kfy-10q_20181031.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 October 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 every Interactive Data File required to be submitted 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 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  

 

 

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 December 3, 2018 was 56,675,056 shares.

 

 

 


KORN/FERRY INTERNATIONAL  

Table of Contents

Item #

 

Description

 

Page

 

 

 

 

 

 

 

Part I. Financial Information

 

 

 

 

 

 

 

Item 1.

 

Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

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

 

1

 

 

 

 

 

 

 

Consolidated Statements of Income (unaudited) for the three and six months ended October 31, 2018 and 2017

 

2

 

 

 

 

 

 

 

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

 

 

3

 

 

Consolidated Statements of Stockholders’ Equity (unaudited) for six months ended October 31, 2018 and 2017

 

4

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the six months ended October 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

 

25

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

42

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

43

 

 

 

 

 

 

 

Part II. Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

44

 

 

 

 

 

Item 1A.

 

Risk Factors

 

44

 

 

 

 

 

Item 2.

 

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

 

44

 

 

 

 

 

Item 6.

 

Exhibits

 

45

 

 

 

 

 

 

 

Signatures

 

46

 

 

 

 

 

 

 


 

Item 1. Consolidated Financial Statements

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

October 31,

2018

 

 

April 30,

2018

 

 

 

(unaudited)

 

 

 

 

 

 

 

(in thousands, except per share data)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

387,679

 

 

$

520,848

 

Marketable securities

 

 

6,686

 

 

 

14,293

 

Receivables due from clients, net of allowance for doubtful accounts of $20,197 and $17,845 at October 31, 2018 and April 30, 2018, respectively

 

 

433,557

 

 

 

384,996

 

Income taxes and other receivables

 

 

29,009

 

 

 

29,089

 

Unearned compensation

 

 

41,804

 

 

 

37,333

 

Prepaid expenses and other assets

 

 

32,953

 

 

 

27,700

 

Total current assets

 

 

931,688

 

 

 

1,014,259

 

 

 

 

 

 

 

 

 

 

Marketable securities, non-current

 

 

128,913

 

 

 

122,792

 

Property and equipment, net

 

 

126,242

 

 

 

119,901

 

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

 

 

123,205

 

 

 

120,087

 

Deferred income taxes

 

 

37,776

 

 

 

25,520

 

Goodwill

 

 

579,863

 

 

 

584,222

 

Intangible assets, net

 

 

89,662

 

 

 

203,216

 

Unearned compensation, non-current

 

 

94,927

 

 

 

78,295

 

Investments and other assets

 

 

22,191

 

 

 

19,622

 

Total assets

 

$

2,134,467

 

 

$

2,287,914

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

$

34,764

 

 

$

35,196

 

Income taxes payable

 

 

19,453

 

 

 

23,034

 

Compensation and benefits payable

 

 

231,688

 

 

 

304,980

 

Term loan

 

 

26,629

 

 

 

24,911

 

Other accrued liabilities

 

 

153,088

 

 

 

170,339

 

Total current liabilities

 

 

465,622

 

 

 

558,460

 

 

 

 

 

 

 

 

 

 

Deferred compensation and other retirement plans

 

 

234,098

 

 

 

227,729

 

Term loan, non-current

 

 

197,997

 

 

 

211,311

 

Deferred tax liabilities

 

 

1,751

 

 

 

9,105

 

Other liabilities

 

 

58,402

 

 

 

61,694

 

Total liabilities

 

 

957,870

 

 

 

1,068,299

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock: $0.01 par value, 150,000 shares authorized, 72,202 and 71,631 shares issued at October 31, 2018 and April 30, 2018, respectively, and 56,511 and 56,517 shares outstanding at October 31, 2018 and April 30, 2018, respectively

 

 

664,486

 

 

 

683,942

 

Retained earnings

 

 

577,333

 

 

 

572,800

 

Accumulated other comprehensive loss, net

 

 

(68,581

)

 

 

(40,135

)

Total Korn/Ferry International stockholders' equity

 

 

1,173,238

 

 

 

1,216,607

 

Noncontrolling interest

 

 

3,359

 

 

 

3,008

 

Total stockholders' equity

 

 

1,176,597

 

 

 

1,219,615

 

Total liabilities and stockholders' equity

 

$

2,134,467

 

 

$

2,287,914

 

 

 

 

 

 

 

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

1


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

 

 

 

Three Months Ended

October 31,

 

 

Six Months Ended

October 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(in thousands, except per share data)

 

Fee revenue

 

$

495,205

 

 

$

443,018

 

 

$

960,773

 

 

$

844,272

 

Reimbursed out-of-pocket engagement expenses

 

 

11,588

 

 

 

12,450

 

 

 

24,382

 

 

 

26,113

 

          Total revenue

 

 

506,793

 

 

 

455,468

 

 

 

985,155

 

 

 

870,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

335,835

 

 

 

299,819

 

 

 

657,740

 

 

 

572,575

 

General and administrative expenses

 

 

57,738

 

 

 

58,603

 

 

 

226,462

 

 

 

116,864

 

Reimbursed expenses

 

 

11,588

 

 

 

12,450

 

 

 

24,382

 

 

 

26,113

 

Cost of services

 

 

19,627

 

 

 

19,883

 

 

 

37,954

 

 

 

35,696

 

Depreciation and amortization

 

 

11,018

 

 

 

12,447

 

 

 

22,749

 

 

 

24,656

 

Restructuring (recoveries) charges, net

 

 

 

 

 

(202

)

 

 

 

 

 

78

 

          Total operating expenses

 

 

435,806

 

 

 

403,000

 

 

 

969,287

 

 

 

775,982

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

70,987

 

 

 

52,468

 

 

 

15,868

 

 

 

94,403

 

Other (loss) income, net

 

 

(4,600

)

 

 

3,447

 

 

 

(109

)

 

 

6,801

 

Interest expense, net

 

 

(4,337

)

 

 

(3,624

)

 

 

(8,440

)

 

 

(7,304

)

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

 

 

62,050

 

 

 

52,291

 

 

 

7,319

 

 

 

93,900

 

Equity in earnings of unconsolidated subsidiaries

 

 

100

 

 

 

60

 

 

 

129

 

 

 

90

 

Income tax provision (benefit)

 

 

14,833

 

 

 

15,619

 

 

 

(1,277

)

 

 

27,829

 

Net income

 

 

47,317

 

 

 

36,732

 

 

 

8,725

 

 

 

66,161

 

          Net income attributable to noncontrolling interest

 

 

(1,283

)

 

 

(401

)

 

 

(1,302

)

 

 

(789

)

Net income attributable to Korn/Ferry International

 

$

46,034

 

 

$

36,331

 

 

$

7,423

 

 

$

65,372

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share attributable to Korn/Ferry International:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Basic

 

$

0.82

 

 

$

0.65

 

 

$

0.13

 

 

$

1.16

 

     Diluted

 

$

0.81

 

 

$

0.64

 

 

$

0.13

 

 

$

1.15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Basic

 

 

55,461

 

 

 

55,390

 

 

 

55,420

 

 

 

55,592

 

     Diluted

 

 

56,239

 

 

 

55,978

 

 

 

56,306

 

 

 

56,252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share:

 

$

0.10

 

 

$

0.10

 

 

$

0.20

 

 

$

0.20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

2


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

 

 

 

Three Months Ended

October 31,

 

 

Six Months Ended

October 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(in thousands)

 

Net income

 

$

47,317

 

 

$

36,732

 

 

$

8,725

 

 

$

66,161

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(12,778

)

 

 

(4,255

)

 

 

(27,334

)

 

 

11,934

 

Deferred compensation and pension plan adjustments, net of tax

 

 

273

 

 

 

352

 

 

 

546

 

 

 

704

 

Net unrealized gain on interest rate swap, net of tax

 

 

145

 

 

 

456

 

 

 

278

 

 

 

393

 

Comprehensive income (loss)

 

 

34,957

 

 

 

33,285

 

 

 

(17,785

)

 

 

79,192

 

Less: comprehensive income attributable to noncontrolling interest

 

 

(1,016

)

 

 

(165

)

 

 

(1,041

)

 

 

(658

)

Comprehensive income (loss) attributable to Korn/Ferry International

 

$

33,941

 

 

$

33,120

 

 

$

(18,826

)

 

$

78,534

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

)

 

 

(13,054

)

 

 

 

 

 

 

 

 

(13,054

)

 

 

 

 

 

(13,054

)

Issuance of stock

 

621

 

 

 

4,803

 

 

 

 

 

 

 

 

 

4,803

 

 

 

 

 

 

4,803

 

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

 

Net income

 

 

 

 

 

 

 

46,034

 

 

 

 

 

 

46,034

 

 

 

1,283

 

 

 

47,317

 

Other Comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

(12,093

)

 

 

(12,093

)

 

 

(267

)

 

 

(12,360

)

Dividends paid to shareholders

 

 

 

 

 

 

 

(5,716

)

 

 

 

 

 

(5,716

)

 

 

 

 

 

(5,716

)

Dividends paid to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(690

)

 

 

(690

)

Purchase of stock

 

(459

)

 

 

(22,875

)

 

 

 

 

 

 

 

 

(22,875

)

 

 

 

 

 

(22,875

)

Issuance of stock

 

32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

6,301

 

 

 

 

 

 

 

 

 

6,301

 

 

 

 

 

 

6,301

 

Balance as of October 31, 2018

 

56,511

 

 

$

664,486

 

 

$

577,333

 

 

$

(68,581

)

 

$

1,173,238

 

 

$

3,359

 

 

$

1,176,597

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Net income

 

 

 

 

 

 

 

36,331

 

 

 

 

 

 

36,331

 

 

 

401

 

 

 

36,732

 

Other Comprehensive loss

 

 

 

 

 

 

 

 

 

 

(3,211

)

 

 

(3,211

)

 

 

(236

)

 

 

(3,447

)

Dividends paid to shareholders

 

 

 

 

 

 

 

(5,714

)

 

 

 

 

 

(5,714

)

 

 

 

 

 

(5,714

)

Dividends paid to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,558

)

 

 

(1,558

)

Purchase of stock

 

(777

)

 

 

(25,350

)

 

 

 

 

 

 

 

 

(25,350

)

 

 

 

 

 

(25,350

)

Issuance of stock

 

42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

5,309

 

 

 

 

 

 

 

 

 

5,309

 

 

 

 

 

 

5,309

 

Balance as of October 31, 2017

 

56,511

 

 

$

674,105

 

 

$

515,811

 

 

$

(57,902

)

 

$

1,132,014

 

 

$

2,709

 

 

$

1,134,723

 

 

 

 

 

 

 

 

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

 

4


 

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

Six Months Ended

October 31,

 

 

 

2018

 

 

2017

 

 

 

(in thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

8,725

 

 

$

66,161

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

22,749

 

 

 

24,656

 

Stock-based compensation expense

 

 

12,369

 

 

 

10,283

 

Tradename write-offs

 

 

106,555

 

 

 

 

Provision for doubtful accounts

 

 

7,471

 

 

 

6,960

 

Gain on cash surrender value of life insurance policies

 

 

(3,003

)

 

 

(4,227

)

Loss (gain) on marketable securities

 

 

836

 

 

 

(6,797

)

Deferred income taxes

 

 

(19,838

)

 

 

7,802

 

Change in other assets and liabilities:

 

 

 

 

 

 

 

 

Deferred compensation

 

 

(1,646

)

 

 

12,560

 

Receivables due from clients

 

 

(52,536

)

 

 

(59,020

)

Income taxes and other receivables

 

 

345

 

 

 

(7,207

)

Prepaid expenses and other assets

 

 

(5,326

)

 

 

(2,129

)

Unearned compensation

 

 

(21,103

)

 

 

(45,589

)

Investment in unconsolidated subsidiaries

 

 

(129

)

 

 

(90

)

Income taxes payable

 

 

(5,898

)

 

 

9,459

 

Accounts payable and accrued liabilities

 

 

(76,544

)

 

 

(66,089

)

Other

 

 

(5,216

)

 

 

(2,893

)

         Net cash used in operating activities

 

 

(32,189

)