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 July 31,
	2011			2010
	(in thousands)
Restricted stock	$	2,784		$	3,564
Stock options and SARs		258			136
ESPP		128			115

Total stock-based compensation expense, pre-tax		3,170			3,815
Tax benefit from stock-based compensation expense		(1,146	)		(1,392	)

Total stock-based compensation expense, net of tax	$	2,024		$	2,423

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 and SARs were as follows:


	Three Months Ended July 31,
	2011			2010
Expected volatility		47.07	%		47.67	%
Risk-free interest rate		1.47	%		1.83	%
Expected option life (in years)		5.00			5.00
Expected dividend yield		0.00	%		0.00	%

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

The Korn/Ferry International 2008 Stock Incentive Plan, as amended (the "2008 Plan") made available an additional 2,360,000 shares of the Company's common stock for stock-based compensation awards. The 2008 Plan provides for the grant of awards to eligible participants, such awards are designated as either nonqualified or incentive stock options, SARs, 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.

Stock Options and SARs

Stock options and SARs transactions under the Company's stock incentive plans were as follows:


	Three Months Ended July 31, 2011
	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (In Years)		Aggregate Intrinsic Value
	(in thousands, except per share data)
Outstanding, April 30, 2011		1,833		$	13.78
Granted		48		$	22.71
Exercised		(115	)	$	14.72
Forfeited/expired		(65	)	$	17.05

Outstanding, July 31, 2011		1,701		$	13.82		3.87	$	13,192

Exercisable, July 31, 2011		1,201		$	14.03		3.20	$	9,045

Included in the table above are 14,153 SARs outstanding and exercisable as of July 31, 2011 with a weighted-average exercise price of $8.00. As of July 31, 2011, there was $2.7 million of total unrecognized compensation cost related to non-vested awards of stock options and SARs. That cost is expected to be recognized over a weighted-average period of 1.4 years. 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 and SARs:


	Three Months Ended July 31,
	2011		2010
	(in thousands, except per share data)
Weighted-average fair value of stock options granted	$	9.61	$	6.03
Total fair value of stock options and SARs vested	$	816	$	544
Total intrinsic value of stock options exercised	$	848	$	176
Total intrinsic value of SARs paid	$	11	$	—

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 three months ended July 31, 2011, is summarized below:


	Shares			Weighted- Average Grant Date Fair Value
	(in thousands, except per share data)
Non-vested, April 30, 2011		2,007		$	8.64
Granted		550		$	22.08
Vested		(703	)	$	3.96
Forfeited/expired		(52	)	$	17.47

Non-vested, July 31, 2011		1,802		$	14.31

As of July 31, 2011, there was $25.8 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 months ended July 31, 2011 and 2010, shares of restricted stock of 176,658 and 181,947 totaling $4.0 million and $2.6 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. The maximum number of shares of common stock reserved for ESPP issuance is 1.5 million shares, subject to adjustment for certain changes in the Company's capital structure and other extraordinary events. During the three months ended July 31, 2011 and 2010, employees purchased 76,909 shares at $18.69 per share and 108,425 shares at $11.82 per share, respectively. At July 31, 2011, the ESPP had approximately 0.1 million shares available for future issuance.

Common Stock

During the three months ended July 31, 2011 and 2010, the Company issued 113,686 shares and 26,768 shares of common stock, respectively, as a result of the exercise of stock options.

During the three months ended July 31, 2010, the Company repurchased 566,639 shares of the Company's common stock in the open market for $8.5 million. No shares were repurchased during the three months ended July 31, 2011, other than to satisfy tax withholding requirements upon the vesting of restricted stock as described above.

In June 2002, the Company issued warrants to purchase 274,207 shares of its common stock at an exercise price of $11.94, subject to anti-dilution provisions. During the three months ended July 31, 2010, these warrants were exercised for 274,207 shares of common stock in exchange for $3.0 million in cash.