4. Employee Stock Plans

Stock-Based Compensation

The following table summarizes the components of stock-based compensation expense recognized in the Company’s consolidated statements of income for the periods indicated:


	Three Months Ended January 31,						Nine Months Ended January 31,
	2013			2012			2013			2012
	(in thousands)
Restricted stock	$	2,297		$	3,198		$	8,130		$	9,119
Stock options		254			264			690			709
ESPP		—			(146	)		—			85

Total stock-based compensation expense, pre-tax		2,551			3,316			8,820			9,913
Tax benefit from stock-based compensation expense		(441	)		(1,147	)		(3,186	)		(3,475	)

Total stock-based compensation expense, net of tax	$	2,110		$	2,169		$	5,634		$	6,438

The Company uses the Black-Scholes option valuation model to estimate the grant date fair value of employee stock options. The expected volatility reflects consideration of the historical volatility in the Company’s publicly traded instruments during the period the option is granted. The Company believes historical volatility in these instruments is more indicative of expected future volatility than the implied volatility in the price of the Company’s common stock. The expected life of each option is estimated using historical data. The risk-free interest rate is based on the U.S. Treasury zero-coupon issue with a remaining term approximating the expected term of the option. The Company uses historical data to estimate forfeiture rates applied to the gross amount of expense determined using the option valuation model.

The weighted-average assumptions used to estimate the fair value of each employee stock option for the nine months ended January 31, 2012 were 47.07% expected volatility, 1.47% risk-free interest rate, 5.0 years expected option life, and 0.00% dividend yield. There were no grants of stock options in the three or nine months ended January 31, 2013.

The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options. The assumptions used in option valuation models are highly subjective, particularly the expected stock price volatility of the underlying stock.

Stock Incentive Plans

At the Company’s 2012 Annual Meeting of Stockholders, held on September 27, 2012, the Company’s stockholders approved an amendment and restatement to the 2008 Plan known as the Korn/Ferry International Second Amended and Restated 2008 Stock Incentive Plan (the “Second A&R 2008 Plan”), which among other things, increased the current maximum number of shares that may be issued under the plan to 5,700,000 shares, subject to certain changes in the Company’s capital structure and other extraordinary events. The Second A&R 2008 Plan provides for the grant of awards to eligible participants, designated as either nonqualified or incentive stock options, restricted stock and restricted stock units, any of which may be performance-based, and incentive bonuses, which may be paid in cash or a combination thereof. Under the Second A&R 2008 Plan, the ability to issue full-value awards is limited by requiring full-value stock awards to count 1.91 times as much as stock options and stock appreciation rights.

Stock Options

Stock options transactions under the Company’s 2008 Plan, as amended to date, were as follows:


	Nine Months Ended January 31, 2013
	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (In Years)		Aggregate Intrinsic Value
	(in thousands, except per share data)
Outstanding, April 30, 2012		1,492		$	14.00
Exercised		(171	)	$	8.42
Forfeited/expired.		(151	)	$	16.93

Outstanding, January 31, 2013		1,170		$	14.55		2.70	$	4,062

Exercisable, January 31, 2013		923		$	14.77		2.33	$	3,041

As of January 31, 2013, there was $0.9 million of total unrecognized compensation cost related to non-vested awards of stock options. That cost is expected to be recognized over a weighted-average period of 0.8 year. For stock option awards subject to graded vesting, the Company recognizes the total compensation cost on a straight-line basis over the service period for the entire award.

Additional information pertaining to stock options:


	Three Months Ended January 31,				Nine Months Ended January 31,
	2013		2012		2013		2012
	(in thousands, except per share data)
Weighted-average fair value of stock options granted	$	—	$	—	$	—	$	9.61
Total fair value of stock options vested	$	20	$	20	$	927	$	914
Total intrinsic value of stock options exercised	$	210	$	127	$	1,121	$	986

Restricted Stock

The Company grants time-based restricted stock to executive officers and other senior employees generally vesting over a three to four year period. Time-based restricted stock is granted at a price equal to fair value, which is determined based on the closing price of the Company’s common stock on the grant date. The Company also grants market-based restricted stock to executive officers and other senior employees. These market-based shares vest after three years depending upon the Company’s total stockholder return over the three-year performance period relative to other companies in its selected peer group. The fair value of these market-based restricted stock awards was determined by a third-party valuation using extensive market data. Employees may receive restricted stock annually in conjunction with the Company’s performance review as well as upon commencement of employment.

Restricted stock activity during the nine months ended January 31, 2013 is summarized below:


	Shares			Weighted- Average Grant Date Fair Value
	(in thousands, except per share data)
Non-vested, April 30, 2012		1,781		$	9.85
Granted		847		$	13.77
Vested		(735	)	$	11.07
Forfeited/expired		(80	)	$	16.43

Non-vested, January 31, 2013		1,813		$	10.90

As of January 31, 2013, there was $19.8 million of total unrecognized compensation cost related to non-vested awards of restricted stock, which is expected to be recognized over a weighted-average period of 2.5 years. For restricted stock awards subject to graded vesting, the Company recognizes the total compensation cost on a straight-line basis over the service period for the entire award. During the three and nine months ended January 31, 2013, shares of restricted stock of 2,065 and 188,271 totaling $0.1 million and $2.7 million, respectively, were repurchased by the Company, at the option of the employee, to pay for taxes related to vesting of restricted stock. During the three and nine months ended January 31, 2012, 1,151 shares and 184,101 shares of restricted stock totaling $0.1 million and $4.2 million, respectively, were repurchased by the Company, at the option of the employee, to pay for taxes related to vesting of restricted stock.

Employee Stock Purchase Plan

The Company has an ESPP that, in accordance with Section 423 of the Internal Revenue Code, allows eligible employees to authorize payroll deductions of up to 15% of their salary, or $25,000 annually, to purchase shares of the Company’s common stock at 85% of the fair market price of the common stock on the last day of the enrollment period. At the Company’s 2011 Annual Meeting of Stockholders, held on September 28, 2011, the Company’s stockholders approved an amendment and restatement of the ESPP, which among other things, increased the maximum number of shares that may be issued under the ESPP from 1.5 million shares to 3.0 million shares. During the nine months ended January 31, 2012, employees purchased 76,909 shares at $18.69 per share. The ESPP was suspended during the second half of fiscal 2012 and as a result no shares were purchased during the three and nine months ended January 31, 2013 and during the three months ended January 31, 2012. At January 31, 2013, the ESPP had approximately 1.6 million shares available for future issuance.

Common Stock

During the three and nine months ended January 31, 2013, the Company issued 35,083 shares and 170,594 shares of common stock, respectively, as a result of the exercise of stock options, with cash proceeds from the exercise of $0.3 million and $1.3 million, respectively. During the three and nine months ended January 31, 2012, the Company issued 22,523 shares and 138,709 shares of common stock, respectively, as a result of the exercise of stock options, with cash proceeds from the exercise of $0.3 million and $2.0 million, respectively.

No shares were repurchased during the three and nine months ended January 31, 2013 and 2012, other than to satisfy minimum tax withholding requirements upon the vesting of restricted stock as described above.