kfy-10q_20180731.htm

 

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended July 31, 2018

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________ to ___________

 

Commission File Number 001-14505

 

KORN/FERRY INTERNATIONAL

 

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

 

95-2623879

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

1900 Avenue of the Stars, Suite 2600, Los Angeles, California 90067

(Address of principal executive offices) (Zip Code)

(310) 552-1834

(Registrant’s telephone number, including area code)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes    No

 

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

 

Large accelerated filer 

 

 

Accelerated filer        

 

 

 

 

Non-accelerated filer  

(Do not check if a smaller reporting company)

 

Smaller reporting company 

 

 

 

Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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    No  

 

The number of shares outstanding of our common stock as of September 4, 2018 was 56,940,561 shares.

 

 

 


KORN/FERRY INTERNATIONAL  

Table of Contents

Item #

 

Description

 

Page

 

 

 

 

 

 

 

Part I. Financial Information

 

 

 

 

 

 

 

Item 1.

 

Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets as of July 31, 2018 (unaudited) and April 30, 2018

 

1

 

 

 

 

 

 

 

Consolidated Statements of Operations (unaudited) for the three months ended July 31, 2018 and 2017

 

2

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three months ended July 31, 2018 and 2017

 

 

3

 

 

Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended July 31, 2018 and 2017

 

4

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the three months ended July 31, 2018 and 2017

 

5

 

 

 

 

 

 

 

Notes to Consolidated Unaudited Financial Statements

 

6

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

33

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

34

 

 

 

 

 

 

 

Part II. Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

35

 

 

 

 

 

Item 1A.

 

Risk Factors

 

35

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

 

35

 

 

 

 

 

Item 6.

 

Exhibits

 

36

 

 

 

 

 

 

 

Signatures

 

37

 

 

 

 

 

 

 


 

Item 1. Consolidated Financial Statements

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

July 31,

2018

 

 

April 30,

2018

 

 

 

(unaudited)

 

 

 

 

 

 

 

(in thousands, except per share data)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

365,729

 

 

$

520,848

 

Marketable securities

 

 

10,952

 

 

 

14,293

 

Receivables due from clients, net of allowance for doubtful accounts of $19,201 and $17,845 at July 31, 2018 and April 30, 2018, respectively

 

 

397,559

 

 

 

384,996

 

Income taxes and other receivables

 

 

36,999

 

 

 

29,089

 

Unearned compensation

 

 

40,713

 

 

 

37,333

 

Prepaid expenses and other assets

 

 

32,056

 

 

 

27,700

 

Total current assets

 

 

884,008

 

 

 

1,014,259

 

Marketable securities, non-current

 

 

123,124

 

 

 

122,792

 

Property and equipment, net

 

 

123,318

 

 

 

119,901

 

Cash surrender value of company owned life insurance policies, net of loans

 

 

121,828

 

 

 

120,087

 

Deferred income taxes

 

 

39,512

 

 

 

25,520

 

Goodwill

 

 

581,858

 

 

 

584,222

 

Intangible assets, net

 

 

93,050

 

 

 

203,216

 

Unearned compensation, non-current

 

 

92,378

 

 

 

78,295

 

Investments and other assets

 

 

20,394

 

 

 

19,622

 

Total assets

 

$

2,079,470

 

 

$

2,287,914

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

$

35,325

 

 

$

35,196

 

Income taxes payable

 

 

25,790

 

 

 

23,034

 

Compensation and benefits payable

 

 

175,477

 

 

 

304,980

 

Term loan

 

 

26,629

 

 

 

24,911

 

Other accrued liabilities

 

 

150,534

 

 

 

170,339

 

Total current liabilities

 

 

413,755

 

 

 

558,460

 

 

 

 

 

 

 

 

 

 

Deferred compensation and other retirement plans

 

 

234,468

 

 

 

227,729

 

Term loan, non-current

 

 

204,654

 

 

 

211,311

 

Deferred tax liabilities

 

 

1,609

 

 

 

9,105

 

Other liabilities

 

 

60,364

 

 

 

61,694

 

Total liabilities

 

 

914,850

 

 

 

1,068,299

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock: $0.01 par value, 150,000 shares authorized, 72,171 and 71,631 shares issued at July 31, 2018 and April 30, 2018, respectively, and 56,938 and 56,517 shares outstanding at July 31, 2018 and April 30, 2018, respectively

 

 

681,060

 

 

 

683,942

 

Retained earnings

 

 

537,015

 

 

 

572,800

 

Accumulated other comprehensive loss, net

 

 

(56,488

)

 

 

(40,135

)

Total Korn/Ferry International stockholders' equity

 

 

1,161,587

 

 

 

1,216,607

 

Noncontrolling interest

 

 

3,033

 

 

 

3,008

 

Total stockholders' equity

 

 

1,164,620

 

 

 

1,219,615

 

Total liabilities and stockholders' equity

 

$

2,079,470

 

 

$

2,287,914

 

 

 

 

 

 

 

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

1


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

Three Months Ended

July 31,

 

 

 

2018

 

 

2017

 

 

 

(in thousands, except per share data)

 

Fee revenue

 

$

465,568

 

 

$

401,254

 

Reimbursed out-of-pocket engagement expenses

 

 

12,794

 

 

 

13,663

 

          Total revenue

 

 

478,362

 

 

 

414,917

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

321,905

 

 

 

272,756

 

General and administrative expenses

 

 

168,724

 

 

 

58,261

 

Reimbursed expenses

 

 

12,794

 

 

 

13,663

 

Cost of services

 

 

18,327

 

 

 

15,813

 

Depreciation and amortization

 

 

11,731

 

 

 

12,209

 

Restructuring charges, net

 

 

 

 

 

280

 

          Total operating expenses

 

 

533,481

 

 

 

372,982

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

 

(55,119

)

 

 

41,935

 

Other income, net

 

 

4,491

 

 

 

3,354

 

Interest expense, net

 

 

(4,103

)

 

 

(3,680

)

(Loss) income before (benefit) provision for income taxes and equity in earnings of unconsolidated subsidiaries

 

 

(54,731

)

 

 

41,609

 

Equity in earnings of unconsolidated subsidiaries

 

 

29

 

 

 

30

 

Income tax (benefit) provision

 

 

(16,110

)

 

 

12,210

 

Net (loss) income

 

 

(38,592

)

 

 

29,429

 

          Net income attributable to noncontrolling interest

 

 

(19

)

 

 

(388

)

Net (loss) income attributable to Korn/Ferry International

 

$

(38,611

)

 

$

29,041

 

 

 

 

 

 

 

 

 

 

(Loss) earnings per common share attributable to Korn/Ferry International:

 

 

 

 

 

 

 

 

     Basic

 

$

(0.70

)

 

$

0.52

 

     Diluted

 

$

(0.70

)

 

$

0.51

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

     Basic

 

 

55,378

 

 

 

55,795

 

     Diluted

 

 

55,378

 

 

 

56,403

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share:

 

$

0.10

 

 

$

0.10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

2


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(unaudited)

 

 

 

Three Months Ended

July 31,

 

 

 

2018

 

 

2017

 

 

 

(in thousands)

 

Net (loss) income

 

$

(38,592

)

 

$

29,429

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(14,556

)

 

 

16,189

 

Deferred compensation and pension plan adjustments, net of tax

 

 

273

 

 

 

352

 

Net unrealized gain (loss) on interest rate swap, net of tax

 

 

133

 

 

 

(63

)

Comprehensive (loss) income

 

 

(52,742

)

 

 

45,907

 

Less: comprehensive income attributable to noncontrolling interest

 

 

(25

)

 

 

(493

)

Comprehensive (loss) income attributable to Korn/Ferry International

 

$

(52,767

)

 

$

45,414

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

3


 

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Korn/Ferry

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive

 

 

International

 

 

 

 

 

 

Total

 

 

Common Stock

 

 

Retained

 

 

(Loss) Income,

 

 

Stockholders'

 

 

Noncontrolling

 

 

Stockholder's

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Net

 

 

Equity

 

 

Interest

 

 

Equity

 

 

(in thousands)

 

Balance as of April 30, 2018

 

56,517

 

 

$

683,942

 

 

$

572,800

 

 

$

(40,135

)

 

$

1,216,607

 

 

$

3,008

 

 

$

1,219,615

 

Net loss

 

 

 

 

 

 

 

(38,611

)

 

 

 

 

 

(38,611

)

 

 

19

 

 

 

(38,592

)

Other Comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

(14,156

)

 

 

(14,156

)

 

 

6

 

 

 

(14,150

)

Effect of adopting new accounting standards

 

 

 

 

 

 

 

8,853

 

 

 

(2,197

)

 

 

6,656

 

 

 

 

 

 

6,656

 

Dividends paid to shareholders

 

 

 

 

 

 

 

(6,027

)

 

 

 

 

 

(6,027

)

 

 

 

 

 

(6,027

)

Purchase of stock

 

(200

)

 

 

(13,055

)

 

 

 

 

 

 

 

 

(13,055

)

 

 

 

 

 

(13,055

)

Issuance of stock

 

621

 

 

 

4,804

 

 

 

 

 

 

 

 

 

4,804

 

 

 

 

 

 

4,804

 

Stock-based compensation

 

 

 

 

5,369

 

 

 

 

 

 

 

 

 

5,369

 

 

 

 

 

 

5,369

 

Balance as of July 31, 2018

 

56,938

 

 

$

681,060

 

 

$

537,015

 

 

$

(56,488

)

 

$

1,161,587

 

 

$

3,033

 

 

$

1,164,620

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Korn/Ferry

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive

 

 

International

 

 

 

 

 

 

Total

 

 

Common Stock

 

 

Retained

 

 

(Loss) Income,

 

 

Stockholders'

 

 

Noncontrolling

 

 

Stockholder's

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Net

 

 

Equity

 

 

Interest

 

 

Equity

 

 

(in thousands)

 

Balance as of April 30, 2017

 

56,938

 

 

$

692,527

 

 

$

461,976

 

 

$

(71,064

)

 

$

1,083,439

 

 

$

3,609

 

 

$

1,087,048

 

Net income

 

 

 

 

 

 

 

29,041

 

 

 

 

 

 

29,041

 

 

 

388

 

 

 

29,429

 

Other Comprehensive income

 

 

 

 

 

 

 

 

 

 

16,373

 

 

 

16,373

 

 

 

105

 

 

 

16,478

 

Dividends paid to shareholders

 

 

 

 

 

 

 

(5,823

)

 

 

 

 

 

(5,823

)

 

 

 

 

 

(5,823

)

Purchase of stock

 

(217

)

 

 

(7,372

)

 

 

 

 

 

 

 

 

(7,372

)

 

 

 

 

 

(7,372

)

Issuance of stock

 

525

 

 

 

4,586

 

 

 

 

 

 

 

 

 

4,586

 

 

 

 

 

 

4,586

 

Stock-based compensation

 

 

 

 

4,405

 

 

 

 

 

 

 

 

 

4,405

 

 

 

 

 

 

4,405

 

Balance as of July 31, 2017

 

57,246

 

 

$

694,146

 

 

$

485,194

 

 

$

(54,691

)

 

$

1,124,649

 

 

$

4,102

 

 

$

1,128,751

 

 

 

 

 

 

 

 

 

 

 

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

 

4


 

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

Three Months Ended

July 31,

 

 

 

2018

 

 

2017

 

 

 

(in thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(38,592

)

 

$

29,429

 

Adjustments to reconcile net (loss) income to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

11,731

 

 

 

12,209

 

Stock-based compensation expense

 

 

5,714

 

 

 

4,696

 

Tradename write-offs

 

 

106,555

 

 

 

 

Provision for doubtful accounts

 

 

3,707

 

 

 

3,070

 

Gain on cash surrender value of life insurance policies

 

 

(1,347

)

 

 

(2,485

)

Gain on marketable securities

 

 

(4,001

)

 

 

(3,429

)

Deferred income taxes

 

 

(22,564

)

 

 

8,562

 

Change in other assets and liabilities:

 

 

 

 

 

 

 

 

Deferred compensation

 

 

3,021

 

 

 

8,288

 

Receivables due from clients

 

 

(16,270

)

 

 

(23,413

)

Income taxes and other receivables

 

 

(7,811

)

 

 

(10,930

)

Prepaid expenses and other assets

 

 

(4,356

)

 

 

(4,780

)

Unearned compensation

 

 

(17,463

)

 

 

(29,115

)

Investment in unconsolidated subsidiaries

 

 

(29

)

 

 

(30

)

Income taxes payable

 

 

1,434

 

 

 

6,463

 

Accounts payable and accrued liabilities

 

 

(135,405

)

 

 

(109,034

)

Other

 

 

(1,816

)

 

 

926

 

         Net cash used in operating activities

 

 

(117,492

)

 

 

(109,573

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(13,163

)

 

 

(9,529

)

Purchase of marketable securities

 

 

(1,396

)

 

 

(4,600

)

Proceeds from sales/maturities of marketable securities

 

 

8,240

 

 

 

1,734

 

Premium on company-owned life insurance policies

 

 

(398

)

 

 

(403

)

Proceeds from life insurance policies

 

 

85

 

 

 

971

 

Dividends received from unconsolidated subsidiaries

 

 

 

 

 

60

 

          Net cash used in investing activities

 

 

(6,632

)

 

 

(11,767

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Principal payments on term loan facility

 

 

(5,156

)

 

 

(5,156

)

Payment of contingent consideration from acquisitions

 

 

(455

)

 

 

(485

)

Repurchases of common stock

 

 

 

 

 

(4,026

)

Payments of tax withholdings on restricted stock

 

 

(13,054

)

 

 

(3,346

)

Proceeds from issuance of common stock upon exercise of employee

   stock options and in connection with an employee stock purchase plan

 

 

4,105

 

 

 

3,984

 

Dividends paid to shareholders

 

 

(6,027

)

 

 

(5,823

)

Payments on life insurance policy loans

 

 

 

 

 

(414

)

          Net cash used in financing activities

 

 

(20,587

)

 

 

(15,266

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(10,408

)

 

 

7,743

 

Net decrease in cash and cash equivalents

 

 

(155,119

)

 

 

(128,863

)

Cash and cash equivalents at beginning of period

 

 

520,848

 

 

 

410,882

 

Cash and cash equivalents at end of the period

 

$

365,729

 

 

$

282,019

 

 

 

 

 

 

 

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

 

 

5


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

July 31, 2018

 

1. Organization and Summary of Significant Accounting Policies

Nature of Business

Korn/Ferry International, a Delaware corporation (the “Company”), and its subsidiaries are engaged in the business of providing executive searches on a retained basis, advisory solutions and products, recruitment for non-executive professionals and recruitment process outsourcing (“RPO”).  On June 12, 2018, the Company’s Board of Directors approved a plan (the “Plan”) to go to market under a single, master brand architecture and to simplify the Company’s organizational structure by eliminating and/or consolidating certain legal entities and implementing a rebranding of the Company to offer the Company’s current products and services using the “Korn Ferry” name, branding and trademarks. In connection with the Plan, the Company intends to sunset all sub-brands, including Futurestep, Hay Group and Lominger, among others. The Company is harmonizing under one brand to help accelerate the firm’s positioning as the preeminent organizational consultancy and bring more client awareness to its broad range of talent management solutions. While the rebranding will not impact the Company’s segment financial reporting, the Company renamed its Hay Group segment as “Advisory” and its Futurestep segment as “RPO & Professional Search.” The Company’s Executive Search segment remains unchanged.

Basis of Consolidation and Presentation

The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended April 30, 2018 for the Company and its wholly and majority owned/controlled domestic and international subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The preparation of the consolidated financial statements conform with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and prevailing practice within the industry. The consolidated financial statements 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. The results of operations for the interim period are not necessarily indicative of the results for the entire fiscal year.

Investments in affiliated companies, which are 50% or less owned and where the Company exercises significant influence over operations, are accounted for using the equity method.

The Company has control of a Mexico subsidiary and consolidates the operations of this subsidiary. Noncontrolling interest, which represents the Company’s 51% noncontrolling interest in the Mexico subsidiary, is reflected on the Company’s consolidated financial statements.

The Company considers events or transactions that occur after the balance sheet date but before the consolidated financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosures.

Use of Estimates and Uncertainties

The preparation of the consolidated financial statements in conformity with 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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates, and changes in estimates are reported in current operations as new information is learned or upon the amounts becoming fixed and determinable. The most significant areas that require management judgment are revenue recognition, deferred compensation, annual performance related bonuses, evaluation of the carrying value of receivables, goodwill and other intangible assets, share-based payments and the recoverability of deferred income taxes.

Revenue Recognition

Substantially all fee revenue is derived from fees for professional services related to executive and professional recruitment performed on a retained basis, recruitment process outsourcing, talent and organizational advisory services and the sale of products, stand alone or as part of a solution.

Revenue is recognized when control of the goods and services are transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods and services. Revenue contracts with customers are evaluated based on the five-step model outlined in Accounting Standard Codification 606 (“ASC 606”): 1) identify the contract with a customer; 2) identify the performance obligation(s) in the contract; 3) determine the transaction price; 4) allocate the transaction price to the separate performance obligation(s); and 5) recognize revenue when (or as) each performance obligation is satisfied.

Fee revenue from executive and non-executive professional search activities is generally one-third of the estimated first year compensation of the placed candidate plus a percentage of the fee to cover indirect engagement related expenses. In addition to the search retainer, an uptick fee is billed when the actual compensation awarded by the client for a placement is higher

6


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

July 31, 2018 (continued)

 

than the estimated compensation. In the aggregate upticks are a relatively consistent percentage of the original estimated fee therefore the Company estimates upticks using the expected value method based on historical data on a portfolio basis. In a standard search engagement, there is one performance obligation which is the promise to undertake a search. The Company generally recognizes such revenue over the course of a search and when it is legally entitled to payment as outlined in the billing terms of the contract. Any revenues associated with services that are provided on a contingent basis are recognized once the contingency is resolved as this is when control is transferred to the customer. These assumptions determine the timing of revenue recognition for the reported period.

RPO fee revenue is generated through two distinct phases 1) the implementation phase and 2) the post-implementation recruitment phase. The fees associated with the implementation phase are recognized over the period that the related implementation services are provided. The post-implementation recruitment phase represents end-to-end recruiting services to clients for which there are both fixed and variable fees, which are recognized over the period that the related recruiting services are performed.

Consulting fee revenue, primarily generated from Advisory, is recognized as services are rendered, measured by total hours incurred to the total estimated hours at completion. It is possible that updated estimates for consulting engagements may vary from initial estimates with such updates being recognized in the period of determination. Depending on the timing of billings and services rendered, the Company accrues or defers revenue as appropriate.

Product revenue is generated from a range of online tools designed to support human resource processes for pay, talent and engagement, assessments, as well as licenses to proprietary intellectual property (“IP”) and tangible/digital products. IP subscriptions grant access to proprietary compensation and job evaluation databases. IP subscriptions are considered symbolic IP due to the dynamic nature of the content and, as a result, revenue is recognized over the term of the contract. Functional IP licenses grant customers the right to use IP content via delivery of a flat file. Because the IP content license has significant standalone functionality, revenue is recognized upon delivery and when an enforceable right to payment exists. Online assessments are delivered in the form of online questionnaires. A bundle of assessments represents one performance obligation, and revenue is recognized as assessment services are delivered and the Company has a legally enforceable right to payment. Tangible/Digital products sold by the Company mainly consist of books and digital files covering a variety of topics including performance management, team effectiveness, and coaching and development. The Company recognizes revenue for its products when sold or shipped, as is the case for books.

Reimbursements

The Company incurs certain out-of-pocket expenses that are reimbursed by its clients, which are accounted for as revenue in its consolidated statements of operations.

Allowance for Doubtful Accounts

An allowance is established for doubtful accounts by taking a charge to general and administrative expenses. The amount of the allowance is based on historical loss experience, assessment of the collectability of specific accounts, as well as expectations of future collections based upon trends and the type of work for which services are rendered. After the Company exhausts all collection efforts, the amount of the allowance is reduced for balances identified as uncollectible.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. As of July 31, 2018 and April 30, 2018, the Company’s investments in cash equivalents consist of money market funds for which market prices are readily available.

Marketable Securities

The Company currently has investments in mutual funds that are classified as trading securities based upon management’s intent and ability to hold, sell or trade such securities. The classification of the investments in mutual funds is assessed upon purchase and reassessed at each reporting period. The investments in mutual funds (for which market prices are readily available) are held in trust to satisfy obligations under the Company’s deferred compensation plans. Such investments are based upon the employees’ investment elections in their deemed accounts in the Executive Capital Accumulation Plan and similar plans in Asia Pacific and Canada (“ECAP”) from a pre-determined set of securities and the Company invests in marketable securities to mirror these elections. These investments are recorded at fair value and are classified as marketable securities in the accompanying consolidated balance sheets. The investments that the Company may sell within the next twelve months are carried as current assets. Realized gains (losses) on marketable securities are determined by specific identification. Interest is recognized on an accrual basis; dividends are recorded as earned on the ex-dividend date. Interest, dividend income and the changes in fair value in trading securities are recorded in the accompanying consolidated statements of operations in other income, net.

7


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

July 31, 2018 (continued)

 

Fair Value of Financial Instruments

Fair value is the price the Company would receive to sell an asset or transfer a liability (exit price) in an orderly transaction between market participants. For those assets and liabilities recorded or disclosed at fair value, the Company determines the fair value based upon the quoted market price, if available. If a quoted market price is not available for identical assets, the fair value is based upon the quoted market price of similar assets. The fair values are assigned a level within the fair value hierarchy as defined below:

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

As of July 31, 2018 and April 30, 2018, the Company held certain assets that are required to be measured at fair value on a recurring basis. These included cash, cash equivalents, accounts receivable, marketable securities, foreign currency forward contracts and an interest rate swap. The carrying amount of cash, cash equivalents and accounts receivable approximates fair value due to the short maturity of these instruments. The fair values of marketable securities classified as trading are obtained from quoted market prices, and the fair values of foreign currency forward contracts and the interest rate swap are obtained from a third party, which are based on quoted prices or market prices for similar assets and financial instruments.

Derivative Financial Instruments

The Company is exposed to interest rate risk due to the outstanding senior secured credit agreement entered on June 15, 2016. The Company has entered into an interest rate swap agreement to effectively convert its variable debt to a fixed-rate basis. The principal objective of these contracts is to eliminate or reduce the variability of the cash flows in interest payments associated with the Company’s long-term debt, thus reducing the impact of interest rate changes on future interest payment cash flows. The Company has determined that the interest rate swap qualifies as a cash flow hedge in accordance with Accounting Standards Codification 815, Derivatives and Hedging. Changes in the fair value of an interest rate swap agreement designated as a cash flow hedge are recorded as a component of accumulated other comprehensive (loss) income within stockholders’ equity and are amortized to interest expense over the term of the related debt.

Foreign Currency Forward Contracts Not Designated as Hedges

The Company has established a program that primarily utilizes foreign currency forward contracts to offset the risks associated with the effects of certain foreign currency exposures primarily originating from intercompany balances due to cross border work performed in the ordinary course of business. These foreign currency forward contracts are neither used for trading purposes nor are they designated as hedging instruments pursuant to Accounting Standards Codification 815, Derivatives and Hedging. Accordingly, the fair value of these contracts is recorded as of the end of the reporting period in the accompanying consolidated balance sheets, while the change in fair value is recorded to the accompanying consolidated statements of operations.

Business Acquisitions

Business acquisitions are accounted for under the acquisition method. The acquisition method requires the reporting entity to identify the acquirer, determine the acquisition date, recognize and measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity, and recognize and measure goodwill or a gain from the purchase. The acquiree’s results are included in the Company’s consolidated financial statements from the date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill, or if the fair value of the assets acquired exceeds the purchase price consideration, a bargain purchase gain is recorded. Adjustments to fair value assessments are generally recorded to goodwill over the measurement period (not longer than twelve months). The acquisition method also requires that acquisition-related transaction and post-acquisition restructuring costs be charged to expense as committed and requires the Company to recognize and measure certain assets and liabilities including those arising from contingencies and contingent consideration in a business combination.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of assets acquired. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit would be considered impaired. To measure the amount of the impairment loss, the implied fair value of a reporting unit’s goodwill is compared to the carrying amount of that goodwill. The

8


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

July 31, 2018 (continued)

 

implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. For each of these tests, the fair value of each of the Company’s reporting units is determined using a combination of valuation techniques, including a discounted cash flow methodology. To corroborate the discounted cash flow analysis performed at each reporting unit, a market approach is utilized using observable market data such as comparable companies in similar lines of business that are publicly traded or which are part of a public or private transaction (to the extent available). Results of the annual impairment test performed as of January 31, 2018, indicated that the fair value of each reporting unit exceeded its carrying amount and no reporting units were at risk of failing the impairment test. As a result, no impairment charge was recognized. There was also no indication of potential impairment as of July 31, 2018 and April 30, 2018 that would have required further testing.

Intangible assets primarily consist of customer lists, non-compete agreements, proprietary databases, intellectual property and trademarks and are recorded at their estimated fair value at the date of acquisition and are amortized in a pattern in which the asset is consumed if that pattern can be reliably determined, or using the straight-line method over their estimated useful lives which range from one to 24 years. For intangible assets subject to amortization, an impairment loss is recognized if the carrying amount of the intangible assets is not recoverable and exceeds fair value. The carrying amount of the intangible assets is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from use of the asset. Intangible assets with indefinite lives are not amortized, but are reviewed annually for impairment or more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than its carrying amount. As of July 31, 2018 and April 30, 2018, there were no further indicators of impairment with respect to the Company’s intangible assets, with the exception of the intangible asset impairment charge discussed below.

On June 12, 2018, the Company’s Board of Directors voted to approve a rebranding plan with the Company going to market under a single, master brand architecture, solely as Korn Ferry and sunsetting of all the Company’s sub-brands, including Futurestep, Hay Group and Lominger, among others. This integrated go-to-market approach was a key driver in our fee revenue growth in FY’18, which led to the decision to further integrate our go-to-market activities under one master brand – Korn Ferry. As a result, the Company discontinued the use of all sub-brands. Two of the Company’s sub-brands, Hay Group and Lominger came to Korn Ferry through acquisitions. In connection with the accounting for these acquisitions, $106.6 million of the purchase price was allocated to indefinite lived tradename intangible assets. As a result of the decision to discontinue their use, the Company took a non-cash intangible asset impairment charge of $106.6 million, during the three months ended of July 31, 2018 recorded in general and administrative expenses.

Compensation and Benefits Expense

Compensation and benefits expense in the accompanying consolidated statements of operations consist of compensation and benefits paid to consultants (employees who originate business), executive officers and administrative and support personnel. The most significant portions of this expense are salaries and the amounts paid under the annual performance related bonus plan to employees. The portion of the expense applicable to salaries is comprised of amounts earned by employees during a reporting period. The portion of the expenses applicable to annual performance related bonuses refers to the Company’s annual employee performance related bonus with respect to a fiscal year, the amount of which is communicated and paid to each eligible employee following the completion of the fiscal year.

Each quarter, management makes its best estimate of its annual performance related bonuses, which requires management to, among other things, project annual consultant productivity (as measured by engagement fees billed and collected by executive search consultants and revenue and other performance/profitability metrics for Advisory and RPO and Professional Search consultants), the level of engagements referred by a consultant in one line of business to a different line of business, Company performance including profitability, competitive forces and future economic conditions and their impact on the Company’s results. At the end of each fiscal year, annual performance related bonuses take into account final individual consultant productivity (including referred work), Company/line of business results including profitability, the achievement of strategic objectives and the results of individual performance appraisals, and the current economic landscape. Accordingly, each quarter the Company reevaluates the assumptions used to estimate annual performance related bonus liability and adjusts the carrying amount of the liability recorded on the consolidated balance sheet and reports any changes in the estimate in current operations.

Because annual performance-based bonuses are communicated and paid only after the Company reports its full fiscal year results, actual performance-based bonus payments may differ from the prior year’s estimate. Such changes in the bonus estimate historically have been immaterial and are recorded in current operations in the period in which they are determined. The performance related bonus expense was $61.0 million and $41.6 million during the three months ended July 31, 2018 and 2017, respectively, included in compensation and benefits expense in the consolidated statements of operations.

Other expenses included in compensation and benefits expense are due to changes in deferred compensation and pension plan liabilities, changes in cash surrender value (“CSV”) of company owned life insurance (“COLI”) contracts, amortization of

9


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

July 31, 2018 (continued)

 

stock compensation awards, payroll taxes and employee insurance benefits. Unearned compensation on the consolidated balance sheets includes long-term retention awards that are generally amortized over four to five years.

Restructuring Charges, Net

The Company accounts for its restructuring charges as a liability when the obligations are incurred and records such charges at fair value. Such charges included one-time employee termination benefits and the cost to terminate an office lease including remaining lease payments. Changes in the estimates of the restructuring charges are recorded in the period the change is determined.

Stock-Based Compensation

The Company has employee compensation plans under which various types of stock-based instruments are granted. These instruments principally include restricted stock units, restricted stock and an Employee Stock Purchase Plan (“ESPP”). The Company recognizes compensation expense related to restricted stock units, restricted stock and the estimated fair value of stock purchases under the ESPP on a straight-line basis over the service period for the entire award.

Reclassifications

Certain reclassifications have been made to the amounts in prior periods in order to conform to the current period’s presentation.

Recently Adopted Accounting Standards

In May 2014, the FASB issued ASU 2014-09 (“ASC 606”), which superseded revenue recognition requirements regarding contracts with customers to transfer goods or services or for the transfer of nonfinancial assets. Under this guidance, entities are required to recognize revenue that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The transfer is considered to occur when the customer obtains control of the goods or services delivered. The guidance provides a five-step analysis to be performed on transactions to determine when and how revenue is recognized. The new guidance is effective for fiscal years and interim periods within those annual years beginning after December 15, 2017. The Company adopted ASC 606 in its fiscal year beginning May 1, 2018 using the modified retrospective transition method applied to those contracts still outstanding and not completed as of May 1, 2018.

The Company recognized the cumulative effect of initially applying the new guidance as an adjustment to the opening balance of retained earnings. The comparative periods have not been restated and continue to be reported under the revenue accounting standards in effect for those periods. As a result of the adoption, the Company recorded an increase to retained earnings of $6.7 million, net of tax as of May 1, 2018 due to the cumulative impact of adopting ASC 606. The change in total assets was recorded to unbilled receivables which is included in receivables due from clients; the changes in total liabilities was recorded to income taxes payable, deferred tax liabilities and deferred revenue, which is included in other accrued liabilities.

The following table summarizes the effect of changes made to our consolidated balance sheet at May 1, 2018:

 

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

April 30, 2018

 

 

due to ASC 606

 

 

May 1, 2018

 

 

 

(in thousands)

 

Total assets

 

$

2,287,914

 

 

$

3,496

 

 

$

2,291,410

 

Total liabilities

 

$

1,068,299

 

 

$

(3,160

)

 

$

1,065,139

 

Total stockholders’ equity

 

$

1,219,615

 

 

$

6,656

 

 

$

1,226,271

 

 

The adjustments primarily relate to uptick revenue (uptick revenue occurs when a placement’s actual compensation is higher than the original estimated compensation) and certain Korn Ferry products that are now considered Functional IP. Under the new standard, uptick revenue is considered variable consideration and estimated at contract inception using the expected value method and recognized over the service period. Previously, the Company recognized uptick revenue as the amount became fixed or determinable. Under the new standard, certain products are now considered Functional IP as delivery of intellectual property content fulfills the performance obligation, and revenue is recognized upon delivery and when an enforceable right to payment exists. Previously these products were considered term licenses and revenue was recognized ratably over the contract term.

In August 2016, the FASB issued guidance on the classification of certain cash receipts and cash payments in the statement of cash flows. The new guidance provides clarification on specific cash flow issues regarding presentation and classification in the statement of cash flows with the objective of reducing the existing diversity in practice. The amendments in this update are effective for reporting periods beginning after December 15, 2017 and were adopted by the Company effective May 1, 2018. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.

10


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

July 31, 2018 (continued)

 

In January 2017, the FASB issued guidance that clarifies the definition of a business. The new guidance assists a company when evaluating whether transactions should be accounted for as acquisitions (disposals) of assets or businesses. The provisions of the guidance require that if the fair value of the gross assets acquired (or disposed of) is substantially concentrated in a single identifiable asset or a group of similar identifiable assets, then it is not a business. The provisions of the guidance are to be applied prospectively. The provisions of the guidance are effective for annual years beginning after December 15, 2017 and were adopted by the Company effective May 1, 2018. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.  

In March 2017, the FASB issued guidance that changes the presentation of net periodic pension cost and net periodic postretirement benefit cost. The new guidance will change the presentation of net periodic benefit cost related to employer sponsored defined benefit plans and other postretirement benefits. Service cost will be included within the same income statement line item as other compensation costs arising from services rendered during the period, while other components of net periodic benefit pension cost will be presented separately outside of operating income. Additionally, only service costs may be capitalized in assets. This pronouncement is effective for annual reporting periods beginning after December 15, 2017 and was adopted by the Company effective May 1, 2018. The change to the consolidated statements of operations has been reflected on a retrospective basis and had no effect on net (loss) income. Prior period amounts were revised, which resulted in a decrease in compensation expense and other income of $1.2 million and $0.2 million, respectively, and an increase in interest expense of $1.0 million (see Note 6Deferred Compensation and Retirement Plans).

In May 2017, the FASB issued guidance clarifying the scope of modification accounting for stock compensation. The new standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This pronouncement is effective for annual reporting periods beginning after December 15, 2017 and was adopted by the Company effective May 1, 2018. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements. Any future impact of this guidance will be dependent on future modification including the number of awards modified

In February 2018, the FASB issued guidance that provides companies the option to reclassify stranded tax effects from accumulated other comprehensive (loss) income to retained earnings. The new guidance requires companies to disclose whether they decided to reclassify the income tax effects of the Tax Act from accumulated other comprehensive income (loss) to retained earnings. The guidance is effective for annual reporting periods beginning after December 15, 2018, but early adoption is permitted. The Company early adopted effective May 1, 2018 and elected not to reclassify prior periods but instead record it in the period of adoption. The adoption of this guidance resulted in an increase of $2.2 million to retained earnings due to the reclassification from accumulated other comprehensive (loss) income to retained earnings.

Recently Proposed Accounting Standards – Not Yet Adopted

In February 2016, the FASB issued guidance on accounting for leases that generally requires all leases to be recognized on the consolidated balance sheet. The provisions of the guidance are effective for fiscal years beginning after December 15, 2018 and early adoption is permitted. The Company plans to adopt this guidance in fiscal year beginning May 1, 2019. The provisions of the guidance are to be applied using a modified retrospective approach. On July 30, 2018, the FASB issued an amendment that allows entities to apply the provisions at the effective date without adjusting comparative periods. The Company is still evaluating the effect this guidance will have on the consolidated financial statements. Based on our initial assessment, the Company expects that upon adoption it will report an increase in assets and liabilities on our consolidated balance sheet as a result of recognizing right-of-use assets and lease liabilities related to lease agreements.

In January 2017, the FASB issued guidance simplifying the test for goodwill impairment. The new guidance simplifies the test for goodwill impairment by removing Step 2 from the goodwill impairment test. Companies will now perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value not to exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments of this standard are effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted for goodwill impairment tests performed after January 1, 2017. The Company is evaluating the adoption timeline and the effects that the standard will have on the consolidated financial statements.

In August 2017, the FASB issued guidance amending and simplifying accounting for hedging activities. The new guidance will refine and expand strategies that qualify for hedge accounting and simplify the application of hedge accounting in certain situations. The amendments of this standard are effective for fiscal years beginning after December 15, 2018. The Company will adopt this guidance in its fiscal year beginning May 1, 2019. The Company is currently evaluating the impact of adopting this guidance.

2. Basic and Diluted (Loss) Earnings Per Share

Accounting Standards Codification 260, Earnings Per Share, requires companies to treat unvested share-based payment

11


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

July 31, 2018 (continued)

 

awards that have non-forfeitable rights to dividends prior to vesting as a separate class of securities in calculating earnings per share. We have granted and expect to continue to grant to certain employees under our restricted stock agreements, grants that contain non-forfeitable rights to dividends. Such grants are considered participating securities. Therefore, we are required to apply the two-class method in calculating earnings per share. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. The dilutive effect of participating securities is calculated using the more dilutive of the treasury method or the two-class method.

Basic (loss) earnings per common share was computed using the two-class method by dividing basic net (loss) earnings attributable to common stockholders by the weighted-average number of common shares outstanding. Diluted (loss) earnings per common share was computed using the two-class method by dividing diluted net (loss) earnings attributable to common stockholders by the weighted-average number of common shares outstanding plus dilutive common equivalent shares. Dilutive common equivalent shares include all in-the-money outstanding options or other contracts to issue common stock as if they were exercised or converted. Financial instruments that are not in the form of common stock, but when converted into common stock increase earnings per share are anti-dilutive and are not included in the computation of diluted earnings per share. Because the Company is in a net loss position, diluted net loss per share excludes the effects of common stock equivalents consisting of restricted stock awards, which are all antidilutive.

During the three months ended July 31, 2018 and 2017, restricted stock awards of 1.8 million and 0.6 million were outstanding, respectively, but not included in the computation of diluted (loss) earnings per share because they were anti-dilutive.

The following table summarizes basic and diluted earnings per common share attributable to common stockholders:

 

 

Three Months Ended

July 31,

 

 

 

2018

 

 

2017

 

 

 

(in thousands, except per share data)

 

Net (loss) income attributable to Korn/Ferry International

 

$

(38,611

)

 

$

29,041

 

Less: distributed and undistributed earnings to nonvested restricted stockholders

 

 

59

 

 

 

288

 

Basic net (loss) earnings attributable to common stockholders

 

 

(38,670

)

 

 

28,753

 

Add: undistributed earnings to nonvested restricted stockholders

 

 

 

 

 

232

 

Less: reallocation of undistributed earnings to nonvested restricted stockholders

 

 

 

 

 

230

 

Diluted net (loss) earnings attributable to common stockholders

 

$

(38,670

)

 

$

28,755

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

Basic weighted-average number of common shares outstanding

 

 

55,378

 

 

 

55,795

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Restricted stock

 

 

 

 

 

588

 

Stock options

 

 

 

 

 

12

 

ESPP

 

 

 

 

 

8

 

Diluted weighted-average number of common shares outstanding

 

 

55,378

 

 

 

56,403

 

 

 

 

 

 

 

 

 

 

Net (loss) earnings per common share:

 

 

 

 

 

 

 

 

Basic (loss) earnings per share

 

$

(0.70

)

 

$

0.52

 

Diluted (loss) earnings per share

 

$

(0.70

)

 

$

0.51

 

 

3. Comprehensive (Loss) Income

Comprehensive (loss) income is comprised of net (loss) 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) and is reported in the accompanying consolidated statements of comprehensive (loss) income. Accumulated other comprehensive (loss) income, net of taxes, is recorded as a component of stockholders’ equity.

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

 

 

July 31,

2018

 

 

April 30,

2018

 

 

 

(in thousands)

 

Foreign currency translation adjustments

 

$

(46,961

)

 

$

(32,399

)

Deferred compensation and pension plan adjustments, net of tax

 

 

(11,196

)

 

 

(9,073

)

Interest rate swap unrealized gain, net of taxes

 

 

1,669

 

 

 

1,337

 

Accumulated other comprehensive loss, net

 

$

(56,488

)

 

$

(40,135

)

12


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

July 31, 2018 (continued)

 

 

The following table summarizes the changes in each component of accumulated other comprehensive (loss) income for the three months ended July 31, 2018.

 

 

 

Foreign

Currency

Translation

 

 

Deferred

Compensation

and Pension

Plan (1)

 

 

Unrealized

gains on

interest rate

swap (2)

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

 

(in thousands)

 

Balance as of April 30, 2018

 

$

(32,399

)

 

$

(9,073

)

 

$

1,337

 

 

$

(40,135

)

Unrealized (losses) gains arising during the period

 

 

(14,562

)

 

 

 

 

 

149

 

 

 

(14,413

)

Reclassification of realized net losses (gains) to net (loss) income

 

 

 

 

 

273

 

 

 

(16

)

 

 

257

 

Effect of adoption of accounting standard

 

 

 

 

 

(2,396

)

 

 

199

 

 

 

(2,197

)

Balance as of July 31, 2018

 

$

(46,961

)

 

$

(11,196

)

 

$

1,669

 

 

$

(56,488

)

 

The following table summarizes the changes in each component of accumulated other comprehensive (loss) income for the three months ended July 31, 2017:

 

 

 

Foreign

Currency

Translation

 

 

Deferred

Compensation

and Pension

Plan (1)

 

 

Unrealized

(losses) on

interest rate

swap (2)

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

 

(in thousands)

 

Balance as of April 30, 2017

 

$

(55,359

)

 

$

(15,127

)