a par
value of $0.01 per share, of which:
. 150,000,000 shares are designated as common stock, of which 37,445,292
shares were outstanding as of October 31, 2000; and
. 50,000,000 shares are designated as preferred stock, none of which is
outstanding as of October 31, 2000.
Common Stock
Subject to the rights of the holders of any preferred stock which may be
outstanding, each holder of common stock on the applicable record date is
entitled to receive such dividends as may be declared by our board of
directors out of funds legally available therefor, and, in the event of
liquidation, to share pro rata in any distribution of our assets after payment
or providing for the payment of liabilities and the liquidation preference of
any outstanding preferred stock.
Each holder of common stock is entitled to one vote for each share held of
record on the applicable record date on all matters presented to a vote of
stockholders. Holders of common stock have no preemptive rights to purchase or
subscribe for any stock or other securities and there are no conversion rights
or redemption or sinking fund provisions with respect to common stock. All
outstanding shares of common stock are, and the shares of common stock covered
by this prospectus will be when issued, fully paid and non-assessable.
Preferred Stock
Our board has the authority to issue the preferred stock in one or more
series, and with respect to each series, to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the
designation of such series, without further vote or action by the
stockholders. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of us and may adversely affect the
voting and other rights of the holders of common stock. The issuance of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of common stock, including the loss of voting
control to others. At present, we have no plans to issue any preferred stock.
Section 203 of the Delaware General Corporation Law
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes a merger, asset sale or a transaction resulting in a financial
benefit to the interested stockholder. An "interested stockholder" is a person
who, together with affiliates and associates, owns (or, in certain cases,
within the preceding three years, did own) 15% or more of the corporation's
outstanding voting stock. Under Section 203, a business combination between an
interested stockholder and us is prohibited unless it satisfies one of the
following conditions:
. prior to the time the stockholder became an interested stockholder, our
board of directors must have previously approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
. on consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the
35
<PAGE>
transaction commenced (excluding, for purposes of determining the number
of shares outstanding, shares owned by persons who are directors and
officers); or
. the business combination is approved by our board of directors and
authorized at an annual or special meeting of the stockholders by the
affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder.
Certain Anti-Takeover Effects
Certain provisions of our certificate of incorporation and bylaws summarized
below may be deemed to have anti-takeover effects and may delay, defer or
prevent a tender offer or takeover attempt that a stockholder might consider to
be in the stockholder's best interest, including those attempts that might
result in a premium over the market price for the shares held by stockholders.
Classified Board of Directors
Our board of directors is divided into three classes having staggered terms
of three years each, with Classes I, II and III having terms expiring at the
annual general meeting of stockholders in 2001, 2002 and 2003, respectively. As
a result, at least two annual meetings of stockholders may be required for the
stockholders to change a majority of our board of directors. Vacancies on our
board of directors may be filled only by our board of directors, or, if our
board fails to fill a vacancy, by a vote of the stockholders. The
classification of directors and the inability of stockholders to fill vacancies
on our board of directors make it more difficult to change the composition of
our board of directors, but promotes a continuity of existing management.
Advance Notice Requirements
Our bylaws establish advance notice procedures with regard to stockholder
proposals relating to the nomination of candidates for election as directors or
new business to be brought before meetings of our stockholders. These
procedures provide that notice of stockholder proposals must be given in
writing in a timely manner to our secretary prior to the meeting at which the
action is to be taken. Generally, to be timely, notice must be received at our
principal executive offices of not less than 90 days prior to the anniversary
of the prior year's annual meeting, nor more than 120 days prior to the
anniversary of the prior year's annual meeting. The notice must contain certain
information specified in our bylaws.
Blank Check Preferred Stock
Our charter provides for 50,000,000 authorized shares of preferred stock. The
existence of authorized but unissued shares of preferred stock may enable our
board of directors to render more difficult or to discourage an attempt to
obtain control of us by means of a merger, tender offer, proxy contest or
otherwise. For example, if in the due exercise of its fiduciary obligations,
our board of directors were to determine that a takeover proposal is not in our
best interests, our board of directors could issue preferred stock without
stockholder approval in one or more private offerings or other transactions
that might dilute the voting or other rights of the proposed acquiror or
insurgent stockholder or stockholder group. In this regard, our charter grants
our board of directors broad power to establish the rights and preferences of
authorized and unissued shares of preferred stock. The issuance of shares of
preferred stock could decrease the amount of earnings and assets available for
distribution to holders of shares of common stock and nonvoting common stock.
The issuance may also adversely affect the rights and powers, including voting
rights, of such holders and may have the effect of delaying, deterring or
preventing a change in control of us.
No Ability of Stockholders to Call Special Meetings
Our certificate of incorporation and bylaws deny stockholders the right to
call a special meeting of stockholders. Special meetings of the stockholders
may be called only by our board of directors, the chair of our board, our chief
executive officer or our president.
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<PAGE>
No Written Consent of Stockholders
Our charter does not permit our stockholders to act by written consent
without a meeting, unless the action to be taken by written consent of
stockholders and the taking of such action by written consent shall have been
expressly approved by our board of directors in advance of the taking of such
consent.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services LLC.
Listing
Our common stock is listed on the NYSE under the symbol "KFY."
Liquidity Schedule
Approximately 360 of our stockholders who owned our shares prior to the
initial public offering in February, 1999 or subsequently acquired shares
agreed in a stock repurchase agreement not to sell a specified percentage of
their common stock until February 17, 2001. The liquidity schedules contained
in the stock repurchase agreements allows stockholders to sell their shares
over time, as follows:
. after February 17, 2001, the liquidity schedule allows stockholders to
sell up to 30% of their shares, or an aggregate of 5,878,324 shares;
this number will be reduced by the number of shares sold in this
offering;
. after February 17, 2002, the liquidity schedule allows stockholders to
sell up to an additional 20% of their shares, or an aggregate of
5,023,055 shares; and
. after February 17, 2003, the liquidity schedule allows stockholders to
sell all of their shares, or an aggregate of 12,513,640 additional
shares.
The restrictions on sales can also terminate under certain other
circumstances, such as:
. the death or permanent incapacity of a stockholder, in which case that
stockholder's shares may be sold; or
. a change in control of us, in which case the restrictions will cease for
all stockholders.
Pursuant to the stock repurchase agreements, we are able to repurchase the
shares subject to transfer restrictions from the stockholders if they take
specific actions that could harm the company.
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<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated and PaineWebber Incorporated are acting
as representatives, have severally agreed to purchase, and the selling
stockholders have agreed to sell to them, severally, the number of shares
indicated below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated..................................
PaineWebber Incorporated...........................................
---------
Total............................................................ 3,000,000
=========
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from the selling stockholders and subject to prior sale. The
underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares offered by this
prospectus are subject to specified conditions. The underwriters are obligated
to take and pay for all of the shares (other than those covered by the over-
allotment option described below) offered by this prospectus if any are taken.
The underwriters initially propose to offer part of the common stock
directly to the public at the public offering price listed on the cover page
of this prospectus and part to certain dealers at a price that represents a
concession not in excess of $ per share under the public offering price.
Any underwriter may allow, and such dealers may reallow, a concession not in
excess of $ a share to other underwriters or to certain other dealers. After
the initial offering of the shares, the offering price and other selling terms
may from time to time be varied by the underwriters.
The selling stockholders have granted to the underwriters an option,
exercisable for 30 days from the date of this prospectus, to purchase up to an
aggregate of 450,000 additional shares at the public offering price listed on
the cover page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise this option solely for the purpose
of covering overallotments, if any, made in connection with the offering of
the shares offered by this prospectus. To the extent the option is exercised,
each underwriter will become obligated, subject to certain conditions, to
purchase about the same percentage of the additional shares as the number
listed next to the underwriter's name in the preceding table bears to the
total number of shares listed next to the names of all underwriters in the
preceding table. If the underwriters' option is exercised in full, the total
price to the public would be $ , the total underwriters' discount and
commissions would be $ and the total proceeds to the selling stockholders
would be $ .
Each of Korn/Ferry, the selling stockholders and the directors and executive
officers has agreed that, without the prior written consent of Morgan Stanley
& Co. Incorporated on behalf of the underwriters, it will not, during the
period ending 90 days after the date of this prospectus:
. offer, pledge sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of
directly or indirectly, any shares or any shares or any securities
convertible into or exercisable or exchangeable for common stock; or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock;
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise.
38
<PAGE>
The restrictions described in the paragraph above do not apply to:
. the sale of shares to the underwriters;
. the grant by us of awards pursuant to our performance award plan;
. the issuance by the Company of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus or granted pursuant to our performance award
plan; or
. transactions by any person other than the Company relating to common
stock or other securities acquired or other securities acquired in open
market transactions after the completion of the offering of the shares.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
common stock in the open market. Finally, the underwriting syndicate may
reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering, if the syndicate repurchases
previously distributed common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above
independent market levels. The underwriters are not required to engage in
these activities, and may end any of these activities at any time.
Korn/Ferry, the selling stockholders and the underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
39
<PAGE>
VALIDITY OF COMMON STOCK
The validity of the shares of the common stock offered hereby will be passed
upon for us by Sullivan & Cromwell, Los Angeles, California. Certain legal
matters will be passed upon for the underwriters by Gibson, Dunn & Crutcher
LLP, Los Angeles, California.
EXPERTS
The audited financial statements included in this prospectus and elsewhere
in the registration statement and the audited schedules incorporated by
reference in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We are required to file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy any
documents filed by us at the SEC's public reference room at 450 Fifth Street,
N.W.,Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. Our filings with the SEC are also
available to the public through the SEC's Internet site at http://www.sec.gov
and through the NYSE, 20 Broad Street, New York, New York 10005, on which our
common stock is listed.
We have filed a registration statement on Form S-3 with the SEC relating to
the shares of common stock covered by this prospectus. This prospectus is a
part of the registration statement and does not contain all of the information
in the registration statement. Whenever a reference is made in this prospectus
to a contract or other document of ours, please be aware that the reference is
only a summary and that you should refer to the exhibits that are a part of
the registration statement for a copy of the contract or other document. You
may review a copy of the registration statement at the SEC's public reference
room in Washington, D.C., as well as through the SEC's Internet site.
The SEC's rules allow us to "incorporate by reference" information into this
prospectus. This means that we can disclose important information to you by
referring you to another document. Any information referred to in this way is
considered part of this prospectus from the date we file that document. Any
reports filed by us with the SEC after the date of this prospectus and before
the date that the offering of the shares of common stock offered through this
prospectus is terminated will automatically update and, where applicable,
supersede any information contained in this prospectus or incorporated by
reference in this prospectus.
Korn/Ferry International incorporates by reference into this prospectus the
following documents or information filed with the SEC (File No. 001-14505):
. Annual Report on Form 10-K for the fiscal year ended April 30, 2000;
. Quarterly Report on Form 10-Q for the quarterly period ended July 31,
2000; and
. All documents filed by Korn/Ferry International under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the time
of filing of the initial registration statement and before effectiveness
of the registration statement, and after the date of this prospectus and
before the termination of this offering.
We will provide without charge to each person, including any beneficial
owner, to whom this prospectus is delivered, upon his or her written or oral
request, a copy of any or all documents referred to above which have been or
may be incorporated by reference into this prospectus, excluding exhibits to
those documents unless they are specifically incorporated by reference into
those documents. You can request those documents by writing to Peter L. Dunn,
1800 Century Park East, Suite 900, Los Angeles, California 90067, or by
calling us at (310) 552-1834.
40
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets as of July 31, 2000 (unaudited) and April 30,
2000.................................................................... F-2
Consolidated Statements of Operations for the three months ended July 31,
2000 and 1999 (unaudited)............................................... F-3
Consolidated Statements of Cash Flows for the three months ended July 31,
2000 and 1999 (unaudited)............................................... F-4
Notes to Consolidated Financial Statements............................... F-5
Report of Independent Public Accountants................................. F-9
Consolidated Balance Sheets as of April 30, 2000 and 1999................ F-10
Consolidated Statements of Operations for the three years ended April 30,
2000.................................................................... F-11
Consolidated Statements of Shareholders' Equity for the three years ended
April 30, 2000.......................................................... F-12
Consolidated Statements of Cash Flows for the three years ended April 30,
2000.................................................................... F-13
Notes to Consolidated Financial Statements............................... F-14
</TABLE>
F-1
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
As of As of
July 31, April 30,
2000 2000
----------- ---------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents............................... $ 66,665 $ 86,975
Marketable securities................................... 59,978
Receivables due from clients, net of allowance for
doubtful accounts of $14,611 and $12,538............... 128,039 101,506
Other receivables....................................... 8,819 8,112
Deferred income taxes................................... 4,086 3,814
Prepaid expenses........................................ 10,124 7,453
-------- --------
Total current assets................................. 217,733 267,838
-------- --------
Property and equipment:
Computer equipment and software........................ 34,892 32,532
Furniture and fixtures................................. 21,164 18,175
Leasehold improvements................................. 16,297 15,304
Automobiles............................................ 1,943 1,793
-------- --------
74,296 67,804
Less--Accumulated depreciation and amortization......... (35,575) (31,992)
-------- --------
Property and equipment, net............................ 38,721 35,812
-------- --------
Cash surrender value of company owned life insurance
policies, net of loans................................. 53,544 50,632
Marketable securities................................... 1,129
Deferred income taxes................................... 25,918 17,790
Goodwill and other intangibles, net of accumulated
amortization of $11,347 and $8,709..................... 135,028 96,643
Other................................................... 8,621 6,150
-------- --------
Total assets......................................... $479,565 $475,994
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable and current maturities of long-term debt.. $ 46,259 $ 16,147
Accounts payable........................................ 11,804 11,896
Income taxes payable.................................... 1,935 407
Accrued liabilities:
Compensation........................................... 43,219 75,866
Payroll taxes.......................................... 23,580 41,393
Other.................................................. 38,535 39,081
-------- --------
Total current liabilities............................ 165,332 184,790
Deferred compensation................................... 40,111 37,483
Long-term debt.......................................... 18,109 16,916
Other................................................... 2,580 2,361
-------- --------
Total liabilities.................................... 226,132 241,550
-------- --------
Non-controlling shareholders' interest.................. 3,102 3,220
-------- --------
Shareholders' equity
Common stock, no par value-authorized 150,000 shares,
37,190 and 36,748 shares outstanding.................. 290,040 283,277
Deficit................................................ (25,608) (35,615)
Accumulated other comprehensive loss................... (6,484) (7,300)
-------- --------
Shareholders' equity................................. 257,948 240,362
Less: Notes receivable from shareholders................ (7,617) (9,138)
-------- --------
Total shareholders' equity........................... 250,331 231,224
-------- --------
Total liabilities and shareholders' equity........... $479,565 $475,994
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended July 31,
-----------------
2000 1999
-------- --------
(unaudited)
<S> <C> <C>
Revenue...................................................... $173,623 $104,780
Compensation and benefits.................................... 106,559 64,733
General and administrative expenses.......................... 48,524 29,802
Interest income and other income, net........................ 1,725 1,508
Interest expense............................................. 1,681 820
-------- --------
Income before provision for income taxes and non-
controlling shareholders' interest......................... 18,584 10,933
Provision for income taxes................................... 7,806 4,591
Non-controlling shareholders' interest....................... 771 738
-------- --------
Net income................................................. $ 10,007 $ 5,604
======== ========
Basic earnings per common share.............................. $ 0.27 $ 0.16
======== ========
Basic weighted average common shares outstanding............. 36,890 35,755
======== ========
Diluted earnings per common share............................ $ 0.26 $ 0.15
======== ========
Diluted weighted average common shares outstanding........... 38,285 36,268
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months
Ended July 31,
------------------
2000 1999
-------- --------
(unaudited)
<S> <C> <C>
Cash from operating activities:
Net Income............................................... $ 10,007 $ 5,604
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation........................................... 3,230 2,161
Amortization........................................... 2,638 202
Provision for doubtful accounts........................ 4,816 2,625
Cash surrender value and benefits in excess of premiums
paid.................................................. (983) (52)
Deferred income tax benefit............................ (2,349) (2,768)
Tax benefit from exercise of stock options............. 829
Change in other assets and liabilities, net of
acquisitions:
Deferred compensation.................................. 2,628 1,617
Receivables............................................ (31,404) (16,434)
Prepaid expenses....................................... (2,671) (1,885)
Income taxes........................................... 1,256 6,222
Accounts payable and accrued liabilities............... (50,580) (24,761)
Non-controlling shareholders' interest and other, net.. (1,391) 34
-------- --------
Net cash used in operating activities................ (63,974) (27,435)
-------- --------
Cash from investing activities:
Purchases of property and equipment...................... (4,977) (3,621)
Sales of marketable securities........................... 61,107 7,761
Business acquisitions, net of cash acquired.............. (42,160) (1,825)
Premiums on life insurance, net of benefits received..... (2,706) (2,908)
-------- --------
Net cash provided by (used in) investing activities.. 11,264 (593)
-------- --------
Cash from financing activities:
Increase in bank borrowings.............................. 28,070
Payment of debt.......................................... (735) (274)
Borrowings under life insurance policies................. 777 983
Purchase of common and preferred stock and payments on
related notes........................................... 23 (139)
Issuance of common stock and receipts on shareholders'
notes................................................... 3,449 1,654
-------- --------
Net cash provided by financing activities............ 31,584 2,224
-------- --------
Effects of exchange rate changes on cash flows............. 816 249
-------- --------
Net decrease in cash and cash equivalents.................. (20,310) (25,555)
Cash and cash equivalents at beginning of the period....... 86,975 113,741
-------- --------
Cash and cash equivalents at end of the period............. $ 66,665 $ 88,186
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JULY 31, 2000
(unaudited)
(In thousands, except per share amounts)
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements for the three month periods ended July
31, 2000 and 1999 include the accounts of Korn/Ferry International ("KFY"),
all of its wholly and majority owned domestic and international subsidiaries,
and affiliated companies in which KFY has effective control (collectively, the
"Company") and are unaudited but include all adjustments, consisting of normal
recurring accruals and any other adjustments, which management considers
necessary for a fair presentation of the results for these periods. These
financial statements have been prepared consistently with the accounting
policies described in the Company's fiscal year 2000 Annual Report on Form 10-
K for the fiscal year ended April, 2000 ("Annual Report") and should be read
together with the Annual Report.
Use of Estimates
The preparation of 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.
Reclassifications
Certain prior year reported amounts have been reclassified in order to
conform to the current year consolidated financial statement presentation.
New Accounting Pronouncements
During fiscal 2000, the Company adopted the American Institute of Certified
Public Accountants Statement of Position 98-1 ("SOP 98-1"), "Accounting for
the Cost of Computer Software Developed or Obtained for Internal Use", and in
the quarter ended July 31, 2000, the Company adopted the related Emerging
Issues Task Force Issue No: 00-2 ("EITF 00-2"), "Accounting for Web Site
Development Costs." The adoption of SOP 98-1 and EITF 00-2 did not have a
material effect on the consolidated financial statements or the Company's
capitalization policy.
F-5
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JULY 31, 2000--(Continued)
(In thousands, except per share amounts)
2. Basic and Diluted Earnings Per Share
Basic earnings per common share ("basic EPS") was computed by dividing net
income by the weighted average number of common shares outstanding during the
period. Diluted earnings 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 the net income by the weighted average number of
shares of common stock outstanding and dilutive common equivalent shares.
Following is a reconciliation of the numerator (income) and denominator
(shares in thousands) used in the computation of basic and diluted EPS:
<TABLE>
<CAPTION>
Three months ended July 31,
----------------------------------------------
2000 1999
----------------------- ----------------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
------- -------- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to common
shareholders.................. $10,007 36,890 $0.27 $5,604 35,755 $0.16
===== =====
Effect of dilutive securities
Shareholder common stock
purchase commitments.......... 328 374
Stock options.................. 1,067 139
------- ------ ------ ------
Diluted EPS
Income available to common
shareholders plus assumed
conversions................... $10,007 38,285 $0.26 $5,604 36,268 $0.15
======= ====== ===== ====== ====== =====
</TABLE>
3. Comprehensive income
Comprehensive income is comprised of net income and all changes to
stockholders' equity, except those changes resulting from investments by
owners (changes in paid in capital) and distributions to owners (dividends).
Total comprehensive income is as follows:
<TABLE>
<CAPTION>
Three months
ended July 31,
--------------
2000 1999
------- ------
<S> <C> <C>
Net income.................................................... $10,007 $5,604
Foreign currency translation adjustment....................... 816 249
------- ------
Comprehensive income.......................................... $10,823 $5,853
======= ======
</TABLE>
4. Business segments
The Company operates in two global business segments in the retained
executive recruitment industry. These business segments, executive recruitment
and Futurestep, 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 regions led by a
regional president and Futurestep's worldwide operations are managed by a
chief executive officer. For purposes of the geographic information below,
Mexico's operating results are included in Latin America.
F-6
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JULY 31, 2000--(Continued)
(In thousands, except per share amounts)
A summary of the Company's operations by business segment follows:
<TABLE>
<CAPTION>
Three months ended July 31,
----------------------------
2000 1999
------------- --------------
<S> <C> <C>
Revenue:
Executive recruitment:
North America(1).............................. $ 96,131 $ 57,227
Europe........................................ 33,893 25,151
Asia/Pacific.................................. 13,182 11,139
Latin America................................. 8,836 7,288
Futurestep...................................... 21,581 3,975
-------- --------
Total revenue............................... $173,623 $104,780
======== ========
<CAPTION>
Three months ended July 31,
----------------------------
2000 1999
------------- --------------
<S> <C> <C>
Operating profit (loss):
Executive recruitment:
North America(1).............................. $ 18,176 $ 10,046
Europe........................................ 4,857 3,169
Asia/Pacific.................................. 1,774 1,055
Latin America................................. 2,247 1,636
Futurestep...................................... (8,514) (5,661)
-------- --------
Total operating profit...................... $ 18,540 $ 10,245
======== ========
<CAPTION>
As of As of
July 31, 2000 April 30, 2000
------------- --------------
<S> <C> <C>
Identifiable assets:
Executive recruitment:
North America(1).............................. $287,748 $285,474
Europe........................................ 86,724 91,790
Asia/Pacific.................................. 31,898 33,376
Latin America................................. 19,048 18,631
Futurestep...................................... 54,147 46,723
-------- --------
Total identifiable assets................... $479,565 $475,994
======== ========
</TABLE>
--------
(1) The Corporate office identifiable assets of $80,434 and $144,739 as of
July 31, 2000 and April 30, 2000, respectively, and JobDirect.com
identifiable assets of $38,655 as of July 31, 2000 are included in North
America. JobDirect.com revenue and operating loss included in North
America for the three months ended July 31, 2000, were $0.2 million and
$0.4 million, respectively.
F-7
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JULY 31, 2000--(Continued)
(In thousands, except per share amounts)
5. Acquisitions
The Company completed two acquisitions during the three months ended July
31, 2000: Westgate Group, a leading executive recruitment firm, specializing
in financial services in the eastern United States and JobDirect, an online
recruiting service focused on college graduates and entry level professionals.
The purchase price was payable in cash of $38.4 million, 154,923 shares of the
Company's common stock, and notes payable of $5.0 million. These acquisitions
were accounted for under the purchase method and resulted in $42.5 million of
goodwill. Operating results of these businesses have been included in the
consolidated financial statements from their acquisition dates.
The following summarized unaudited proforma information is provided to
present a summary of the combined results of the Company if these acquisitions
had occurred at the beginning of each period. The proforma data is presented
for informational purposes only and may not necessarily reflect the results of
operations of the Company had these acquisitions operated as part of the
Company for each of the periods presented, nor are they necessarily indicative
of the results of future operations.
<TABLE>
<CAPTION>
Three months
ended July 31,
-----------------
2000 1999
-------- --------
<S> <C> <C>
Revenue.................................................... $176,585 $105,385
Net income................................................. 7,912 5,167
Earnings per share.........................................
Basic.................................................... 0.21 0.14
Diluted.................................................. 0.21 0.14
</TABLE>
In June 1999, the Company completed the acquisition of Amrop International's
Australian business for approximately $3.2 million in cash payable over a
four-year period and $0.6 million in shares of the Company's common stock. Of
the total purchase price of $3.8 million, $2.0 million represents deferred
compensation. The acquisition has been accounted for as a purchase and $1.6
million has been recorded as goodwill.
F-8
<PAGE>
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, 2000 and 1999, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended April 30, 2000. 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 audits 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, 2000 and 1999, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended April 30, 2000, in conformity with accounting principles
generally accepted in the United States.
/s/ Arthur Andersen LLP
Los Angeles, California
June 13, 2000
F-9
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
April 30,
------------------
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................. $ 86,975 $113,741
Marketable securities...................................... 59,978 21,839
Receivables due from clients, net of allowance for doubtful
accounts of $12,538 and $7,847............................ 101,506 63,139
Other receivables.......................................... 8,112 3,337
Deferred income taxes...................................... 3,814 1,861
Prepaid expenses........................................... 7,453 5,736
-------- --------
Total current assets.................................... 267,838 209,653
-------- --------
Property and equipment:
Computer equipment and software........................... 32,532 17,554
Furniture and fixtures.................................... 18,175 14,646
Leasehold improvements.................................... 15,304 11,785
Automobiles............................................... 1,793 1,716
-------- --------
67,804 45,701
Less: Accumulated depreciation and amortization............ (31,992) (24,591)
-------- --------
Property and equipment, net............................... 35,812 21,110
-------- --------
Cash surrender value of company owned life insurance
policies, net of loans.................................... 50,632 41,973
Marketable securities...................................... 1,129 8,218
Deferred income taxes...................................... 17,790 16,321
Goodwill and other intangibles, net of accumulated
amortization of $8,709 and $5,351......................... 96,643 3,639
Other...................................................... 6,150 3,210
-------- --------
Total assets............................................ $475,994 $304,124
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable and current maturities of long-term debt..... $ 16,147 $ 1,356
Accounts payable........................................... 11,896 10,384
Income taxes payable....................................... 407 2,323
Accrued liabilities:
Compensation.............................................. 75,866 35,212
Payroll taxes............................................. 41,393 20,546
Other..................................................... 39,081 21,910
-------- --------
Total current liabilities............................... 184,790 91,731
Deferred compensation...................................... 37,483 33,531
Long-term debt............................................. 16,916 2,360
Other...................................................... 2,361 1,775
-------- --------
Total liabilities....................................... 241,550 129,397
-------- --------
Non-controlling shareholders' interest..................... 3,220 2,041
-------- --------
Shareholders' equity:
Common stock, no par value-authorized 150,000 shares,
36,748 and 35,633 shares issued and outstanding.......... 283,277 253,021
Deficit................................................... (35,615) (66,426)
Accumulated other comprehensive loss...................... (7,300) (2,360)
-------- --------
Shareholders' equity.................................... 240,362 184,235
Less: Notes receivable from shareholders.................. (9,138) (11,549)
-------- --------
Total shareholders' equity.............................. 231,224 172,686
-------- --------
Total liabilities and shareholders' equity.............. $475,994 $304,124
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended April
30,
---------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Revenue............................................ $500,743 $356,075 $300,954
Compensation and benefits.......................... 298,908 226,568 197,790
General and administrative expenses................ 147,030 94,860 87,797
Non-recurring charges.............................. 89,202
Interest income and other income, net.............. 7,402 4,178 2,823
Interest expense................................... 4,436 4,463 4,234
-------- -------- --------
Income (loss) before provision for income taxes
and non-controlling shareholders' interest...... 57,771 (54,840) 13,956
Provision for income taxes......................... 24,126 9,026 6,687
Non-controlling shareholders' interest............. 2,834 2,560 2,025
-------- -------- --------
Net income (loss)................................ $ 30,811 $(66,426) $ 5,244
======== ======== ========
Basic earnings (loss) per common share............. $ 0.85 $ (2.37) $ 0.24
======== ======== ========
Basic weighted average common shares outstanding... 36,086 28,086 21,885
======== ======== ========
Diluted earnings (loss) per common share........... $ 0.82 $ (2.37) $ 0.23
======== ======== ========
Diluted weighted average common shares
outstanding....................................... 37,680 28,086 23,839
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Allocation of
Accumulated Shareholders'
Preferred Retained Other Equity to
Stock Series Common Earnings Comprehensive Redeemable Shareholders' Comprehensive
A&B Stock (Deficit) Income (Loss) Stock Equity Income (Loss)
------------ -------- --------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of April 30,
1997................... $ 13 $ 11,448 $ 48,771 $(4,081) $(53,528) $ 2,623
Purchase of stock..... (3,150) 2,916 (234)
Issuance of stock..... 8,635 (8,635)
Comprehensive Income:
Net income............ 5,244 (5,005) 239 $ 5,244
Foreign currency
translation
adjustments.......... (761) 726 (35) (761)
--------
Comprehensive income.... $ 4,483
---- -------- -------- ------- -------- -------- ========
Balance as of April 30,
1998................... 13 16,933 54,015 (4,842) (63,526) 2,593
Purchase of stock..... (13) (22,569) (22,582)
Issuance of stock..... 160,198 160,198
Initial public
offering related
charge............... 49,286 49,286
Release of book value
restriction.......... 49,173 (54,015) 4,842 63,526 63,526
Comprehensive Income:
Net loss.............. (66,426) (66,426) $(66,426)
Foreign currency
translation
adjustments.......... (2,360) (2,360) (2,360)
--------
Comprehensive loss...... $(68,786)
---- -------- -------- ------- -------- -------- ========
Balance as of April 30,
1999................... 253,021 (66,426) (2,360) 184,235
Purchase of stock..... (964) (964)
Issuance of stock..... 31,220 31,220
Comprehensive Income:
Net income............ 30,811 30,811 $ 30,811
Foreign currency
translation
adjustments.......... (4,940) (4,940) (4,940)
--------
Comprehensive income.... $ 25,871
---- -------- -------- ------- -------- -------- ========
Balance as of April 30,
2000................... $283,277 $(35,615) $(7,300) $240,362
==== ======== ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
-----------------------------
2000 1999 1998
--------- -------- --------
<S> <C> <C> <C>
Cash from operating activities:
Net income (loss)............................. $ 30,811 $(66,426) $ 5,244
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation................................ 9,975 8,090 6,552
Amortization................................ 3,358 1,169 1,165
Provision for doubtful accounts............. 11,858 6,128 2,427
Cash surrender value and benefits in excess
of premiums paid........................... (1,371) (5,399) (1,767)
Deferred income tax benefit................. (1,463) (2,998) (4,612)
Tax benefit from exercise of stock options.. 2,837
Non-recurring initial public offering
charges.................................... 79,300
Other non-recurring charges................. 5,344
Change in other assets and liabilities, net of
acquisitions:
Deferred compensation....................... 5,400 4,560 6,876
Receivables................................. (53,859) (11,349) (9,996)
Prepaid expenses............................ (1,717) 529 (507)
Income taxes................................ (3,869) (3,219) 1,469
Accounts payable and accrued liabilities.... 71,493 23,249 9,678
Non-controlling shareholders' interest and
other, net................................. 800 (316) 1,953
--------- -------- --------
Net cash provided by operating
activities............................... 74,253 38,662 18,482
--------- -------- --------
Cash from investing activities:
Purchases of property and equipment........... (22,875) (8,102) (9,903)
Purchases of marketable securities............ (31,050) (30,057)
Business acquisitions, net of cash acquired... (42,613) (1,323)
Premiums on life insurance, net of benefits
received..................................... (10,611) (12,421) (12,408)
Redemption of guaranteed investment
contracts.................................... 1,746 1,949
Sale of interest in affiliates................ 2,308 473
--------- -------- --------
Net cash used in investing activities..... (107,149) (47,849) (19,889)
--------- -------- --------
Cash from financing activities:
Increase (decrease) on bank borrowings........ (5,000) 2,000
Payment of debt............................... (2,118) (3,737) (1,957)
Borrowings under life insurance policies...... 3,324 5,956 5,358
Purchase of common and preferred stock and
payments on related notes.................... (964) (23,777) (2,761)
Issuance of common stock and receipts on
shareholders' notes.......................... 8,427 150,888 6,588
IPO related non-recurring charges............. (31,400)
--------- -------- --------
Net cash provided by financing
activities............................... 8,669 92,930 9,228
--------- -------- --------
Effect of exchange rate changes on cash flows... (2,539) (2,360) (761)
--------- -------- --------
Net (decrease) increase in cash and cash
equivalents.................................... (26,766) 81,383 7,060
Cash and cash equivalents at beginning of the
period......................................... 113,741 32,358 25,298
--------- -------- --------
Cash and cash equivalents at end of the period.. $ 86,975 $113,741 $ 32,358
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000
(dollars in thousands, except per share amounts)
1. Organization and Summary of Significant Accounting Policies
Nature of Business
Korn/Ferry International, a Delaware corporation, and its subsidiaries are
engaged in the business of providing executive recruitment, Internet based
middle management recruitment, through Futurestep, and consulting and related
services globally on a retained basis.
Basis of Presentation
The consolidated financial statements include the accounts of Korn/Ferry
International ("KFY"), all of its wholly and majority owned domestic and
international subsidiaries, and affiliated companies in which KFY has
effective control (collectively, the "Company"). All material intercompany
accounts and transactions have been eliminated.
Use of Estimates
The preparation of 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 revenues and expenses
during the reporting period. As a result, actual results could differ from
these estimates.
Reclassifications
Certain prior year reported amounts have been reclassified in order to
conform to the current year consolidated financial statement presentation.
Revenue Recognition
Substantially all professional fee revenue is derived from fees for
professional services related to executive recruitment, consulting and related
services. Fee revenue is recognized as services are substantially rendered,
generally over a ninety day period commencing in the month of initial
acceptance of a search engagement. The Company generally bills clients in
three monthly installments over this period. Reimbursable expenses included in
revenue, represent specifically identified and allocated costs related to
professional services that are billed to clients.
Translation of Foreign Currencies
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
revenues and expenses are translated at average rates of exchange during the
year. Resulting translation adjustments are reported as a component of
comprehensive income.
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 losses, on an after
tax basis, included in net earnings, were $1,710, $612 and $541 in fiscal
2000, 1999 and 1998, respectively.
F-14
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
Cash Flows
Cash equivalents consist of highly liquid investments with maturities of
three months or less at the date of purchase.
Net cash from operating activities includes cash payments for interest of
$3,591, $4,339 and $4,381 in fiscal 2000, 1999 and 1998, respectively. Cash
payments for income taxes, net of refunds, amounted to $27,284, $14,989 and
$9,830 in fiscal 2000, 1999 and 1998, respectively.
Marketable Securities
All marketable securities are accounted for under Statement of Financial
Accounting Standard ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity 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. The
securities have original maturities ranging from May 2000 through October 2001
and are classified as available-for-sale. Available-for-sale securities are
reported at fair value, with unrealized gains and losses excluded from
earnings and reported as a component of shareholders' equity. At April 30,
2000, the estimated fair value of the investments approximated the amortized
cost and, therefore, there were no significant unrealized gains or losses.
Investments in marketable securities consisted of the following:
<TABLE>
<CAPTION>
As of April 30, As of April 30,
2000 1999
----------------- -----------------
Current Long-term Current Long-term
------- --------- ------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury and government
securities........................... $ 1,996 $13,939 $ 496
Short term municipals................. 41,150
Municipals auction preferred.......... 5,000
Corporate auction preferred........... 5,400
Certificate of deposits............... 3,998 3,996
Commercial paper...................... 1,506 3,904
Asset-backed securities............... 928 $1,129 7,722
------- ------ ------- ------
Marketable securities............... $59,978 $1,129 $21,839 $8,218
======= ====== ======= ======
</TABLE>
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
receivable, 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.
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 increase in the cash surrender value ("CSV") of company owned life
insurance ("COLI") contracts in excess of insurance premiums paid is reported
in compensation and benefits expense. (See Note 8).
F-15
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
Property and Equipment
Property and equipment is carried at cost, less accumulated depreciation.
Leasehold improvements are amortized over the useful life of the asset, or the
lease term, whichever is less, using the straight-line method. Software
development costs are capitalized and, once placed in service, amortized using
the straight-line method over the estimated useful life, generally five years.
All other property and equipment is depreciated or amortized over the
estimated useful lives of three to ten years, using the straight-line method.
Goodwill and Other Intangibles
Goodwill represents the excess of the acquisition cost over the net assets
acquired in business combinations and is amortized primarily on a straight-
line basis over the estimated useful life, currently five to fifteen years.
Other intangibles arising from business acquisitions include contractual
obligations contingent upon future performance and are amortized on a
straight-line basis over the contractual period.
The Company re-evaluates goodwill and other intangibles based on
undiscounted operating cash flows whenever significant events or changes occur
which might impair recovery of recorded costs, and writes down recorded costs
of the assets to fair value (based on discounted cash flows or market values)
when recorded costs, prior to impairment, are higher.
New Accounting Pronouncements
During 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and for Hedging Activities,"
which establishes new standards for reporting derivative and hedging
information. The standard is effective for periods beginning after June 15,
2000 and will be adopted by the Company as of May 1, 2001. The Company does
not expect that the adoption of this standard will have an impact on the
consolidated financial statements or require additional disclosure since the
Company does not currently utilize derivative instruments or participate in
structured hedging activities.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides
guidance over accounting for computer software developed or obtained for
internal use including the requirement to capitalize specified costs and
amortization of such costs. The Company adopted SOP 98-1 in fiscal 2000. The
adoption of this standard did not have a material effect on the consolidated
financial statements or the Company's capitalization policy.
The Emerging Issues Task Force ("EITF") of the FASB reached a consensus in
March 2000 on Issue No: 00-2 ("EITF 00-2"), "Accounting for Web Site
Development Costs." EITF 00-2 provides guidance over accounting for web site
development costs similar to the requirements of SOP 98-1 and is effective for
fiscal quarters beginning after June 30, 2000 with earlier application
encouraged. The Company plans to adopt EITF 00-2 in the first fiscal quarter
of 2001 and does not expect that adoption of this standard will have a
material effect on the consolidated financial statements.
2. Initial Public Offering of Common Stock
In February 1999, the Company completed the initial public offering ("IPO")
of an aggregate of 11.8 million shares of common stock at $14.00 per share, of
which 10.0 million shares were sold by the Company and 1.8 million shares were
sold by selling shareholders, resulting in net proceeds (after deducting
underwriting discounts and other expenses payable by the Company) of $124.3
million to the Company and $24.4 million to
F-16
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
the selling shareholders. The Company's common stock is traded on the New York
Stock Exchange under the symbol "KFY." The Company also received approximately
$3.0 million from the repayment by certain selling shareholders of loans from
the Company to those selling shareholders.
In fiscal 1999, the Company used $14.4 million of the net proceeds to repay
its term loan and all outstanding indebtedness under the Company's credit
facilities, $25.7 million to complete the redemption by the Company of certain
shares of its capital stock, primarily shares owned by certain shareholders
under the terms of a 1994 stock redemption agreement, $1.4 million to redeem
the outstanding shares of Series A and B preferred stock and $4.3 million to
pay existing obligations to former holders of phantom units and stock rights.
The Company used the remaining proceeds of $81.5 million in fiscal 2000 for
acquisitions, the expansion of Futurestep, and continued development of
technology, information systems and infrastructure.
3. Basic and Diluted Earnings (Loss) Per Share
Basic earnings (loss) per common share ("basic EPS") was computed by
dividing net income (loss) by the weighted average number of common shares
outstanding during the period. Diluted earnings (loss) per common and common
equivalent share ("diluted EPS") was determined by dividing the net income
(loss) by the weighted average number of common shares outstanding and
dilutive common equivalent shares. Following is a reconciliation of the
numerator (income or loss) and denominator (shares in thousands) used in the
computation of basic and diluted EPS:
<TABLE>
<CAPTION>
Fiscal year ended April 30,
-------------------------------------------------------------------------
2000 1999 1998
----------------------- ------------------------- ----------------------
Weighted Per Weighted Per Weighted Per
Average Share Average Share Average Share
Income Shares Amount (Loss) Shares Amount Income Shares Amount
------- -------- ------ -------- -------- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS
Income (loss) available
to common
shareholders........... $30,811 36,086 $0.85 $(66,426) 28,086 $(2.37) $5,244 21,885 $0.24
===== ====== =====
Effect of dilutive
securities
Shareholder common stock
purchase commitments... 373 318
Stock options........... 1,221
Phantom stock units..... 161 1,219
Stock appreciation
rights................. 14 417
------- ------ -------- ------ ------ ------
Diluted EPS
Income (loss) available
to common shareholders
plus assumed
conversions............ $30,811 37,680 $0.82 $(66,426) 28,086 $(2.37) $5,419 23,839 $0.23
======= ====== ===== ======== ====== ====== ====== ====== =====
</TABLE>
The share amounts in the table above reflect a four-to-one stock split
approved by the Board of Directors ("the Board") in July 1998. The Company
filed an amendment to the existing Articles of Incorporation to increase the
authorized capital stock and effect the four-to-one split of the common stock
in February 1999. The financial statements have been retroactively restated
for the effects of this transaction.
F-17
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
4. Stock Option Plans
In July 1998, the Company adopted the Performance Award Plan (the "Plan") to
provide a means to attract, motivate, reward and retain talented and
experienced officers, non-employee directors, other key employees and certain
other eligible persons who may be granted awards from time to time by the
Board or, if authorized, the Compensation Committee, or, for non-employee
directors, under a formula provided in the Plan. The maximum number of shares
of common stock reserved for issuance is seven million, subject to adjustment
for certain changes in the Company's capital structure and other extraordinary
events. Shares subject to awards that are not paid for or exercised before
they expire or are terminated are available for other grants under the Plan to
the extent permitted by law. The Plan is not exclusive. The Board may grant
stock and performance incentives or other compensation, in stock or cash,
under other plans or authority.
Awards under the Plan may be in the form of nonqualified stock options,
incentive stock options, stock appreciation rights ("SARs"), limited SARs,
restricted stock, performance shares, stock bonuses, or cash bonuses based on
performance. The maximum term of options, SARs and other rights to acquire
common stock under the Plan is ten years after the initial date of award,
subject to provisions for further deferred payment in certain circumstances.
Awards may be granted individually or in combination with other awards. No
incentive stock option may be granted at a price that is less than the fair
market value of the common stock (110% of fair market value of the common
stock for certain participants) on the date of grant. Nonqualified stock
options and other awards may be granted at prices below the fair market value
of the common stock on the date of grant. Restricted stock awards can be
issued for nominal or the minimum lawful consideration. Typically, the
participant may vote restricted stock, but any dividend on restricted shares
will be held in escrow subject to forfeiture until the shares have vested. No
more than 350,000 shares will be available for restricted stock awards,
subject to exceptions for restricted stock awards based on past service,
deferred compensation and performance awards. No awards other than stock
options have been granted under the Plan in fiscal 2000.
The maximum number of shares subject to awards (either performance or
otherwise) that may be granted to an individual in the aggregate in any one
calendar year is 1,050,000. A non-employee director may not receive awards of
more than 50,000 shares in the aggregate in any one calendar year. With
respect to cash-based performance awards, no more than $2.5 million per year,
per performance cycle may be awarded to any one individual. No more than one
performance cycle may begin in any one year with respect to cash-based
performance awards.
Under the Plan, each director who is not an officer or employee (a "Non-
Employee Director") is automatically granted a nonqualified stock option to
purchase 2,000 shares of common stock when the person takes office and on the
day of each annual shareholders meeting in each calendar year beginning in
1999, at an exercise price equal to the market price of the common stock at
the close of trading on that date. Non-Employee Directors may also be granted
discretionary awards. All automatically granted Non-Employee Director stock
options will have a ten-year term and will be immediately exercisable. If a
Non-Employee Director's services are terminated for any reason, any
automatically granted stock options held by such Non-Employee Director that
are exercisable will remain exercisable for twelve months after such
termination of service or until the expiration of the option term, whichever
occurs first. In fiscal 2000, the Company granted 8,000 stock options to Non-
Employee Directors.
The Company issued 2,063,750 stock options to certain employees effective as
of the IPO date. These options vest ratably over a three year period and have
a seven year term. In April 1999, the Company granted, as performance awards,
seven-year stock options for 1,510,350 shares of common stock that will vest
in equal installments over three years. The weighted average fair value of
options granted during fiscal 1999 is $9.67 per
F-18
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
share. The weighted average remaining contractual term of all outstanding
options at April 30, 1999 was approximately 6.9 years. No options were
exercisable as of April 30, 1999.
The status of the Company's stock option plans is summarized below:
<TABLE>
<CAPTION>
Number of Weighted
Shares Average
(in thousands) Exercise Price
-------------- --------------
<S> <C> <C>
Granted in fiscal 1999......................... 3,574 $13.76
Canceled/forfeited............................. (2) 14.00
----- ------
Outstanding at May 1, 1999..................... 3,572 13.76
Granted........................................ 897 25.30
Exercised...................................... (443) 13.89
Canceled/forfeited............................. (197) 14.81
----- ------
Outstanding at April 30, 2000.................. 3,829 $16.40
===== ======
</TABLE>
In June 2000, the Board approved the issuance of additional options under
the Plan with a grant date of June 6, 2000, a fair value per share of $17.05
and an exercise price per share equal to the closing market price on the date
of the grant of $22.00. The Company plans to issue approximately 2.5 million
options under this award in the first quarter of fiscal 2001.
The Company has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations to account for its stock-based compensation arrangements.
Under APB 25, no compensation expense is recognized for stock option awards
granted at or above fair market value.
The following table presents pro forma information regarding net income and
earnings per share determined as if the Company had accounted for its employee
stock options under the fair value method prescribed by SFAS No. 123
"Accounting for Stock-Based Compensation".
<TABLE>
<CAPTION>
Fiscal Year
Ended April 30,
----------------
2000 1999
------- --------
<S> <C> <C>
Net earnings (loss)
As reported.............................................. $30,811 $(66,426)
Pro forma................................................ 22,849 (67,307)
Basic earnings (loss) per share
As reported.............................................. 0.85 (2.37)
Pro forma................................................ 0.63 (2.40)
Dilutive earnings (loss) per share
As reported.............................................. 0.82 (2.37)
Pro forma................................................ 0.61 (2.40)
</TABLE>
The weighted average fair value of options granted during fiscal 2000,
estimated at the date of grant using a Black-Scholes option pricing model was
$17.99. The fair value of options granted in fiscal 2000 was estimated on the
date of grant using the following assumptions: average risk-free interest rate
of 6.33%, dividend rate of zero, expected volatility of 55.3% and expected
option life ranging from five to nine years. The weighted average fair value
of options granted during fiscal 1999, estimated at the date of the grant
using a Black-Scholes option
F-19
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
pricing model, was $9.67 per share. The fair value of options granted in
fiscal 1999 was estimated on the date of grant using the following
assumptions: average risk-free interest rate of 5.18%, dividend rate of zero,
expected volatility of 62.4% and expected option life ranging from seven to
ten years.
Summary information about the Company's stock options outstanding at April
30, 2000 is presented in the following table:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life in years Price Exercisable Price
---------------- ------------- ------------- -------- -------------- --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
$ 8.40 to $12.60 16 9.0 $11.81
12.60 to 16.80 3,163 7.0 13.75 818 $13.69
16.80 to 21.00 17 9.4 17.67
21.00 to 25.20 98 9.6 22.69
25.20 to 29.40 26 9.9 26.35
29.40 to 33.60 391 9.6 29.87
33.60 to 37.80 101 9.7 34.82
37.80 to 42.00 17 9.8 42.00
------------- ----- --- ------ --- ------
$ 8.40 to $42.00 3,829 7.5 $16.40 818 $13.69
------------- ----- --- ------ --- ------
</TABLE>
5. One-time Non-recurring Charges
At the completion of the IPO in February 1999, the Company recognized a non-
recurring compensation and benefits expense of $79.3 million, comprised of (a)
$49.3 million representing the difference between the issuance price of the
shares issued by the Company in the period beginning twelve months before the
initial filing date of the Registration Statement relating to the IPO and the
fair market value of the shares at the date of grant, (b) $25.7 million from
the completion of the redemption by the Company of certain shares of its
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.
Additionally, the Company completed an evaluation of its worldwide
operations and revenue, compensation costs and other operating expenses for
each of its offices and geographic locations in the fourth quarter of fiscal
1999. The Company conducted the evaluation in order to identify, and
eventually eliminate, existing inefficiencies and excess costs and to better
align and enhance the competitive position of the Company within each region.
The Company assessed staff levels and office needs based on individual
performance and the economic conditions and the outlook in each region. The
Company identified 50 employees that were terminated and three underperforming
European offices that were downsized or relocated to more efficient premises.
As a result of this analysis, a non-recurring charge to earnings of $7.0
million for severance and benefit costs related to staff downsizing was
recognized in fiscal 1999. This expense is comprised of a $3.2 million non-
cash charge to earnings related to the release of existing book value stock
repurchase requirements for nine of the terminated employees and $3.8 million
for severance and benefit payments for the terminated employees, of which
$3.1 million was paid as of April 30, 1999. The Company also recognized a non-
recurring charge of $0.3 million, of which $0.2 million was paid as of April
30, 1999, for lease renegotiation and other relocation costs in fiscal 1999.
There were no additional charges to earnings related to these items in fiscal
2000.
F-20
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
In fiscal 1999, the Company also recognized a non-recurring charge of $2.6
million in connection with the resignation of the former President and Chief
Executive Officer. This charge was comprised of $1.5 million for compensation
and other amounts payable over the next seven months, of which $0.8 million
and $0.7 million was paid in fiscal 2000 and 1999, respectively, and a $1.1
million non-cash charge to earnings representing the difference between the
then current book value and the appraised value of 165,168 common shares he
retained subsequent to his resignation.
6. Shareholders Agreements and Supplemental Information Regarding Book Value
Per Share
From fiscal 1991 to 1999, eligible executives of Korn/Ferry International
had the opportunity to purchase shares of common stock at book value and were
required to sell their shares of common stock to the Company at book value
upon termination of their employment under stock purchase and repurchase
agreements collectively referred to as the Equity Participation Program
("EPP"). Shares subject to book value repurchase agreements are classified as
mandatorily redeemable common stock in the consolidated balance sheets. For
purposes of EPP purchases and sales, book value per share, adjusted for the
four-to-one stock split, was $2.79 at April 30, 1998. The EPP book value
calculation excludes the effect of the Series A preferred stock and
shareholder notes related to common stock purchases. On May 1, 1998, the
Company issued 3,016,000 shares at the book value of $2.79 per share. The
Company repurchased a total of 2,646,000 shares in fiscal 1999 all at book
value.
The Board approved the Supplemental Equity Participation Program (the
"Supplemental EPP") in July 1998, effective May 2, 1998, that provides for the
issuance and repurchase of shares of common stock at fair value. The Company
issued 110,000 shares of common stock at the fair market value of $10.98 per
share, appraised as of June 30, 1998 and ceased enrollment of executives in
the Supplemental EPP as of August 17, 1998. In November 1998, the Company
adopted the Interim Equity Executive Participation Program (the "Interim EPP")
in order to permit persons promoted to vice president and other persons hired
as vice presidents of the Company between August 18, 1998 and December 30,
1998 to purchase shares of common stock at $9.69 per share, the fair market
value as of December 30, 1998. The Company issued 438,000 shares under the
Interim EPP.
In fiscal 1999, the Company terminated its Phantom Stock Plan, established
in 1988, and Stock Right Plan, established in 1992 ("these Plans"), in
contemplation of the IPO. These Plans provided benefits, to certain key
employees and other employees selected by a committee of the Board,
substantially identical to ownership of the Company's common stock, excluding
voting rights. Compensation expense, recognized based on the change in the
book value of the common stock since the grant date, was $279 in fiscal 1998.
Based on the book value of a share of common stock at April 30, 1998 of
$2.79, the participants in these Plans could elect to receive a cash payment
or shares of common stock in exchange for an aggregate of 276,000 phantom
stock units and 114,000 stock rights outstanding as of June 30, 1998, the
effective date of termination of these Plans. The Company issued 1,551,000
shares of common stock (reflecting the four-to-one stock split in July 1998)
in connection with the termination of these Plans to all but one participant
and recognized a non-recurring compensation and benefits expense of $12,700 at
completion of the IPO, representing the excess of the fair market value over
the book value of the shares issued in the conversion.
The repurchase agreements under the EPP, Supplemental EPP and Interim EPP
were amended upon consummation of the IPO to permit employee shareholders to
sell their shares in the public market, subject to a liquidity schedule that
provides for releases over a four year period in the number of shares that can
be sold. As a result, all remaining shares previously classified as
mandatorily redeemable were reclassified to common stock.
F-21
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
As of April 30, 2000 and 1999, notes receivable from shareholders for common
stock purchases were $7,221 and $10,679, respectively. The Company issued
common stock in exchange for notes receivable from shareholders of $9,262 and
$6,184 in fiscal 1999 and 1998, respectively. The Company issued no new common
stock in exchange for notes receivable from shareholders in fiscal 2000. The
notes receivable are secured by the common stock purchased, bear interest at
primarily 8% and require annual payments of principal and interest through
2004.
7. Employee Profit-Sharing and Benefit Plans
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 $3,027, $2,622 and $2,400 for fiscal 2000, 1999 and 1998,
respectively. Non-U.S. employees are covered by a variety of pension plans
that are applicable to the countries in which they work. The contributions for
these plans are determined in accordance with the legal requirements in each
country and generally are based on the employees' annual compensation.
8. Deferred Compensation and Life Insurance Contracts
The Company 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 at 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 at age
65.
The Company also maintains a Senior Executive Incentive Plan ("SEIP") for
participants elected by the Board. Generally, to be eligible, the vice
president must be participating in the EWAP. Participation in the SEIP
requires the vice president 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 at age 65, or retirement.
The Worldwide Executive Benefit Plans ("WEB") are designed to integrate with
government sponsored benefits and provide a monthly benefit to vice presidents
and shareholders 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.
In fiscal 1998, certain employees elected to defer a portion of their
compensation, amounting to approximately $2.5 million, into a new deferred
compensation plan established by the Company. This plan was terminated in
fiscal 1999, and as required by the agreement, the employees received their
deferred compensation plus interest at our average monthly bank borrowing
rate, ranging from 6.4% to 8.0% at April 30, 1999 and 1998, respectively.
F-22
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
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 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 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, 2000 and 1999, the Company had unrecognized losses related
to these deferred compensation plans of $5,244 and $7,728 due to changes in
assumptions of the discount rate used for calculating the accruals for future
benefits. The Company amortizes unrecognized losses over the average remaining
service period of active participants. The discount rate was 7.75% and 7.50%
in fiscal 2000 and 1999, respectively.
Following is a reconciliation of the benefit obligation for the deferred
compensation plans:
<TABLE>
<CAPTION>
Fiscal
Year Ended April 30,
----------------------
2000 1999
---------- ----------
<S> <C> <C>
Benefit obligation at beginning of year.............. $ 34,586 $ 35,362
Service cost......................................... 3,177 3,498
Interest cost........................................ 927 1,650
Plan participants' contributions..................... 2,071 3,233
Recognized loss due to change in assumption.......... 436 555
Benefits paid........................................ (2,611) (9,712)
---------- ----------
Benefit obligation at end of fiscal year............. $ 38,586 $ 34,586
Less: current portion of benefit obligation.......... (1,103) (1,055)
---------- ----------
Long-term benefit obligation at end of year.......... $ 37,483 $ 33,531
========== ==========
</TABLE>
The Company purchased COLI contracts insuring participants and former
participants. The gross CSV of these contracts of $95,560 and $84,628 is
offset by outstanding policy loans of $44,928 and $42,655, on the accompanying
consolidated balance sheets as of April 30, 2000 and 1999, respectively.
Total death benefits payable under COLI contracts were $257,878 and $248,605
at April 30, 2000 and 1999, respectively. Management intends to use the future
death benefits from these insurance contracts to fund the deferred
compensation 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 deferred compensation plans. As of April 30,
2000, COLI contracts with a net cash surrender value of $43,762 and death
benefits payable of $190,556 were held in trust for these purposes.
F-23
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
9. Notes Payable and Long-Term Debt
At April 30, 2000, the Company maintained a $50.0 million unsecured bank
revolving line of credit facility. Borrowings on the line of credit bear
interest at various rates based on either a LIBOR index plus 1.4% or the
bank's prime lending rate, which were 7.75% and 9.0%, respectively, at April
30, 2000. There was no outstanding balance under the revolving line of credit
as of April 30, 2000.
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
As of April 30,
-----------------
2000 1999
-------- -------
<S> <C> <C>
Unsecured subordinated notes payable to shareholders due
through 2004, bearing interest at various rates up to
8.75%................................................... $ 31,664 $ 3,716
Term loan due to bank on December 31, 2000 bearing
interest at various rates ranging from 3.9% to 5.2%..... 1,399
-------- -------
Total debt............................................. 33,063 3,716
Less: current maturities of long-term debt............... (16,147) (1,356)
-------- -------
Long-term debt......................................... $ 16,916 $ 2,360
======== =======
</TABLE>
The Company issued notes payable to shareholders of $30,439 related to the
acquisition of businesses in fiscal 2000 and $1,620 for the purchase of common
stock in fiscal 1999.
Annual maturities of long-term debt for the five fiscal years subsequent to
April 30, 2000 are: $16,147 in 2001, $8,806 in 2002, $8,028 in 2003 and $82 in
2004.
The Company also has outstanding borrowings against the CSV of COLI
contracts of $44,928 and $42,655 at April 30, 2000 and 1999, respectively.
These borrowings are secured by the CSV, principal payments are not scheduled
and interest is payable at least annually, at various variable rates. (See
Note 8).
10. 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.
F-24
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
The provision (benefit) for domestic and foreign income taxes is comprised
of the following components:
<TABLE>
<CAPTION>
Fiscal Year Ended
April 30,
-------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Current income taxes:
Federal.......................................... $12,419 $ 1,474 $ 2,953
State............................................ 4,583 407 1,022
------- ------- -------
Total........................................... 17,002 1,881 3,975
------- ------- -------
Deferred income taxes:
Federal.......................................... (1,097) (2,248) (3,458)
State............................................ (366) (750) (1,154)
------- ------- -------
Total........................................... (1,463) (2,998) (4,612)
------- ------- -------
Foreign income taxes.............................. 8,587 10,143 7,324
------- ------- -------
Provision for income taxes...................... $24,126 $ 9,026 $ 6,687
======= ======= =======
</TABLE>
The domestic and foreign components of income (loss) from continuing
operations before domestic and foreign income and other taxes were as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended April
30,
-------------------------
2000 1999 1998
------- -------- -------
<S> <C> <C> <C>
Domestic......................................... $36,589 $(80,544) $(4,635)
Foreign.......................................... 21,182 25,704 18,591
------- -------- -------
Income (loss) before provision for income taxes
and minority interest......................... $57,771 $(54,840) $13,956
======= ======== =======
</TABLE>
The Company has not provided for deferred income taxes on undistributed
earnings of foreign subsidiaries considered permanently invested in these
entities.
The income tax provision stated as a percentage of pretax income, excluding
$76,331 of non-recurring charges in fiscal 1999 that are not tax deductible,
was different than the amount computed using the U.S. statutory federal income
tax rate for the reasons set forth in the following table:
<TABLE>
<CAPTION>
Fiscal Year
Ended April 30,
-------------------
2000 1999 1998
---- ---- -----
<S> <C> <C> <C>
U.S. federal statutory tax
rate..................... 35.0 % 35.0 % 35.0 %
Foreign source dividend
income................... 9.1 12.7 30.6
Foreign income tax credits
utilized................. (7.3) (8.5) (21.5)
Income subject to higher
(lower) foreign tax
rates.................... 2.1 5.3 5.9
COLI CSV increase, net.... (3.0) (7.0) (5.4)
Other..................... 5.9 4.5 3.3
---- ---- -----
Effective tax rate...... 41.8 % 42.0 % 47.9 %
==== ==== =====
</TABLE>
F-25
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
The significant components of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
As of April 30,
----------------
2000 1999
------- -------
<S> <C> <C>
Deferred income tax assets (liabilities):
Deferred compensation..................................... $15,519 $14,031
Accrued operating expenses................................ 5,390 5,430
Other accrued liabilities................................. (2,170) (1,686)
Property and equipment.................................... 1,332 832
Other (foreign)........................................... 1,533 (425)
------- -------
Deferred income tax asset................................ $21,604 $18,182
======= =======
</TABLE>
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. Management
believes that all of the deferred income tax asset will be realizable.
However, the amount of the deferred income tax asset considered realizable
could be reduced if the estimates of amounts and/or the timing of future
taxable income are revised.
11. Business Segments
The Company operates two global business segments in the retained executive
recruitment industry. These business segments, executive recruitment and
Futurestep, 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 regions led by a
regional president and Futurestep's worldwide operations are managed by a
Chief Executive Officer (CEO). A summary of the Company's operations by
business segment and geographic area follows:
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
--------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Executive recruitment:
North America.................................. $271,313 $185,525 $154,903
Europe......................................... 112,045 101,515 81,543
Asia/Pacific................................... 48,603 35,024 34,411
Latin America, including Mexico................ 30,488 29,673 30,097
Futurestep....................................... 38,294 4,338
-------- -------- --------
Total revenue................................ $500,743 $356,075 $300,954
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
--------------------------
2000 1999 1998
------- -------- -------
<S> <C> <C> <C>
Operating profit (loss):
Executive recruitment:
North America.................................. $52,783 $(56,394) $10,138
Europe......................................... 13,034 3,817 (540)
Asia/Pacific................................... 5,174 2,684 620
Latin America, including Mexico................ 7,692 7,916 5,973
Futurestep....................................... (23,878) (12,578) (824)
------- -------- -------
Total operating profit (loss)................ $54,805 $(54,555) $15,367
======= ======== =======
</TABLE>
F-26
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
As of April 30,
--------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Identifiable assets:
Executive recruitment:
North America(1)............................... $285,474 $208,627 $100,842
Europe......................................... 91,790 54,910 40,600
Asia/Pacific................................... 33,376 20,209 18,529
Latin America, including Mexico................ 18,631 17,104 16,400
Futurestep....................................... 46,723 3,274
-------- -------- --------
Total identifiable assets.................... $475,994 $304,124 $176,371
======== ======== ========
</TABLE>
--------
(1) North America executive recruitment includes the Corporate office
identifiable assets of $144,739, $144,771 and $34,162 in fiscal 2000, 1999
and 1998, respectively.
A summary of Futurestep's revenue by geographic area follows:
<TABLE>
<CAPTION>
Fiscal Year
Ended
April 30,
--------------
2000 1999
------- ------
<S> <C> <C>
Revenue:
North America............................................... $20,595 $4,338
Europe...................................................... 15,445
Asia/Pacific................................................ 2,254
------- ------
Total revenue............................................. $38,294 $4,338
======= ======
</TABLE>
Futurestep's identifiable assets at April 30, 2000 by geographic area were:
$9,856 in North America, $33,548 in Europe and $3,319 in Asia/Pacific.
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 2000, 1999 or 1998.
12. Acquisitions and Divestitures
During fiscal 2000, the Company completed a total of ten acquisitions: seven
executive recruitment firms in North America, including three in Canada; one
in Europe; and one in Asia/Pacific. The aggregate purchase price of these
acquisitions was $84.5 million, consisting of the Company's stock valued at
$21.8 million, notes payable of $31.8 million, cash of $22.8 million and
accrued liabilities of $8.1 million. In addition, Futurestep completed the
acquisition of the executive search and selection business of the PA
Consulting Group with operations in Europe and Asia/Pacific for $19.8 million
payable in cash and $1.7 million payable as deferred compensation over a three
year period. These acquisitions were accounted for under the purchase method
and resulted in $98.1 million of intangible assets, primarily goodwill. The
operating results of these entities, including executive recruitment and
Futurestep revenue of $24.2 million and $7.3 million, respectively, have been
included in the consolidated financial statements from their acquisition
dates.
Effective in May 1998, the Company acquired Didier, Vuchot & Associates in
France for approximately six million dollars in cash, notes and mandatorily
redeemable stock of a subsidiary of the Company. The stock of the subsidiary
is exchangeable for common stock upon the achievement of certain performance
targets over a
F-27
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
four year period from the acquisition date. Stock not exchanged is mandatorily
redeemable for a nominal amount at the end of the period. The acquisition was
accounted for as a purchase. The fair market value of the net assets acquired
was approximately $1.5 million. The excess of the cash and notes over this
amount is related to mandatorily redeemable stock of the subsidiary, is
contingent upon future performance and will be recognized as compensation
expense when earned.
Effective in June 1998, the Company acquired all of the outstanding shares
of Ray and Berndston SA in Switzerland for $3.6 million in cash, notes and
common stock of Korn/Ferry International. The acquisition was accounted for as
a purchase. The fair market value of the net assets acquired was approximately
$594. The excess of cash and notes over this amount, approximately $1.4
million, related to employment contracts that are contingent upon future
performance and will be recognized as compensation expense as earned. The
purchase price in excess of these amounts has been allocated to goodwill.
Effective in February 1996, the Company divested its 47% interest in
Strategic Compensation Associates for a cash payment of $357 and notes
receivable of $3,215. The outstanding balance of notes receivable at April 30,
1998 of $2,308 was paid in full in December 1998.
The following selected unaudited pro forma information is provided to
present a summary of the combined results of the Company and the ten and two
acquisitions for fiscal years 2000 and 1999, respectively, as if the
acquisitions had occurred as of the beginning of the respective periods,
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 each of the periods presented, nor are they necessarily indicative of the
results of future operations.
<TABLE>
<CAPTION>
Fiscal Year
Ended April 30,
-----------------
2000 1999
-------- --------
<S> <C> <C>
Revenue................................................... $563,443 $442,695
Net income (loss)......................................... 33,700 (64,274)
Earnings (loss) per share.................................
Basic................................................... 0.92 (2.22)
Diluted................................................. 0.88 (2.22)
</TABLE>
13. Commitments and Contingencies
The Company leases office premises and certain office equipment under leases
expiring at various dates through 2010. Total rental expense for fiscal years
2000, 1999 and 1998 amounted to $23,050, $13,026 and $12,948, respectively. At
April 30, 2000, minimum future commitments under noncancelable operating
leases with lease terms in excess of one year aggregated $83,833 payable as
follows: $18,466 in 2001, $16,941 in 2002, $13,912 in 2003, $9,359 in 2004,
$7,501 in 2005 and $17,654 thereafter. As of April 30, 2000, the Company has
outstanding standby letters of credit of $2,072 in connection with office
leases.
In connection with a three year contract effective June 1998, for an
exclusive alliance with The Wall Street Journal, Futurestep purchased
approximately $3.9 and $3.0 million of advertising in fiscal 2000 and 1999,
respectively. Future commitments to purchase advertising amount to $4.0
million through June 2001. In addition, the Company and Futurestep have agreed
not to promote competing services during the initial term of the contract.
F-28
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per share amounts)
Effective April and May 1999, the Company entered into employment agreements
with three executive officers for initial terms through April 30, 2002 that
provide certain benefits if these executives are terminated or resign under
certain limited circumstances. In March 2000, the Company entered into an
employment agreement with an executive officer for an initial term through
April 30, 2002. The maximum amount payable under these agreements is
$6.7 million and $11.4 million 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 requiring all its vice presidents to enter into
a standard form of employment agreement which provides for an annual base
salary and discretionary and incentive bonus payments. The Company also
requires its vice presidents to agree in their employment contracts not to
compete with the Company both during the term of their employment with the
Company, and also for a period of one to two years after their employment with
the Company ends. Furthermore, 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 Korn/Ferry
International.
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.
F-29
<PAGE>
[LOGO OF KORN/FERRY INTERNATIONAL]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the expenses, other than underwriting
discounts and commissions, payable by the registrant in connection with the
issuance and distribution of the Common Stock being registered. All amounts
are estimates except the SEC registration fee and the NASD fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 31,423
Accounting fees and expenses....................................... 70,000
Legal fees and expenses............................................ 300,000
Blue Sky qualification fees and expenses........................... 2,500
Printing and engraving expenses.................................... 200,000
NASD fee........................................................... 12,403
Transfer agent and registrar fees.................................. 80,000
Miscellaneous...................................................... 3,674
--------
Total............................................................ $700,000
========
</TABLE>
Item 15. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees
and individuals against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person
being or having been a director, officer, employee of or agent to the
Registrant. The statute provides that it is not exclusive of other rights to
which those seeking indemnification may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
The registrant's certificate of incorporation provides for the elimination
of personal monetary liability of directors to the fullest extent permissible
under Delaware law. Delaware law does permit the elimination or limitation of
director monetary liability for: (i) breaches of the director's duty of
loyalty to the corporation or its stockholders; (ii) acts or omissions not in
good faith or involving intentional misconduct or knowing violations of law;
(iii) the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or (iv) transactions in which the director received an improper
personal benefit.
The registrant's bylaws provide for the indemnification to the fullest
extent permitted by applicable law of any person who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of his or her current or past service to the registrant, against all
liability and loss suffered and expenses (including attorney' fees) reasonably
incurred by such person.
The registrant has entered, or plans to enter, into Indemnification
Agreements with each of its directors and executive officers pursuant to which
it has agreed to indemnify such director or executive officer from claims,
liabilities, damages, expenses, losses, costs, penalties or amounts paid in
settlement incurred by such director or executive officer in or arising out of
such person's capacity as a director or executive officer of the registrant or
any other corporation of which such person is a director at the request of the
registrant to the maximum extent provided by applicable law. In addition, such
director or executive officer is entitled to an advance of expenses to the
maximum extent authorized or permitted by law.
To the extent that the board of directors or the stockholders of the
registrant may in the future wish to limit or repeal the ability of the
registrant to provide indemnification as set forth in the certificate of
incorporation, such repeal or limitation may not be effective as to directors
and executive officers who are parties to the
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<PAGE>
Indemnification Agreements, because their rights to full protection would be
contractually assured by the Indemnification Agreements. It is anticipated
that similar contracts may be entered into, from time to time, with future
directors of the registrant.
The registrant has entered into an agreement that provides indemnification
to its directors and officers and to the directors and certain officers of the
several underwriters in connection with this registration statement for all
losses, damages, costs and expenses incurred by the indemnified person arising
out of the relevant registration statements or the transactions contemplated
by the registration of shares of common stock in the secondary offering. The
agreement also provides for indemnification by the registrant of any director
or officer (as such term is defined in the bylaws) of the registrant who is or
was a member of the shareholders' committee (the composition of which is
described in the prospectus included in this registration statement) acting
pursuant to the shareholders' agreement (as defined in the prospectus included
in this registration statement). The registrant has entered into a similar
indemnification agreement with its directors, some of its officers and all
other persons requested or authorized by the registrant's board of directors
or any committee thereof to take actions on behalf of the registrant in
connection with this registration statement and certain other registration
statements. These agreements are in addition to the registrant's
indemnification obligations under its bylaws.
The registrant maintains policies of insurance under which its directors and
officers are insured, within the limits and subject to the limitations of the
policies, against certain expenses in connection with the defense of, and
certain liabilities which might be imposed as a result of, actions, suits or
proceedings to which they are parties by reason of being or having been such
directors or officers.
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement*
4.1 Specimen Common Stock Certificate
5.1 Opinion of Sullivan & Cromwell*
23.1 Consent of Sullivan & Cromwell (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney (included on signature page of this
Registration Statement)
</TABLE>
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* To be filed by amendment.
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
II-2
<PAGE>
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Securities Act, and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the "Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the city of Los Angeles, state of California, on November 2,
2000.
KORN/FERRY INTERNATIONAL
/s/ Elizabeth S.C.S. Murray
By: _________________________________
Elizabeth S.C.S. Murray
Chief Financial Officer and
Executive Vice President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard M. Ferry, Windle B. Priem and Elizabeth
S.C.S. Murray, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration
statement, and any additional registration statement pursuant to Rule 462, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or either
of them, or their or his substitutes, may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Richard M. Ferry Chair of the Board and November 2, 2000
____________________________________ Director
Richard M. Ferry
/s/ Windle B. Priem Chief Executive Officer, November 2, 2000
____________________________________ President and Director
Windle B. Priem (Principal Executive
Officer)
/s/ Elizabeth S.C.S. Murray Chief Financial Officer, November 2, 2000
____________________________________ Treasurer and Executive
Elizabeth S.C.S. Murray Vice President (Principal
Financial Officer)
/s/ Donald E. Jordan Senior Vice President of November 2, 2000
____________________________________ Finance (Principal
Donald E. Jordan Accounting Officer)
/s/ James E. Barlett Director November 2, 2000
____________________________________
James E. Barlett
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Frank V. Cahouet Director November 2, 2000
____________________________________
Frank V. Cahouet
/s/ Peter L. Dunn Director November 2, 2000
____________________________________
Peter L. Dunn
/s/ Timothy K. Friar Director November 2, 2000
____________________________________
Timothy K. Friar
/s/ Sakie T. Fukushima Director November 2, 2000
____________________________________
Sakie T. Fukushima
/s/ Patti S. Hart Director November 2, 2000
____________________________________
Patti S. Hart
Director
____________________________________
Scott E. Kingdom
/s/ Charles D. Miller Director November 2, 2000
____________________________________
Charles D. Miller
/s/ Gerhard Schulmeyer Director November 2, 2000
____________________________________
Gerhard Schulmeyer
/s/ Mark C. Thompson Director November 2, 2000
____________________________________
Mark C. Thompson
</TABLE>
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement*
4.1 Specimen Common Stock Certificate
5.1 Opinion of Sullivan & Cromwell*
23.1 Consent of Sullivan & Cromwell (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney (included on signature page of this
Registration Statement)
</TABLE>
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* To be filed by amendment.
