Korn Ferry - 10-Q quarterly report FY

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of our common stock as of December 5, 2008 was 44,747,944.

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

The condensed consolidated financial statements for the three and six months ended October 31, 2008 and 2007 include the accounts of Korn/Ferry International and all of its wholly and majority owned/controlled domestic and international subsidiaries (collectively, the “Company”). The condensed consolidated financial statements are unaudited, but include all adjustments, consisting of normal recurring accruals and any other adjustments that 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 Annual Report on Form 10-K for the fiscal year ended April 30, 2008 (the “Annual Report”) and should be read together with the Annual Report.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. As a result, actual results could differ from these estimates. The most significant areas that require management judgment are revenue recognition, deferred compensation and the carrying values of goodwill, other intangible assets and deferred income taxes.

The Company considers cash equivalents to be only those investments which are highly liquid, readily convertible and mature within three months from the date of purchase.

The Company classifies its marketable securities as either trading securities or available-for-sale as defined in Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS No. 115”). These investments are recorded at fair value and are classified as marketable securities in the accompanying condensed consolidated balance sheets as of October 31, 2008 and April 30, 2008. Certain investments, which the Company intends to sell within the next twelve months, are carried as current. Additionally, certain of the Company’s investments, which are held in trust to satisfy obligations under the Company’s deferred compensation plans, are classified as noncurrent (see Note 5). The changes in fair values on trading securities are recorded as a component of net income. The changes in fair values, net of applicable taxes, on available-for-sale marketable securities are recorded as unrealized gains (losses) as a component of accumulated other comprehensive (loss) income in stockholders’ equity. Investments are made based on the Company’s investment policy which restricts the types of investments that can be made.

The Company has employee compensation plans under which various types of stock-based instruments are granted. These instruments, as more fully described below, principally include stock options, stock appreciation rights (“SARs”), restricted stock, and an Employee Stock Purchase Plan (“ESPP”). The Company accounts for stock-based instruments in accordance with SFAS No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”).

The following table reflects the components of stock-based compensation expense recognized in the Company’s condensed consolidated statements of income for the three and six months ended October 31, 2008 and 2007:

The Company uses the Black-Scholes option valuation model to estimate the grant date fair value of each employee stock option. The expected volatility reflects the 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 assumptions used to estimate the fair value of each employee stock option using the Black-Scholes option valuation model were as follows for the six months ended October 31, 2008 and 2007:

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.

In the three and six months ended October 31, 2008, the Company issued approximately 80 and 97 shares of common stock as a result of the exercise of stock options, and 119 shares of common stock in conjunction with the Company’s ESPP. In the three and six months ended October 31, 2007, the Company issued approximately 102 and 986 shares of common stock as a result of the exercise of stock options, and 73 shares of common stock in conjunction with the Company’s ESPP.

Certain prior period amounts have been reclassified to conform to the current period presentation (see Note 5).

In September 2006, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) ratified EITF Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” (“EITF No. 06-4”). The scope of EITF No. 06-4 is limited to the recognition of a liability and related compensation costs for endorsement split-dollar life insurance policies that provide a benefit to an employee that extends to postretirement periods. Therefore, EITF No. 06-4 does not apply to a split-dollar life insurance arrangement that provides a specified benefit to an employee that is limited to the employee’s active service period with an employer. EITF No. 06-4 is effective for fiscal years beginning after December 15, 2007, with earlier adoption permitted. The Company adopted EITF No. 06-4 effective May 1, 2008 and it did not have a material impact on its financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). The statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The statement emphasizes that fair value is a market-based measurement, not an entity-specific measurement and establishes a fair value hierarchy. This statement also clarifies how the assumptions of risk and the effect of restrictions on sales or use of an asset effect the valuation. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, however, the FASB staff has approved a one year deferral for the implementation of SFAS No. 157 for other non-financial assets and liabilities. The Company adopted this statement effective May 1, 2008 and it did not have a material impact on its financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”) including an amendment of SFAS No. 115. SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value. This statement is effective for fiscal years beginning after November 15, 2007 with early adoption permitted. The Company adopted this statement effective May 1, 2008 and it did not have a material impact on its financial position or results of operations.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No.162”). SFAS No. 162 identifies the sources of accounting principles and the framework, or hierarchy, for selecting the accounting principles used in preparing financial statements that are presented in conformity with U.S. GAAP by nongovernmental entities. This statement is effective 60 days following the SEC approval of the Public Company Accounting Oversight Board (“PCAOB”) amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles” (“Section 411”). As of the date of this report, the SEC had not approved the PCAOB amendments to AU Section 411. The Company has not completed its evaluation of the potential impact, if any, of the adoption of SFAS No. 162 on its consolidated financial position, results of operations and cash flows.

Basic earnings per common share (“basic EPS”) was computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per common share (“diluted EPS”) reflects the potential dilution that would occur if all in-the-money outstanding options or other contracts to issue common stock were exercised or converted and was computed by dividing adjusted net income, after assumed conversion of subordinated notes and preferred stock, by the weighted average number of common shares outstanding plus dilutive common equivalent shares. The following is a reconciliation of the numerator and denominator used in the computation of basic EPS and diluted EPS:

Assumed exercises or conversions have been excluded in computing the diluted EPS when their inclusion would be anti-dilutive.

Comprehensive income is comprised of net income and all changes to stockholders’ equity, except those changes resulting from investments by stockholders (changes in paid in capital) and distributions to stockholders (dividends).

The components of accumulated other comprehensive (loss) income were as follows:

The Company has one stock incentive plan, entitled the Korn/Ferry International 2008 Stock Incentive Plan (the “2008 Plan”). The 2008 Plan was adopted by the Company’s stockholders on September 23, 2008, at the 2008 Annual Stockholder Meeting, and replaced the Company’s former stock incentive plan, the Performance Award Plan, which expired on August 8, 2008. The Performance Award Plan provided for, and the 2008 Plan provides for, the grant of awards to eligible participants, 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.

Included in the table above are 59 SARs outstanding and exercisable at October 31, 2008 with a weighted-average exercise price of $12.26. As of October 31, 2008, there was $361 of total unrecognized compensation cost related to nonvested 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.

The Company grants restricted stock to executive officers and other senior employees generally vesting over a four year period. Restricted stock is granted at a price equal to the fair market value of the Company’s common stock on the date of grant. Employees may receive restricted stock annually in conjunction with the Company’s performance review as well as upon commencement of employment. The fair value of restricted stock is determined based on the closing price of the Company’s common stock on the date of grant.

Information regarding the Company’s restricted stock during the six months ended October 31, 2008 is as follows:

As of October 31, 2008, there was $44,398 of total unrecognized compensation cost related to nonvested awards of restricted stock. That cost is expected to be recognized over a weighted-average period of three 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. In the three and six months ended October 31, 2008, 8 and 126 shares of restricted stock totaling $135 and $2,124, respectively, were repurchased by the Company at the option of the employee to pay for taxes related to the vesting of restricted stock. In the three and six months ended October 31, 2007, 4 and 158 shares of restricted stock totaling $60 and $4,145, respectively, were repurchased by the Company at the option of the employee to pay for taxes related to the vesting of restricted stock.

In October 2003, the Company implemented 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 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 1,500, subject to adjustment for certain changes in the Company’s capital structure and other extraordinary events. During the six months ended October 31, 2008 and 2007, employees purchased 119 shares at $13.37 per share, and 73 shares at $22.32 per share, respectively. No shares were purchased in the three months ended October 31, 2008 and 2007.

Effective May 1, 2008, the Company adopted SFAS No. 157 for financial assets and liabilities. The statement defines fair value, provides guidance for measuring fair value and requires certain disclosures. SFAS No. 157 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

As of October 31, 2008, the Company held certain assets that are required to be measured at fair value on a recurring basis. These included cash equivalents, marketable securities and a put option.

The Company’s investments associated with cash equivalents and marketable securities consist of money market funds, United States government and government agency bonds and equity securities for which market prices are readily available. Our investments in marketable securities also consist of student loan portfolios (“auction rate securities”), which are classified as noncurrent marketable securities and reflected at fair value.

As of October 31, 2008 and April 30, 2008, the Company’s marketable securities included $63,037 and $63,491 respectively, held in trust for settlement of the Company’s obligations under certain of its deferred compensation plans, of which $60,660 and $57,551 are classified as noncurrent.

As of October 31, 2008, $18,200 par value (with a fair value of $15,939) of the Company’s marketable securities consisted of auction rate securities, of which all were securities collateralized by student loan portfolios, which are guaranteed by the United States government. The Company continues to earn interest on all of its auction rate securities as of October 31, 2008. Due to events in credit markets, the auction rate securities held by the Company have experienced failed auctions during calendar year 2008. As such, quoted prices in active markets are not readily available at this time. A third-party investment institution provided an estimate of the fair value of the auction rate securities held as of October 31, 2008 and April 30, 2008. Therefore, in order to validate the fair value estimate of these securities for reporting, the Company considered the institution’s pricing model which included factors such as tax status, credit quality, duration, insurance wraps, portfolio composition, assumptions about future cash flows and likelihood of redemption. The Company concluded that the pricing model, given the lack of market available pricing, provided a reasonable basis for determining fair value of the auction rate securities as of October 31, 2008 and April 30, 2008.

By letter dated August 8, 2008, the Company received notification from one of its investment securities firms (“Investment Firm”) announcing a proposed settlement to repurchase all of the Company’s auction rate security holdings at par value. The Company formally accepted the settlement agreement and entered into a repurchase agreement (“Agreement”) with the Investment Firm on October 28, 2008 (“Acceptance Date”). By accepting the Agreement, the Company (1) received the right (“Put Option”) to sell its auction rate securities at par value to the Investment Firm between June 30, 2010 and July 2, 2012 and (2) gave the Investment Firm the right to purchase the auction rate securities from the Company any time after the Acceptance Date as long as the Company receives the par value.

The Agreement covers $13,200 par value (fair value of $11,562) of the Company’s auction rate securities as of October 31, 2008. The Company has accounted for the Put Option as a freestanding financial instrument and elected to record the value under the fair value option of SFAS No. 159. This resulted in the recording of a $1,638 receivable with a corresponding credit to income for the value of the Put Option. Simultaneously, the Company made an election pursuant to SFAS No. 115 to transfer these auction rate securities from available-for-sale to trading securities. The transfer resulted in the reversal of prior unrealized losses, net of taxes, on the auction rate securities from accumulated other comprehensive income and the recognition of the unrealized losses as a charge to income of $1,638 in the three months ended October 31, 2008. The Company expects that the future changes in the fair value of the Put Option will be offset by the fair value movements in the related auction rate securities.

As the Company believes that the anticipated liquidation of the remaining $5,000 par value (fair value of $4,377) of auction rate securities may take longer than twelve months and given its intent and ability to hold these securities, they have been classified as noncurrent available-for-sale marketable securities on the condensed consolidated balance sheet as of October 31, 2008. Any future fluctuation in fair value related to these investments that it deems to be temporary would be recorded to accumulated other comprehensive income. If the Company determines that any future valuation adjustment is other than temporary, it will record an impairment charge to earnings as appropriate.

Based on review of the Company’s available-for-sale securities included in the tables below, the Company determined that certain of the unrealized losses were other-than-temporary. Therefore, as of October 31, 2008, the Company recorded an other-than-temporary impairment charge of $544 on the current portion of marketable securities.

The following table represents the Company’s fair value hierarchy for financial assets measured at fair value on a recurring basis as of October 31, 2008:

The following table presents the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as defined in SFAS No. 157 for the three and six months ended October 31, 2008:

The Company has several deferred compensation and retirement 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 components of net periodic benefit cost are as follows:

The Company also has an Executive Capital Accumulation Plan (“ECAP”) which is intended to provide certain employees an opportunity to defer salary and/or bonus on a pre-tax basis, or make an after-tax contribution. The Company made $2,928 and $14,696 in ECAP contributions in the three and six months ended October 31, 2008. The Company contributions vest and are generally expensed ratably over a four year period.

The Company operates in two global business segments: executive recruitment and Futurestep. These segments are distinguished primarily by the candidates’ level of compensation. The executive recruitment business segment is managed by geographic regional leaders. Revenue from leadership and talent consulting and other consulting engagements is included in executive recruitment. Futurestep’s worldwide operations are managed by the Chief Executive Officer of Futurestep. The executive recruitment geographic regional leaders and the Chief Executive Officer of Futurestep report directly to the Chief Executive Officer of the Company. The Company also operates a Corporate segment to record global expenses of the Company.

A summary of the Company’s results of operations by business segment is as follows:

Korn/Ferry International (referred to herein as the “Company,” “Korn/Ferry,” or in the first person notations “we,” “our,” and “us”) is a premier provider of talent management solutions that help clients to attract, deploy, retain and reward their talent. Our services include executive recruitment, middle-management recruitment, outsourced recruitment (through Futurestep), leadership development solutions and executive coaching. Over half of the executive recruitment engagements we performed in the last fiscal year were for board level, chief executive or other senior executive and general management positions. Our 5,120 clients in the last fiscal 2008 included approximately 49% of the FORTUNE 500 companies. We have established strong client loyalty. 74% of the executive recruitment assignments we performed during the previous fiscal year were on behalf of clients for whom we had conducted assignments in the previous three fiscal years.

In an effort to maintain our long-term strategy of being the leading provider of executive recruitment, middle-management recruitment, outsourced recruitment, leadership development solutions and executive coaching, our strategic focus for fiscal 2009 centers upon increasing market share and further enhancing the cross-selling of our multi-service strategy. We plan to continue to address areas of increasing client demand, including Recruitment Process Outsourcing (“RPO”) and Leadership and Talent Consulting (“LTC”). We plan to explore new products and services, continue to pursue a disciplined acquisition strategy, enhance our technology and processes and aggressively leverage our brand through thought leadership and intellectual capital projects as a means of delivering world-class service to our clients.

Fee revenue decreased 3% in the second quarter of fiscal 2009 to $189.3 million compared to $195.9 million in the second quarter of fiscal 2008, with decreases in all executive recruitment regions offset by an increase of $2.3 million in Futurestep . The North America and Asia regions experienced the largest dollar decreases in fee revenue. In the second quarter of fiscal 2009, we earned an operating profit of $21.5 million with operating income from executive recruitment of $26.6 million and $1.2 million from Futurestep, offset by corporate expenses of $6.3 million. This represents a decrease of 15% over the prior year’s second quarter operating income of $25.4 million.

We had no long-term debt nor an outstanding balance under our credit facility at October 31, 2008. Our working capital increased $5.3 million in the first six months of fiscal 2009 to $201.6 million at October 31, 2008.

The following discussion and analysis of our financial condition and operating results are based on our unaudited condensed consolidated financial statements. Preparation of this quarterly report on Form 10-Q requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results may differ from those estimates and assumptions. In preparing our interim financial statements and accounting for the underlying transactions and balances, we apply our accounting policies as disclosed in our Notes to Unaudited Condensed Consolidated Financial Statements. We consider the policies related to revenue recognition, deferred compensation and the carrying values of goodwill, intangible assets and deferred income taxes as critical to an understanding of our interim consolidated financial statements because their application places the most significant demands on management’s judgment. Specific risks for these critical accounting policies are described in our Form 10-K.

The following table summarizes the results of our operations for the three and six month periods ended October 31, 2008 and 2007 as a percentage of fee revenue:

The following tables summarize the results of our operations by business segment. Operating income (loss) is calculated as a percentage of fee revenue of the respective segment (dollars in thousands).

Fee Revenue. Fee revenue decreased $6.6 million, or 3%, to $189.3 million in the three months ended October 31, 2008 compared to $195.9 million in the three months ended October 31, 2007. The decline in fee revenue is attributable mainly to a 7% decrease in average fees across all regions. Exchange rates unfavorably impacted fee revenues by $1.3 million in the second quarter of fiscal 2009.

Executive Recruitment. Executive recruitment reported fee revenue of $160.2 million, a decrease of $8.9 million, or 5%, in the three months ended October 31, 2008 compared to $169.1 million in the three months ended October 31, 2007 due to a 5% decrease in average fees for the segment. The number of engagements billed in the second quarter of fiscal 2009 were comparable to that of the second quarter of fiscal 2008.

North America reported fee revenue of $91.7 million, a decrease of $3.2 million, or 3%, in the three months ended October 31, 2008 compared to $94.9 million in the three months ended October 31, 2007 primarily due to a 6% decrease in average fees in the region offset by a 3% increase in the number of engagements billed compared to the second quarter of fiscal 2008. The regions overall revenue decline was driven by a more significant decrease in the financial sector offset by increases in the industrial and life science sectors. Exchange rates unfavorably impacted North America fee revenue by $0.5 million in the second quarter of fiscal 2009.

EMEA reported fee revenue of $40.5 million, a decrease of $1.5 million, or 4%, in the three months ended October 31, 2008 compared to $42.0 million in the three months ended October 31, 2007. EMEA’s decrease in fee revenue was driven by a 3% decrease in average fees compared to the second quarter of fiscal 2008. The number of engagements billed in the second quarter of fiscal 2009 was comparable to the second quarter of fiscal 2008. The existing offices in the United Kingdom, Hungary, and the Czech Republic were the primary contributors to the decrease in fee revenue. The financial and technology sectors experienced the largest decrease in fee revenue offset by an increase in the industrial sector compared to the second quarter of fiscal 2008. Exchange rates unfavorably impacted EMEA fee revenue by $0.2 million in the second quarter of fiscal 2009.

Asia Pacific reported fee revenue of $21.2 million, a decrease of $3.5 million, or 14%, in the three months ended October 31, 2008 compared to $24.7 million in the three months ended October 31, 2007 from a decrease of 4% in average fees billed per engagement and a 11% decline in the number of engagements billed. The decrease in fee revenue was primarily due to declines in the financial, technology, life science and consumer goods sectors. Exchange rates unfavorably impacted fee revenue for Asia Pacific by $0.4 million in the second quarter of fiscal 2009.

South America reported fee revenue of $6.8 million, a decrease of $0.7 million, or 9%, in the three months ended October 31, 2008 compared to $7.5 million in the three months ended October 31, 2007. Engagements billed increased 10% while average fees decreased 17% within the region compared to the second quarter of fiscal 2008. The declined performance in Brazil was the primary contributor to the decrease in fee revenue in the second quarter of fiscal 2009 over the second quarter of fiscal 2008. Exchange rates favorably impacted fee revenue for South America by $0.2 million in the second quarter of fiscal 2009.

Futurestep. Futurestep reported fee revenue of $29.1 million, an increase of $2.3 million, or 9%, in the three months ended October 31, 2008 compared to $26.8 million in the three months ended October 31, 2007. The improvement in Futurestep’s fee revenue is due to an increase in the number of engagements billed offset by a slight decrease in average fee per engagement billed. Of the total increase in fee revenue, North America experienced the largest increase in fee revenue of $2.4 million, or 23.3%, to $12.7 million related to growth from Canada and the United States. Asia fee revenue increased $1.2 million, or 16.9%, to $8.3 million reflecting increased revenue from areas including RPO and individual searches. Europe fee revenue decreased $1.3 million, or 13.8%, to $8.1 million, arising from decreased business in the United Kingdom, Belgium and Norway offset by an increase in France. Exchange rates unfavorably impacted fee revenue by $0.4 million in the second quarter of fiscal 2009.

Compensation and Benefits. Compensation and benefits expense of $129.7 million in the three months ended October 31, 2008 is comparable to $130.4 million in the three months ended October 31, 2007. The change in compensation and benefits expenses is primarily due to a $3.9 million decline in expense from deferred compensation retirement plans, a 5% increase in global headcount, compared to the second quarter of fiscal 2008, including a 7% increase in the average number of consultants. Exchange rates favorably impacted compensation and benefits expenses by $0.8 million during the second quarter of fiscal 2009.

Executive recruitment compensation and benefits costs were $106.1 million in the three months ended October 31, 2008 compared to $106.5 million in the three months ended October 31, 2007. Exchange rates impacted executive recruitment compensation and benefits expense favorably by $0.6 million. Executive recruitment compensation and benefits expenses in the second quarter of fiscal 2009 were 66% as a percentage of fee revenue, compared to 63% in the second quarter of fiscal 2008.

Futurestep compensation and benefits expense increased $2.2 million, or 12%, to $20.8 million in the three months ended October 31, 2008 from $18.6 million in the three months ended October 31, 2007 due to investments in our employees which increased Futurestep average consultant headcount by 19% during the three months ended October 31, 2008 compared to the three months ended October 31, 2007. Exchange rates favorably impacted Futurestep compensation and benefits expense by $0.2 million. Futurestep compensation and benefits expense, as a percentage of fee revenue, were 71% in the second quarter of fiscal 2009 from 70% in the second quarter of fiscal 2008.

Corporate compensation and benefits expense decreased $2.5 million, or 47%, to $2.8 million in the three months ended October 31, 2008 from $5.3 million in the three months ended October 31, 2007 primarily from increases in recognition of unearned deferred compensation balances offset by an increase in the change in cash surrender value of company owned insurance policies in the second quarter of fiscal 2009 compared to the second quarter of fiscal 2008.

General and Administrative Expenses. General and administrative expenses decreased $1.9 million, or 6%, to $32.3 million in the three months ended October 31, 2008 compared to $34.2 million in the three months ended October 31, 2007. Exchange rates favorably impacted general and administrative expenses by $0.3 million in the second quarter of fiscal 2009.

Executive recruitment general and administrative expenses decreased $1.7 million, or 7%, to $23.2 million in the three months ended October 31, 2008 from $24.9 million in the three months ended October 31, 2007. This decrease was driven by decreases in other types of general expenses including meeting and travel expenses of $1.4 million, realized foreign exchange gains of $1.3 million and business development expenses of $0.3 million. Offsetting the overall decrease in executive recruitment general and administrative expenses is an increase in premise and office expenses of $1.1 million and bad debt expense of $0.2 million. Increased premise and office expenses is attributable to all regions due to increased rent expenses and associated utility costs. Business development increased primarily due to the growth in the business. Executive recruitment general and administrative expenses, as a percentage of fee revenue, was 15% in the second quarter of fiscal 2009 and fiscal 2008.

Futurestep general and administrative expenses increased $0.4 million, or 7%, to $6.1 million in the three months ended October 31, 2008 compared to $5.7 million in the three months ended October 31, 2007 primarily due to an increase in business development expenses of $0.4 million, foreign exchange loss of $0.1 million, premise and office expenses of $0.2 million, general and administrative expenses of $0.1 million in meetings and travel expenses and offset by a decrease in bad debt expenses of $0.4 million. Increases in premise and office expenses resulted from increase in rent expenses noted across all regions and the opening of new offices in Europe and Asia. Futurestep general and administrative expenses, as a percentage of fee revenue, was 21% in the second quarter of fiscal 2009 and fiscal 2008.

Corporate general and administrative expenses decreased $0.5 million, or 14%, to $3.1 million in the three months ended October 31, 2008 compared to $3.6 million in the three months ended October 31, 2007 primarily due to an increase in foreign exchange gains.

Out-of-Pocket Engagement Expenses. Out-of-pocket engagement expenses consist of expenses incurred by candidates and our consultants that are generally billed to clients. Out-of-pocket engagement expenses decreased $1.0 million, or 7%, to $13.3 million in the three months ended October 31, 2008 compared to $14.3 million in the three months ended October 31, 2007. Out-of-pocket engagement expenses as a percentage of fee revenue was 7% in the second quarter of fiscal 2009 and fiscal 2008.

Depreciation and Amortization Expenses. Depreciation and amortization expenses increased $0.3 million, or 12%, to $2.8 million in the three months ended October 31, 2008 compared to $2.5 million in the three months ended October 31, 2007. This expense relates mainly to computer equipment, software, furniture and leasehold improvements. The increase in depreciation and amortization expenses is attributable to an increase in fixed asset balances primarily associated with furniture and fixtures and leasehold improvements related to business expansion, office build out and amortization of software costs that added new functionality in our corporate and executive search segments.

Operating Income. Operating income decreased $3.9 million, or 15%, to $21.5 million in the three months ended October 31, 2008 compared to $25.4 million in the three months ended October 31, 2007. This decrease in operating income resulted from a $3.2 million decrease in operating expenses which was offset by a decrease in total revenue of $7.1 million.

Executive recruitment operating income decreased $6.4 million, or 19%, to $26.6 million in the three months ended October 31, 2008 compared to $33.0 million in the three months ended October 31, 2007. The decline in executive recruitment operating income is primarily attributable to decreased revenues within the quarter. Executive recruitment operating income during the second quarter of fiscal 2009, as a percentage of fee revenue, was 17% compared to 19% in the second quarter of fiscal 2008.

Futurestep operating income decreased $0.3 million, or 20%, to $1.2 million in the three months ended October 31, 2008 as compared to operating income of $1.5 million in the three months ended October 31, 2007. The change in Futurestep operating income is primarily due to an increase in total revenue while incurring severance related costs of approximately $0.5 million during the three months ended October 31, 2008 compared to the three months ended October 31, 2007. Futurestep operating income, as a percentage of fee revenue, decreased to 4% in the second quarter of fiscal 2009 from 6% in the second quarter of fiscal 2008.

Interest Income and Other (Loss) Income, Net. Interest income and other income, net decreased by $2.1 million in the three months ended October 31, 2008 from $2.0 million in the three months ended October 31, 2007. Interest and dividend income decreased primarily as a result of lower average interest-bearing balances, lower overall interest rates and an other-than-temporary impairment charge of $0.5 million realized on a portion of our marketable securities in the second quarter of fiscal 2009 compared to the second quarter of fiscal 2008.

Interest Expense. Interest expense, primarily related to borrowings under Company Owned Life Insurance Policies (“COLI”), was $1.1 million in the three months ended October 31, 2008 and $1.2 million in the three months ended October 31, 2007.

Provision for Income Taxes. The provision for income taxes decreased $2.4 million to $7.6 million in the three months ended October 31, 2008, compared to $10.0 million in the three months ended October 31, 2007. The provision for income taxes in the second quarter of fiscal 2009 reflects a 36% effective tax rate, which is comparable to the effective tax rate for the second quarter of fiscal 2008.

Equity in Earnings of Unconsolidated Subsidiaries. Equity in earnings of unconsolidated subsidiaries is comprised of our less than 50% interest in our Mexican subsidiaries. We report our interest in earnings or loss of our Mexican subsidiaries on the equity basis as a one-line adjustment to net income, net of taxes. Equity in earnings was $0.8 million in the three months ended October 31, 2008 compared to $0.9 million in the three months ended October 31, 2007.

Fee Revenue. Fee revenue increased $13.8 million, or 3.6%, to $395.0 million in the six months ended October 31, 2008 compared to $381.2 million in the six months ended October 31, 2007. The improvement in fee revenue is attributable mainly to a 7% increase in the number of engagements billed and an increase in average fees from executive recruitment. Exchange rates favorably impacted fee revenues by $7.6 million in the six months ended October 31, 2008.

Executive Recruitment. Executive recruitment reported fee revenue of $334.8 million, an increase of $6.0 million, or 1.8%, in the six months ended October 31, 2008 compared to $328.8 million in the six months ended October 31, 2007 due to an increase in average fees of 2% for the segment. The number of engagements billed in the six months ended October 31, 2008 were comparable to that of the six months ended October 31, 2007.

North America reported fee revenue of $185.7 million, an increase of $3.5 million, or 1.9%, in the six months ended October 31, 2008 compared to $182.2 million in the six months ended October 31, 2007 primarily due to a 2% increase in the number of engagements billed while average fees in the region were unchanged compared to the six months ended October 31, 2007. Overall revenue growth was driven by more significant increases in the industrial and consumer goods sectors offset by declines in the financial services and technology sectors. Exchange rates favorably impacted North America fee revenue by $0.2 million in the six months ended October 31, 2008.

EMEA reported fee revenue of $92.1 million, an increase of $5.3 million, or 6.1%, in the six months ended October 31, 2008 compared to $86.8 million in the six months ended October 31, 2007. EMEA’s increase in fee revenue was driven by a 4% increase in the number of engagements billed and a 2% increase in average fees. The performance in existing offices in Switzerland, Germany, and Greece were the primary contributors to the increase in fee revenue. The industrial and technology sectors experienced the largest increase in fee revenue offset by a decline in the life sciences sector compared to the six months ended October 31, 2007. Exchange rates favorably impacted EMEA fee revenue by $4.3 million in the six months ended October 31, 2008.

Asia Pacific reported fee revenue of $42.6 million, a decrease of $4.7 million, or 9.9%, in the six months ended October 31, 2008 compared to $47.3 million in the six months ended October 31, 2007 as an increase of 1% in average fees billed per engagement was offset by an overall 11% decline in the number of engagements billed. An increase in fee revenue in the industrial sector was offset by decreases in fee revenue in the technology sector. Exchange rates favorably impacted fee revenue for Asia Pacific by $0.5 million in the six months ended October 31, 2008.

South America reported fee revenue of $14.4 million, an increase of $1.8 million, or 14.3%, in the six months ended October 31, 2008 compared to $12.6 million in the six months ended October 31, 2007. Of the increase in fee revenue, $1.0 million is attributable to the favorable impact of exchange rates. Engagements billed increased 3% while average fees increased 12% within the region in the six months ended October 31, 2008 compared to the six months ended October 31, 2007. The improved performance in the consumer goods and industrial sectors was the primary contributor to the increase in fee revenue in the six months ended October 31, 2008 over the six months ended October 31, 2007.

Futurestep. Futurestep reported fee revenue of $60.3 million, an increase of $7.9, or 15.1%, in the six months ended October 31, 2008 compared to $52.4 million in the six months ended October 31, 2007. The improvement in Futurestep’s fee revenue is due to an increase in the number of engagements billed offset by a slight decrease in average fee per engagement billed. Of the total increase in fee revenue, North America experienced the largest increase in fee revenue of $5.2 million, or 26.5%, to $24.7 million related to growth from Canada and the United States. Asia fee revenue increased $3.4 million, or 25.0%, to $17.0 million reflecting increased revenue from areas including RPO and individual searches. Europe fee revenue decreased $0.6 million, or 3.1%, to $18.6 million. Exchange rates favorably impacted fee revenue by $1.7 million in the six months ended October 31, 2008.

Compensation and Benefits. Compensation and benefits expense increased $18.5 million, or 7.3%, to $271.9 million in the six months ended October 31, 2008 from $253.4 million in the six months ended October 31, 2007. The increase in compensation and benefits expenses is primarily due to a 5% increase in global headcount, compared to the six months ended October 31, 2007, including a 8% increase in the average number of consultants, coupled with increased profitability-based awards. Exchange rates unfavorably impacted compensation and benefits expenses by $5.0 million during the six months ended October 31, 2008.

Executive recruitment compensation and benefits costs increased $13.5 million, or 6.5%, to $220.2 million in the six months ended October 31, 2008 compared to $206.7 million in the six months ended October 31, 2007 primarily due to an increase in the number of consultants. In the six months ended October 31, 2008, the average number of consultants increased by 13, or 3%, compared to the six months ended October 31, 2007. Exchange rates impacted executive recruitment compensation and benefits expense unfavorably by $3.8 million. Executive recruitment compensation and benefits expenses in the six months ended October 31, 2008 increased to 66% as a percentage of fee revenue, compared to 63% in the six months ended October 31, 2007.

Futurestep compensation and benefits expense increased $6.2 million, or 17.4%, to $41.9 million in the six months ended October 31, 2008 from $35.7 million in the six months ended October 31, 2007 due to investments in our employees which increased Futurestep average consultant headcount increased by 28% during the six months ended October 31, 2008 compared to the six months ended October 31, 2007. Exchange rates unfavorably impacted Futurestep compensation and benefits expense by $1.2 million. Futurestep compensation and benefits expense, as a percentage of fee revenue, increased to 70% in the six months ended October 31, 2008 from 68% in the six months ended October 31, 2007.

Corporate compensation and benefits expense decreased $1.1 million, or 10.1%, to $9.8 million in the six months ended October 31, 2008 compared to $10.9 million in the six months ended October 31, 2007 primarily from a decrease in deferred compensation liability expenses offset by increases in recognition of unearned deferred compensation balances in the six months ended October 31, 2008 compared to the six months ended October 31, 2007.

General and Administrative Expenses. General and administrative expenses increased $0.5 million, or 0.8%, to $66.4 million in the six months ended October 31, 2008 compared to $65.9 million in the six months ended October 31, 2007. Exchange rates unfavorably impacted general and administrative expenses by $1.5 million in the six months ended October 31, 2008.

Executive recruitment general and administrative expenses increased $0.4 million, or 1.0%, to $47.8 million in the six months ended October 31, 2008 from $47.4 million in the six months ended October 31, 2007. This increase was driven by increases in premise and office expenses of $2.7 million. Offsetting the overall increase in executive recruitment general and administrative expenses is a decrease in other types of general expenses, including meeting and travel expense, of $1.5 million, bad debt expense of $1.1 million, and $0.5 million in realized foreign exchange losses. Increased premise and office expenses is attributable to all regions due to increased rent expenses and associated utility costs. Business development increased primarily due to the growth in the business. Bad debt expense decreased due to an overall improvement in the aging of accounts receivable. Executive recruitment general and administrative expenses, as a percentage of fee revenue, was 14% in both the six months ended October 31, 2008 and the six months ended October 31, 2007.

Futurestep general and administrative expenses increased $0.7 million, or 6.2%, to $12.0 million in the six months ended October 31, 2008 compared to $11.3 million in the six months ended October 31, 2007 primarily due to an increase in business development expenses of $0.7 million premise and office expenses of $0.7 million and $0.1 million in foreign exchange gains which were offset by a decrease of $0.6 million in bad debt expense and $0.2 million of general and administrative expenses. Increases in premise and office expenses resulted from increase in rent expenses noted across all regions and the opening of new offices in Europe and Asia. Futurestep general and administrative expenses, as a percentage of fee revenue, decreased to 20% in the six months ended October 31, 2008 from 21% in the six months ended October 31, 2007.

Corporate general and administrative expenses decreased $0.6 million, or 8.3%, to $6.6 million in the six months ended October 31, 2008 compared to $7.2 million in the six months ended October 31, 2007 primarily due to decreased professional fees, travel and meetings and premise and office expenses.

Out-of-Pocket Engagement Expenses. Out-of-pocket engagement expenses consist of expenses incurred by candidates and our consultants that are generally billed to clients. Out-of-pocket engagement expenses decreased $0.4 million, or 1.4%, to $28.0 million in the six months ended October 31, 2008, compared to $28.4 million in the six months ended October 31, 2007. Out-of-pocket engagement expenses as a percentage of fee revenue remained constant at 7% in both the six months ended October 31, 2008 and the six months ended October 31, 2007.

Depreciation and Amortization Expenses. Depreciation and amortization expenses increased $0.8 million, or 16.3%, to $5.7 million in the six months ended October 31, 2008 compared to $4.9 million in the six months ended October 31, 2007. This expense relates mainly to computer equipment, software, furniture and leasehold improvements. The increase in depreciation and amortization expenses is attributable to an increase in fixed asset balances primarily associated with furniture and fixtures and leasehold improvements related to business expansion, office build out and amortization of software costs that added new functionality in our corporate and executive search segments.

Operating Income. Operating income decreased $5.3 million, or 10.5%, to $45.2 million in the six months ended October 31, 2008 compared to $50.5 million in the six months ended October 31, 2007. This decrease in operating income resulted from a $19.4 million increase in operating expenses which was offset by an increase in total revenue of $14.1 million. The increase in operating expenses is primarily attributable to an increase in compensation and benefits, general and administrative expenses, including a modest amount of severance related costs.

Executive recruitment operating income decreased $7.3 million, or 11.1%, to $58.3 million in the six months ended October 31, 2008 compared to $65.6 million in the six months ended October 31, 2007. The decline in executive recruitment operating income is attributable to increased revenues offset by additional compensation expense relating to increased headcount and variable payouts, as discussed above, as well as increased premise and other general administrative expenses. The Lominger Entities contributed $0.3 million of the operating income increase in the six months ended October 31, 2008. Executive recruitment operating income during the six months ended October 31, 2008, as a percentage of fee revenue, was 17% compared to 20% in the six months ended October 31, 2007.

Futurestep operating income increased by $0.5 million, or 13.9%, to $4.1 million in the six months ended October 31, 2008 as compared to operating income of $3.6 million in the six months ended October 31, 2007. The change in Futurestep operating income is primarily due to an increase in total revenue while realizing a lesser increase in operating expenses during the six months ended October 31, 2008 compared to the six months ended October 31, 2007. Futurestep operating income, as a percentage of fee revenue, increased to 7% in both the six months ended October 31, 2008 and the six months ended October 31, 2007.

Interest Income and Other Income, Net. Interest income and other income, net decreased by $3.2 million, or 68%, to $1.5 million in the six months ended October 31, 2008 from $4.7 million in the six months ended October 31, 2007. Interest and dividend income decreased primarily as a result of lower average United States cash balances, lower overall interest rates compared to the six months ended October 31, 2007 and an other-than-temporary impairment charge of $0.5 million realized on our marketable securities.

Interest Expense. Interest expense, primarily related to borrowings under Company Owned Life Insurance Policies (“COLI”), was $2.3 million in the six months ended October 31, 2008 compared to $2.4 million in the six months ended October 31, 2007.

Provision for Income Taxes. The provision for income taxes was $16.9 million in the six months ended October 31, 2008, compared to $20.4 million in the six months ended October 31, 2007. The provision for income taxes in the six months ended October 31, 2008 reflects a 36% effective tax rate, which is comparable to the effective tax rate for the six months ended October 31, 2007.

Equity in Earnings of Unconsolidated Subsidiaries. Equity in earnings of unconsolidated subsidiaries is comprised of our less than 50% interest in our Mexican subsidiaries. We report our interest in earnings or loss of our Mexican subsidiaries on the equity basis as a one-line adjustment to net income, net of taxes. Equity in earnings was $1.9 million in the six months ended October 31, 2008 compared to $1.8 million in the six months ended October 31, 2007.

We believe that cash on hand, borrowings available under our credit facility and funds from operations will be sufficient to meet our anticipated working capital, capital expenditures and general corporate requirements. However, adverse changes in our revenue could require us to cut costs and/or obtain additional financing to meet our cash needs.

Our performance is subject to the general level of economic activity in the geographic regions and industries in which we operate. Those regions and industries have recently deteriorated significantly and may remain depressed for the foreseeable future. If the national or global economy or credit market conditions in general were to deteriorate further in the future, it is possible that such changes could put additional negative pressure on demand for our services and affect our cash flows.

As of October 31, 2008 we held approximately $18.2 million par value (with a fair value of $15.9 million) of marketable securities investments, classified as noncurrent assets, with an auction reset feature (“auction rate securities”) whose underlying assets are generally student loans which are substantially backed by the federal government. Continued liquidity issues in the global credit markets caused auctions for all of our auction rate securities to fail because the amount of securities offered for sale exceeded the amount of bids. As a result, the liquidity of our remaining auction rate securities has diminished. We expect this decreased liquidity will continue for as long as the present depressed global credit market environment persists, or until issuers refinance and replace these securities with other instruments. Despite the current auction market, we believe the credit quality of our auction rate securities remains high due to the creditworthiness of the issuers. We continue to collect interest when due and at this time we expect to continue to do so going forward. Additionally, we expect we will receive the principal balance through either future successful auctions, sales of these securities outside the auction process, the issuers’ establishment of different form of financing to replace these securities, or the maturing of the securities.

As of August 8, 2008 we received notification from one of our investment securities firms (“Investment Firm”) announcing a proposed settlement to repurchase all of our auction rate security holdings at par value. We formally accepted the settlement agreement and entered into a repurchase agreement (“Agreement”) with the Investment Firm on October 28, 2008 (“Acceptance Date”). By accepting the Agreement, we (1) received the right to sell our auction rate securities at par value to the Investment Firm between June 30, 2010 and July 2, 2012 and (2) gave the Investment Firm the right to purchase the auction rate securities from us any time after the Acceptance Date as long as we receive the par value. The Agreement covers $13.2 million par value (fair value of $11.6) of our auction rate securities as of October 31, 2008 and we expect to receive the entire par value upon the future liquidation of the securities.

We are not aware of any other trends, demands or commitments that would materially affect liquidity or those that relate to our resources.

We have no off-balance sheet arrangements and have not entered into any transactions involving unconsolidated, limited purpose entities.

As a result of our global operating activities, we are exposed to certain market risks, including foreign currency exchange fluctuations and fluctuations in interest. We manage our exposure to these risks in the normal course of our business as described below. We have not utilized financial instruments for trading, hedging or other speculative purposes nor do we trade in derivative financial instruments.

Substantially all our foreign subsidiaries’ operations 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 reporting period and revenue and expenses are translated at average rates of exchange during the reporting period. Resulting translation adjustments are reported as a component of comprehensive income on our consolidated Statement of Stockholders’ Equity and accumulated other comprehensive income on our consolidated Balance Sheets.

Transactions denominated in a currency other than the reporting entity’s functional currency may give rise to transaction gains and losses that impact our results of operations. Historically, we have not realized significant foreign currency gains or losses on such transactions. In the three months ended October 31, 2008, we recognized foreign currency gains, after income taxes, of $0.8 million primarily related to our North America, Latin America and Corporate operations.

Our primary exposure to exchange losses is based on outstanding intercompany loan balances denominated in U.S. dollars. If the U.S. dollar strengthened 15%, 25% and 35% against the Pound Sterling, the Euro, the Canadian dollar, the Australian dollar and the Yen, our exchange loss would have been $3.1 million, $5.2 million and $7.2 million, respectively, based on outstanding balances at October 31, 2008. If the U.S. dollar weakened by the same increments against the Pound Sterling, the Euro, the Canadian dollar, the Australian dollar and the Yen, our exchange gain would have been $3.1 million, $5.2 million and $7.2 million, respectively, based on outstanding balances at October 31, 2008.

We primarily manage our exposure to fluctuations in interest rates through our regular financing activities, which generally are short-term and provide for variable market rates. As of October 31, 2008, we had no outstanding balance on our credit facility. We have $60.8 million of borrowings against the cash surrender value of COLI contracts as of October 31, 2008 bearing interest primarily at variable rates. The risk of fluctuations in these variable rates is minimized by the fact that we receive a corresponding adjustment to our borrowed funds crediting rate on the cash surrender value on our COLI contracts.

As of October 31, 2008, we held approximately $18.2 million par value (fair valued of $15.9 million) of auction rate securities. Continued liquidity issues in the global credit markets caused auctions for all of our auction rate securities to fail, and there is no assurance that currently successful auctions on the other auction rate securities in our investment portfolio will continue to succeed. As a result of the current situation in the auction markets, our ability to liquidate our investment in auction rate securities and fully recover the carrying value of our investment in the near term may be limited or impossible. An auction failure means that the parties wishing to sell securities cannot. If in the future the issuers are unable to successfully close future auctions and their credit ratings deteriorate, we may be required to record an impairment charge on these investments. We believe we will be able to liquidate our investment without significant loss within the next year, however, it could take until the final maturity of the underlying notes (up to 30 years) to realize our investments’ recorded value. Based on our expected operating cash flows, and our other sources of cash, we do not anticipate the potential lack of liquidity on these investments will affect our ability to execute our current business plan.

As of the end of the period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)) under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.

During the fiscal quarter ended October 31, 2008, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

From time to time, we are involved in litigation both as plaintiff and defendant, relating to claims arising out of our operations that is ordinary, routine litigation incidental to the business. As of the date of this report, we are not engaged in any legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on our business, financial condition or results of operations.

In our Form 10-K, we described material risk factors facing the business. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. As of the date of this report, except as noted, there have been no material changes to risk factors described in our Form 10-K.

Demand for our services is affected by global economic conditions and the general level of economic activity in the geographic regions and industries in which we operate. When conditions in the global economy, including the credit markets, deteriorate, or economic activity slows, many companies hire fewer permanent employees. Any significant economic downturn, on a global basis, in North America (our largest region), or in other regions or industries where our operations are heavily concentrated, could harm our business, results of operations and financial condition.

During the three months ended October 31, 2008, the Company repurchased shares of its common stock under the common stock repurchase program approved by the Board of Directors in November 2007. Pursuant to this program, shares can be repurchased in open market transactions or privately negotiated transactions at the Company’s discretion.

Not applicable.

No matters were submitted to a vote of security holders during the second quarter of fiscal year 2009.

In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.