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2020-03-10 0000056679 us-gaap:DividendDeclaredMember us-gaap:SubsequentEventMember 2020-03-10

 

 

 

 

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 January 31, 2020

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

 

(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)

(310552-1834

(Registrant’s telephone number, including area code)

 

Securities Registered Pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share

KFY

New York Stock Exchange

 

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 March 5, 2020 was 55,044,489 shares.

 

 


KORN FERRY

Table of Contents

Item #

 

Description

 

Page

 

 

 

 

 

 

 

Part I. Financial Information

 

 

 

 

 

 

 

Item 1.

 

Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets as of January 31, 2020 (unaudited) and April 30, 2019

 

1

 

 

 

 

 

 

 

Consolidated Statements of Income (unaudited) for the three and nine months ended January 31, 2020 and 2019

 

2

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended January 31, 2020 and 2019

 

3

 

 

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity (unaudited) for three and nine months ended January 31, 2020 and 2019

 

4

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the nine months ended January 31, 2020 and 2019

 

6

 

 

 

 

 

 

 

Notes to Consolidated Unaudited Financial Statements

 

7

 

 

 

 

 

Item 2.

 

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

 

30

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

49

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

50

 

 

 

 

 

 

 

Part II. Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

51

 

 

 

 

 

Item 1A.

 

Risk Factors

 

51

 

 

 

 

 

Item 2.

 

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

 

54

 

 

 

 

 

Item 6.

 

Exhibits

 

55

 

 

 

 

 

 

 

Signatures

 

56

 

 

 

 

 

 

 


 

Item 1. Consolidated Financial Statements

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

January 31,

2020

 

 

April 30,

2019

 

 

 

(unaudited)

 

 

 

 

 

 

 

(in thousands, except per share data)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

563,708

 

 

$

626,360

 

Marketable securities

 

 

41,022

 

 

 

8,288

 

Receivables due from clients, net of allowance for doubtful accounts of $25,168 and $21,582 at January 31, 2020 and April 30, 2019, respectively

 

 

472,261

 

 

 

404,857

 

Income taxes and other receivables

 

 

38,656

 

 

 

26,767

 

Unearned compensation

 

 

46,386

 

 

 

42,003

 

Prepaid expenses and other assets

 

 

35,094

 

 

 

28,535

 

Total current assets

 

 

1,197,127

 

 

 

1,136,810

 

 

 

 

 

 

 

 

 

 

Marketable securities, non-current

 

 

143,789

 

 

 

132,463

 

Property and equipment, net

 

 

143,230

 

 

 

131,505

 

Operating lease right-of-use assets, net

 

 

209,236

 

 

 

 

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

 

 

145,305

 

 

 

126,000

 

Deferred income taxes

 

 

44,928

 

 

 

43,220

 

Goodwill

 

 

615,513

 

 

 

578,298

 

Intangible assets, net

 

 

116,882

 

 

 

82,948

 

Unearned compensation, non-current

 

 

93,934

 

 

 

80,924

 

Investments and other assets

 

 

29,705

 

 

 

22,684

 

Total assets

 

$

2,739,649

 

 

$

2,334,852

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

$

36,044

 

 

$

39,156

 

Income taxes payable

 

 

17,128

 

 

 

21,145

 

Compensation and benefits payable

 

 

258,789

 

 

 

328,610

 

Operating lease liability, current

 

 

53,592

 

 

 

 

Other accrued liabilities

 

 

194,838

 

 

 

162,047

 

Total current liabilities

 

 

560,391

 

 

 

550,958

 

 

 

 

 

 

 

 

 

 

Deferred compensation and other retirement plans

 

 

283,293

 

 

 

257,635

 

Operating lease liability, non-current

 

 

194,209

 

 

 

 

Long-term debt

 

 

393,986

 

 

 

222,878

 

Deferred tax liabilities

 

 

837

 

 

 

1,103

 

Other liabilities

 

 

29,280

 

 

 

58,891

 

Total liabilities

 

 

1,461,996

 

 

 

1,091,465

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock: $0.01 par value, 150,000 shares authorized, 73,210 and 72,442 shares issued and 55,258 and 56,431 shares outstanding at January 31, 2020 and April 30, 2019, respectively

 

 

604,609

 

 

 

656,463

 

Retained earnings

 

 

749,301

 

 

 

660,845

 

Accumulated other comprehensive loss, net

 

 

(78,810

)

 

 

(76,652

)

Total Korn Ferry stockholders' equity

 

 

1,275,100

 

 

 

1,240,656

 

Noncontrolling interest

 

 

2,553

 

 

 

2,731

 

Total stockholders' equity

 

 

1,277,653

 

 

 

1,243,387

 

Total liabilities and stockholders' equity

 

$

2,739,649

 

 

$

2,334,852

 

 

 

 

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

1


KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

 

 

 

Three Months Ended

January 31,

 

 

Nine Months Ended

January 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(in thousands, except per share data)

 

Fee revenue

 

$

515,325

 

 

$

474,504

 

 

$

1,492,263

 

 

$

1,435,277

 

Reimbursed out-of-pocket engagement expenses

 

 

12,654

 

 

 

11,668

 

 

 

36,091

 

 

 

36,050

 

          Total revenue

 

 

527,979

 

 

 

486,172

 

 

 

1,528,354

 

 

 

1,471,327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

348,597

 

 

 

321,835

 

 

 

1,014,475

 

 

 

979,575

 

General and administrative expenses

 

 

71,355

 

 

 

61,179

 

 

 

199,171

 

 

 

287,641

 

Reimbursed expenses

 

 

12,654

 

 

 

11,668

 

 

 

36,091

 

 

 

36,050

 

Cost of services

 

 

30,822

 

 

 

17,066

 

 

 

66,371

 

 

 

55,020

 

Depreciation and amortization

 

 

14,863

 

 

 

11,741

 

 

 

40,355

 

 

 

34,490

 

Restructuring charges, net

 

 

18,093

 

 

 

 

 

 

18,093

 

 

 

 

          Total operating expenses

 

 

496,384

 

 

 

423,489

 

 

 

1,374,556

 

 

 

1,392,776

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

31,595

 

 

 

62,683

 

 

 

153,798

 

 

 

78,551

 

Other income, net

 

 

5,055

 

 

 

2,463

 

 

 

8,014

 

 

 

2,483

 

Interest expense, net

 

 

(6,919

)

 

 

(4,282

)

 

 

(15,186

)

 

 

(12,722

)

        Income before provision for income taxes

 

 

29,731

 

 

 

60,864

 

 

 

146,626

 

 

 

68,312

 

Income tax provision

 

 

8,775

 

 

 

15,420

 

 

 

38,988

 

 

 

14,143

 

Net income

 

 

20,956

 

 

 

45,444

 

 

 

107,638

 

 

 

54,169

 

          Net income attributable to noncontrolling interest

 

 

(963

)

 

 

(480

)

 

 

(1,890

)

 

 

(1,782

)

Net income attributable to Korn Ferry

 

$

19,993

 

 

$

44,964

 

 

$

105,748

 

 

$

52,387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share attributable to Korn Ferry:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Basic

 

$

0.37

 

 

$

0.81

 

 

$

1.92

 

 

$

0.94

 

     Diluted

 

$

0.36

 

 

$

0.80

 

 

$

1.90

 

 

$

0.92

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Basic

 

 

53,999

 

 

 

55,233

 

 

 

54,611

 

 

 

55,358

 

     Diluted

 

 

54,264

 

 

 

55,753

 

 

 

55,006

 

 

 

56,181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share:

 

$

0.10

 

 

$

0.10

 

 

$

0.30

 

 

$

0.30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

2


KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 

 

 

Three Months Ended

January 31,

 

 

Nine Months Ended

January 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

Net income

 

$

20,956

 

 

$

45,444

 

 

$

107,638

 

 

$

54,169

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

497

 

 

 

6,089

 

 

 

(3,588

)

 

 

(21,245

)

Deferred compensation and pension plan adjustments, net of tax

 

 

943

 

 

 

273

 

 

 

1,933

 

 

 

819

 

Net unrealized loss on marketable securities, net of tax

 

 

(5

)

 

 

 

 

 

(5

)

 

 

 

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

 

 

495

 

 

 

(980

)

 

 

(456

)

 

 

(702

)

Comprehensive income

 

 

22,886

 

 

 

50,826

 

 

 

105,522

 

 

 

33,041

 

Less: comprehensive income attributable to noncontrolling interest

 

 

(1,057

)

 

 

(552

)

 

 

(1,932

)

 

 

(1,593

)

Comprehensive income attributable to Korn Ferry

 

$

21,829

 

 

$

50,274

 

 

$

103,590

 

 

$

31,448

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

3


 

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

Other

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive

 

 

Korn Ferry

 

 

 

 

 

 

Total

 

 

Common Stock

 

 

Retained

 

 

(Loss) Income,

 

 

Stockholders'

 

 

Noncontrolling

 

 

Stockholder's

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Net

 

 

Equity

 

 

Interest

 

 

Equity

 

 

(in thousands)

 

Balance as of April 30, 2019

 

56,431

 

 

$

656,463

 

 

$

660,845

 

 

$

(76,652

)

 

$

1,240,656

 

 

$

2,731

 

 

$

1,243,387

 

Net income

 

 

 

 

 

 

 

42,951

 

 

 

 

 

 

42,951

 

 

 

699

 

 

 

43,650

 

Other comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

(5,462

)

 

 

(5,462

)

 

 

64

 

 

 

(5,398

)

Dividends paid to shareholders

 

 

 

 

 

 

 

(6,081

)

 

 

 

 

 

(6,081

)

 

 

 

 

 

(6,081

)

Purchase of stock

 

(546

)

 

 

(21,329

)

 

 

 

 

 

 

 

 

(21,329

)

 

 

 

 

 

(21,329

)

Issuance of stock

 

711

 

 

 

5,074

 

 

 

 

 

 

 

 

 

5,074

 

 

 

 

 

 

5,074

 

Stock-based compensation

 

 

 

 

5,091

 

 

 

 

 

 

 

 

 

5,091

 

 

 

 

 

 

5,091

 

Balance as of July 31, 2019

 

56,596

 

 

 

645,299

 

 

 

697,715

 

 

 

(82,114

)

 

 

1,260,900

 

 

 

3,494

 

 

 

1,264,394

 

Net income

 

 

 

 

 

 

 

42,804

 

 

 

 

 

 

42,804

 

 

 

228

 

 

 

43,032

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

1,468

 

 

 

1,468

 

 

 

(116

)

 

 

1,352

 

Dividends paid to shareholders

 

 

 

 

 

 

 

(5,628

)

 

 

 

 

 

(5,628

)

 

 

 

 

 

(5,628

)

Dividends paid to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,046

)

 

 

(1,046

)

Purchase of stock

 

(1,313

)

 

 

(49,325

)

 

 

 

 

 

 

 

 

(49,325

)

 

 

 

 

 

(49,325

)

Issuance of stock

 

32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

5,712

 

 

 

 

 

 

 

 

 

5,712

 

 

 

 

 

 

5,712

 

Balance as of October 31, 2019

 

55,315

 

 

 

601,686

 

 

 

734,891