10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on March 11, 2020
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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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
(Exact Name of Registrant as Specified in its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(
(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 |
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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.
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).
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 ☑ |
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Accelerated filer ☐ |
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Non-accelerated filer ☐ |
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Smaller reporting company |
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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
The number of shares outstanding of our common stock as of March 5, 2020 was
KORN FERRY
Table of Contents
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Description |
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Part I. Financial Information |
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Item 1. |
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Consolidated Balance Sheets as of January 31, 2020 (unaudited) and April 30, 2019 |
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1 |
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2 |
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3 |
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4 |
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6 |
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7 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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30 |
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Item 3. |
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49 |
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Item 4. |
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50 |
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Part II. Other Information |
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Item 1. |
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51 |
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Item 1A. |
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51 |
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Item 2. |
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Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
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54 |
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Item 6. |
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55 |
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56 |
Item 1. Consolidated Financial Statements
KORN FERRY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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January 31, 2020 |
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April 30, 2019 |
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(unaudited) |
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(in thousands, except per share data) |
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ASSETS |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities |
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Receivables due from clients, net of allowance for doubtful accounts of $ |
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Income taxes and other receivables |
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Unearned compensation |
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Prepaid expenses and other assets |
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Total current assets |
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Marketable securities, non-current |
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Property and equipment, net |
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Operating lease right-of-use assets, net |
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— |
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Cash surrender value of company-owned life insurance policies, net of loans |
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Deferred income taxes |
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Goodwill |
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Intangible assets, net |
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Unearned compensation, non-current |
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Investments and other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Accounts payable |
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$ |
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$ |
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Income taxes payable |
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Compensation and benefits payable |
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Operating lease liability, current |
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— |
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Other accrued liabilities |
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Total current liabilities |
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Deferred compensation and other retirement plans |
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Operating lease liability, non-current |
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— |
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Long-term debt |
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Deferred tax liabilities |
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Other liabilities |
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Total liabilities |
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Stockholders' equity |
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Common stock: $ |
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Retained earnings |
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Accumulated other comprehensive loss, net |
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( |
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Total Korn Ferry stockholders' equity |
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Noncontrolling interest |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
1
KORN FERRY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
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Three Months Ended January 31, |
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Nine Months Ended January 31, |
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2020 |
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2019 |
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2020 |
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2019 |
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(in thousands, except per share data) |
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Fee revenue |
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$ |
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$ |
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$ |
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$ |
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Reimbursed out-of-pocket engagement expenses |
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Total revenue |
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Compensation and benefits |
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General and administrative expenses |
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Reimbursed expenses |
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Cost of services |
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Depreciation and amortization |
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Restructuring charges, net |
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— |
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— |
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Total operating expenses |
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Operating income |
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Other income, net |
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Interest expense, net |
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( |
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( |
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( |
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Income before provision for income taxes |
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Income tax provision |
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Net income |
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Net income attributable to noncontrolling interest |
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( |
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( |
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( |
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Net income attributable to Korn Ferry |
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$ |
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$ |
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$ |
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$ |
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Earnings per common share attributable to Korn Ferry: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted-average common shares outstanding: |
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Basic |
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Diluted |
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Cash dividends declared per share: |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
2
KORN FERRY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
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Three Months Ended January 31, |
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Nine Months Ended January 31, |
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2020 |
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2019 |
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2020 |
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2019 |
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(in thousands) |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive income (loss): |
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Foreign currency translation adjustments |
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( |
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Deferred compensation and pension plan adjustments, net of tax |
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Net unrealized loss on marketable securities, net of tax |
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( |
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— |
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( |
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— |
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Net unrealized gain (loss) on interest rate swap, net of tax |
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( |
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( |
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( |
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Comprehensive income |
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Less: comprehensive income attributable to noncontrolling interest |
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( |
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( |
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( |
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( |
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Comprehensive income attributable to Korn Ferry |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
3
KORN FERRY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
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Accumulated Other |
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Total |
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Comprehensive |
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Korn Ferry |
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Total |
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Common Stock |
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Retained |
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(Loss) Income, |
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Stockholders' |
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Noncontrolling |
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Stockholder's |
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Shares |
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Amount |
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Earnings |
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Net |
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Equity |
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Interest |
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Equity |
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(in thousands) |
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Balance as of April 30, 2019 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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Other comprehensive (loss) income |
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— |
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— |
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— |
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( |
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( |
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( |
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Dividends paid to shareholders |
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— |
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— |
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( |
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— |
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( |
) |
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— |
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( |
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Purchase of stock |
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( |
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( |
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— |
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— |
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( |
) |
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— |
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( |
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Issuance of stock |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Balance as of July 31, 2019 |
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( |
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Net income |
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— |
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— |
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— |
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Other comprehensive income (loss) |
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— |
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— |
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— |
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( |
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Dividends paid to shareholders |
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— |
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— |
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( |
) |
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— |
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( |
) |
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— |
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( |
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Dividends paid to noncontrolling interest |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Purchase of stock |
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( |
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( |
) |
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— |
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— |
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( |
) |
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— |
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( |
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Issuance of stock |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Balance as of October 31, 2019 |
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( |
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Net income |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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Dividends paid to shareholders |
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— |
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— |
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( |
) |
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— |
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( |
) |
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— |
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( |
) |
Dividends paid to noncontrolling interest |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Purchase of stock |
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( |
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( |
) |
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— |
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— |
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( |
) |
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— |
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( |
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Issuance of stock |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Balance as of January 31, 2020 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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|
|
$ |
|
|
4
KORN FERRY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
(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, 2018 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net loss |
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Other comprehensive (loss) income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Effect of adopting new accounting standards |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
|
|
Dividends paid to shareholders |
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Purchase of stock |
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Issuance of stock |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Stock-based compensation |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Balance as of July 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Dividends paid to shareholders |
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Dividends paid to noncontrolling interest |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Purchase of stock |
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Issuance of stock |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Balance as of October 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to shareholders |
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Dividends paid to noncontrolling interest |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Purchase of stock |
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Issuance of stock |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Stock-based compensation |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Balance as of January 31, 2019 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
KORN FERRY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Nine Months Ended January 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
|
|
(in thousands) |
|
|||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
Tradename write-offs |
|
|
— |
|
|
|
|
|
Write-off of long-lived assets |
|
|
|
|
|
|
— |
|
Provision for doubtful accounts |
|
|
|
|
|
|
|
|
Gain on cash surrender value of life insurance policies |
|
|
( |
) |
|
|
( |
) |
Gain on marketable securities |
|
|
( |
) |
|
|
( |
) |
Deferred income taxes |
|
|
( |
) |
|
|
( |
) |
Change in other assets and liabilities: |
|
|
|
|
|
|
|
|
Deferred compensation |
|
|
|
|
|
|
|
|
Receivables due from clients |
|
|
( |
) |
|
|
( |
) |
Income taxes and other receivables |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses and other assets |
|
|
( |
) |
|
|
( |
) |
Unearned compensation |
|
|
( |
) |
|
|
( |
) |
Income taxes payable |
|
|
( |
) |
|
|
( |
) |
Accounts payable and accrued liabilities |
|
|
( |
) |
|
|
( |
) |
Other |
|
|
( |
) |
|
|
( |
) |
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
( |
) |
|
|
( |
) |
Purchase of marketable securities |
|
|
( |
) |
|
|
( |
) |
Proceeds from sales/maturities of marketable securities |
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired |
|
|
( |
) |
|
|
— |
|
Premium on company-owned life insurance policies |
|
|
( |
) |
|
|
( |
) |
Proceeds from life insurance policies |
|
|
|
|
|
|
|
|
Dividends received from unconsolidated subsidiaries |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from long term debt |
|
|
|
|
|
|
|
|
Principal payments on long term debt |
|
|
( |
) |
|
|
( |
) |
Payment of debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Repurchases of common stock |
|
|
( |
) |
|
|
( |
) |
Payments of tax withholdings on restricted stock |
|
|
( |
) |
|
|
( |
) |
Proceeds from issuance of common stock upon exercise of employee stock options and in connection with an employee stock purchase plan |
|
|
|
|
|
|
|
|
Borrowings under life insurance policies |
|
|
— |
|
|
|
|
|
Payments on life insurance policy loans |
|
|
( |
) |
|
|
( |
) |
Principal payments on finance leases |
|
|
( |
) |
|
|
— |
|
Dividends paid to shareholders |
|
|
( |
) |
|
|
( |
) |
Dividends - noncontrolling interest |
|
|
( |
) |
|
|
( |
) |
Payment of contingent consideration from acquisitions |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) financing activities |
|
|
|
|
|
|
( |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
Net decrease in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these consolidated financial statements.
6
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 |
1. Organization and Summary of Significant Accounting Policies
Nature of Business
Korn Ferry, a Delaware corporation (the “Company”), and its subsidiaries is a global organizational consulting firm. The Company helps clients synchronize strategy and talent to drive superior performance. The Company works with organizations to design their structures, roles, and responsibilities. The Company helps organizations hire the right people to bring their strategy to life and advise them on how to reward, develop, and motivate their people.
The Company is pursuing a strategy that will help Korn Ferry to focus on clients and collaborate intensively across the organization. This approach builds on the best of our past and gives the Company a clear path to the future with focused initiatives to increase our client and commercial impact. Korn Ferry is transforming how clients address their talent management needs. The Company has evolved from a mono-line to a diversified business, giving our consultants more frequent and expanded opportunities to engage with clients.
The Company operates through
1. |
Consulting helps clients synchronize their strategy and their talent by addressing four fundamental needs: Organizational Strategy, Assessment and Succession, Leadership Development, and Rewards and Benefits. This is supported and underpinned by a comprehensive range of some of the world’s leading intellectual property (“lP”) and data. |
2. |
Digital is an integrated platform that gives clients direct access to people and organizational data, insights, analytics and digital assets. It is comprised of individual products that when used together, give clients a common language for all talent matters. |
3. |
Executive Search helps organizations recruit board level, chief executive and other senior executive and general management talent. Behavioral interviewing and proprietary assessments are used to determine ideal organizational fit, and salary benchmarking builds appropriate frameworks for compensation and retention. |
4. |
RPO and Professional Search combines people, process expertise and IP-enabled technology to deliver enterprise talent acquisition solutions to clients. Transaction sizes range from single professional searches to team, department and line of business projects, and global outsource recruiting solutions. |
The combination of Consulting and Digital were formerly referred to as Korn Ferry Advisory (“Advisory”).
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, 2019 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
The Company has control of a Mexican subsidiary and consolidates the operations of this subsidiary. Noncontrolling interest, which represents the Mexican partners’
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.
7
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
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 or determinable. The most significant areas that require management’s 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, leases, and the recoverability of deferred income taxes.
Revenue Recognition
Substantially all fee revenue is derived from talent and organizational consulting services and the digital sales, fees for professional services related to executive and professional recruitment performed on a retained basis and RPO, either 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.
Consulting fee revenue is primarily 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.
Digital revenue is generated from IP platforms enabling large-scale, technology-based talent programs for pay, talent development, engagement, and assessment and is consumed directly by an end user or indirectly through a consulting engagement. Revenue is recognized as services are delivered and the Company has a legally enforceable right to payment. Revenue also comes from the sale of our proprietary IP subscriptions, which are considered symbolic IP due to the dynamic nature of the content. As a result, revenue is recognized over the term of the contract. Functional IP licenses grant customers the right to use IP content via the delivery of a flat file. Because the IP content license has significant stand-alone functionality, revenue is recognized upon delivery and when an enforceable right to payment exists. Revenue for tangible and digital products sold by the Company, such as books and digital files, is recognized when these products are sold or shipped.
Fee revenue from executive and professional search activities is generally one-third of the estimated first-year cash 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 than the estimated compensation. In the aggregate, upticks have been 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.
Reimbursements
The Company incurs certain out-of-pocket expenses that are reimbursed by its clients, which are accounted for as revenue in the consolidated statements of income.
8
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
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 and 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 from the date of purchase to be cash equivalents. As of January 31, 2020, the Company’s investments in cash equivalents consisted of money market funds, commercial papers and corporate notes/bonds with maturity of less than 90 days for which market prices are readily available. As of April 30, 2019, cash equivalents consisted of money market funds.
Marketable Securities
The Company currently has investments in marketable securities and mutual funds that are classified as either trading securities or available-for-sale, based upon management’s intent and ability to hold, sell or trade such securities. The classification of the investments in these marketable securities and mutual funds is assessed upon purchase and reassessed at each reporting period. 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.
The Company invests in mutual funds (for which market prices are readily available) that are held in trust to satisfy obligations under the Company’s deferred compensation plans. Such investments are classified as trading securities 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. 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 marketable securities are recorded in the accompanying consolidated statements of income in other income, net.
The Company also invests cash in excess of its daily operating requirements and capital needs primarily in marketable fixed income (debt) securities in accordance with the Company’s investment policy, which restricts the type of investments that can be made. The Company’s investment portfolio includes commercial paper and corporate notes/ bonds. These marketable fixed income (debt) securities are classified as available-for-sale securities based on management’s decision, at the date such securities are acquired, not to hold these securities to maturity or actively trade them. The Company carries these marketable debt securities at fair value based on the market prices for these marketable debt securities or similar debt securities whose prices are readily available. The changes in fair values, net of applicable taxes, are recorded as unrealized gains or losses as a component of comprehensive income. When, in the opinion of management, a decline in the fair value of an investment below its amortized cost is considered to be “other-than-temporary,” a credit loss is recorded in the statement of income in other income, net; any amount in excess of the credit loss is recorded as unrealized gains or losses as a component of comprehensive income. Generally, the amount of the loss is the difference between the cost or amortized cost and its then current fair value; a credit loss is the difference between the discounted expected future cash flows to be collected from the debt security and the cost or amortized cost of the debt security. The determination of the other-than-temporary decline includes, in addition to other relevant factors, a presumption that if the market value is below cost by a significant amount for a period, a write-down may be necessary. During the three and nine months ended January 31, 2020 and 2019,
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. |
9
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
As of January 31, 2020 and April 30, 2019, 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-term maturity of these instruments. The fair values of marketable securities classified as trading are obtained from quoted market prices, and the fair values of marketable securities classified as available-for-sale, foreign currency forward contracts and 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
On December 16, 2019, in conjunction with the payoff of the credit facility, the Company terminated its interest rate swap. The Company had entered into the interest rate swap agreement to effectively convert its variable debt to a fixed-rate basis. The principal objective was 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 determined that the interest rate swap qualified as a cash flow hedge in accordance with Accounting Standards Codification 815, Derivatives and Hedging (“ASC 815”). Changes in the fair value of an interest rate swap agreement designated as a cash flow hedge were recorded as a component of accumulated other comprehensive loss 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 ASC 815. 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 income.
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.
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of use (“ROU”) assets and current and non-current operating lease liability, in the consolidated balance sheets. Finance leases are included in property and equipment, net, other accrued liabilities and other liabilities in the consolidated balance sheets.
ROU assets represent the Company's right to use an underlying asset for the lease term, and the lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the periods in which they are incurred.
The Company has lease agreements with lease and non-lease components. For all leases with non-lease components the Company accounts for the lease and non-lease components as a single lease component.
10
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
Impairment of Long-Lived Assets
Long-lived assets include property, equipment, right-of-use assets and software developed or obtained for internal use. In accordance with ASC 360, Property, Plant and Equipment (“ASC 360”), management reviews the Company’s recorded long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company determines the extent to which an asset may be impaired based upon its expectation of the asset’s future usability, as well as on a reasonable assurance that the future cash flows associated with the asset will be in excess of its carrying amount. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between fair value and the carrying value of the asset. During the three months ended January 31, 2020, the Company decided that it would exit
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 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, 2019, 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,
Intangible assets primarily consist of customer lists, non-compete agreements, proprietary databases and IP. Intangible assets 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
On June 12, 2018, the Company’s Board of Directors voted to approve a 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. As a result, the Company discontinued the use of all sub-brands being used at that time. Two of the Company’s former sub-brands, Hay Group and Lominger, came to Korn Ferry through acquisitions. In connection with the accounting for these acquisitions, $
Compensation and Benefits Expense
Compensation and benefits expense in the accompanying consolidated statements of income 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.
11
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
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 Consulting, Digital and RPO & Professional Search consultants), the level of engagements referred by a consultant in one line of business to a different line of business, and 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, 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 $
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 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-
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. 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 February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance (Accounting Standard Codification 842 – Leases) on accounting for leases that generally requires all leases to be recognized on the consolidated balance sheet. The guidance is effective for fiscal years beginning after December 15, 2018. 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 adopted this guidance in its fiscal year beginning May 1, 2019 using a modified retrospective approach without restatement of comparative periods. As such, periods prior to the date of adoption are presented in accordance with Accounting Standard Codification 840 - Leases. The FASB also issued subsequent related Accounting Standards Updates (“ASUs”), which detail amendments to the ASU, implementation considerations, narrow-scope improvements and practical expedients. The Company has elected to apply the group of practical expedients which allows the Company to carry forward its identification of contracts that are or contain leases, its historical lease classification and its initial direct costs for existing leases. The Company has also elected to combine lease and non-lease components for all asset classes and recognize leases with an initial term of 12 months or less on a straight-line basis without recognizing a ROU asset or operating lease liability.
The adoption of this standard had a material impact on the consolidated balance sheet as of January 31, 2020 due to the recognition of ROU assets and operating lease liabilities, but an immaterial impact on the Company’s consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of stockholders’ equity, and consolidated statements of cash flows. Upon adoption we recognized total ROU assets of $
12
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
In August 2017, the FASB issued guidance amending and simplifying accounting for hedging activities. The guidance refined and expanded strategies that qualify for hedge accounting and simplified the application of hedge accounting in certain situations. The guidance is effective for fiscal years beginning after December 15, 2018. The Company adopted this guidance in its fiscal year beginning May 1, 2019. The adoption of this guidance did not have an impact on the consolidated financial statements.
Recently Proposed Accounting Standards - Not Yet Adopted
In June 2016, the FASB issued guidance on accounting for measurement of credit losses on financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The standard is effective for fiscal years beginning after December 15, 2019. The Company will adopt this guidance in its fiscal year beginning May 1, 2020. The adoption of this guidance is not anticipated to have a material impact on the consolidated financial statements.
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 will adopt this guidance in its fiscal year beginning May 1, 2020. The adoption of this guidance is not anticipated to have a material impact on the consolidated financial statements.
In August 2018, the FASB issued guidance amending the disclosure requirements for fair value measurements. The amendment removes and modifies disclosures that are currently required and adds additional disclosures that are deemed relevant. The amendments of this standard are effective for fiscal years beginning after December 15, 2019. The Company will adopt this guidance in its fiscal year beginning May 1, 2020. The Company is currently evaluating the impact of adopting this guidance and doesn’t anticipate the guidance to have a material impact on the consolidated financial statements.
In August 2018, the FASB issued guidance amending accounting for internal-use software. The new guidance will align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with developing or obtaining internal-use software. The amendments of this standard are effective for fiscal years ending after December 15, 2019 with early adoption permitted. The Company will adopt this guidance in its fiscal year beginning May 1, 2020. The Company is currently evaluating the impact of adopting this guidance.
In December 2019, the FASB issued guidance on Simplifying the Accounting for Income Taxes. This update eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The update also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The amendments of this standard are effective for fiscal year beginning after December 15, 2020, with early adoption permitted. The Company will adopt this guidance in its fiscal year beginning May 1, 2021. The adoption of this guidance is not anticipated to have a material impact on the consolidated financial statements.
2. Basic and Diluted Earnings Per Share
Accounting Standards Codification 260, Earnings Per Share, requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividends prior to vesting as a separate class of securities in calculating earnings per share. The Company has granted and expects to continue to grant to certain employees under its restricted stock agreements grants that contain non-forfeitable rights to dividends. Such grants are considered participating securities. Therefore, the Company is 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 earnings per common share was computed using the two-class method by dividing basic net earnings attributable to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per common share was computed using the two-class method by dividing diluted net 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.
13
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
During the three and nine months ended January 31, 2020, restricted stock awards of
The following table summarizes basic and diluted earnings per common share attributable to common stockholders:
|
|
Three Months Ended January 31, |
|
|
Nine Months Ended January 31, |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
|
(in thousands, except per share data) |
|
|||||||||||||
Net income attributable to Korn Ferry |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Less: distributed and undistributed earnings to nonvested restricted stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings attributable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: undistributed earnings to nonvested restricted stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: reallocation of undistributed earnings to nonvested restricted stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings attributable to common stockholders |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESPP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Diluted earnings per share |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
3. Comprehensive Income (Loss)
Comprehensive income (loss) 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) and is reported in the accompanying consolidated statements of comprehensive income (loss). Accumulated other comprehensive income (loss), net of taxes, is recorded as a component of stockholders’ equity.
The components of accumulated other comprehensive income (loss) were as follows:
|
|
January 31, 2020 |
|
|
April 30, 2019 |
|
||
|
|
(in thousands) |
|
|||||
Foreign currency translation adjustments |
|
$ |
( |
) |
|
$ |
( |
) |
Deferred compensation and pension plan adjustments, net of tax |
|
|
( |
) |
|
|
( |
) |
Marketable securities unrealized loss, net of tax |
|
|
( |
) |
|
|
— |
|
Interest rate swap unrealized gain, net of tax |
|
|
— |
|
|
|
|
|
Accumulated other comprehensive loss, net |
|
$ |
( |
) |
|
$ |
( |
) |
14
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
The following table summarizes the changes in each component of accumulated other comprehensive income (loss), net for the three months ended January 31, 2020:
|
|
Foreign Currency Translation |
|
|
Deferred Compensation and Pension Plan (1) |
|
|
Unrealized Losses on Marketable Securities |
|
|
Unrealized (Losses) Gains on Interest Rate Swap (2) |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|||||
|
|
(in thousands) |
|
|||||||||||||||||
Balance as of October 31, 2019 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
Unrealized gains (losses) arising during the period |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
Reclassification of realized net losses to net income |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
Balance as of January 31, 2020 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
The following table summarizes the changes in each component of accumulated other comprehensive income (loss), net for the nine months ended January 31, 2020:
|
|
Foreign Currency Translation |
|
|
Deferred Compensation and Pension Plan (1) |
|
|
Unrealized Losses on Marketable Securities |
|
|
Unrealized Gains (Losses) on Interest Rate Swap (2) |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|||||
|
|
(in thousands) |
|
|||||||||||||||||
Balance as of April 30, 2019 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|
|
$ |
( |
) |
Unrealized (losses) gains arising during the period |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Reclassification of realized net losses to net income |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
Balance as of January 31, 2020 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
(1) |
|
(2) |
|
The following table summarizes the changes in each component of accumulated other comprehensive income (loss), net for the three months ended January 31, 2019:
|
|
Foreign Currency Translation |
|
|
Deferred Compensation and Pension Plan (1) |
|
|
Unrealized Gains (Losses) on Interest Rate Swap (2) |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Balance as of October 31, 2018 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
Unrealized gains (losses) arising during the period |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Reclassification of realized net losses (gains) to net income |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Balance as of January 31, 2019 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
15
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
The following table summarizes the changes in each component of accumulated other comprehensive income (loss), net for the nine months ended January 31, 2019:
|
|
Foreign Currency Translation |
|
|
Deferred Compensation and Pension Plan (1) |
|
|
Unrealized Gains (Losses) on Interest Rate Swap (2) |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Balance as of April 30, 2018 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
Unrealized losses arising during the period |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Reclassification of realized net losses (gains) to net income |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Effect of adoption of accounting standard |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Balance as of January 31, 2019 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
(1) |
|
(2) |
|
4. Employee Stock Plans
Stock-Based Compensation
The following table summarizes the components of stock-based compensation expense recognized in the Company’s consolidated statements of income for the periods indicated:
|
|
Three Months Ended January 31, |
|
|
Nine Months Ended January 31, |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Restricted stock |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
ESPP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Stock Incentive Plan
At the Company’s 2019 Annual Meeting of Stockholders, held on October 3, 2019, the Company’s stockholders approved an amendment and restatement to the Korn Ferry Amended and Restated 2008 Stock Incentive Plan (the 2019 amendment and restatement being the “Fourth A&R 2008 Plan”), which, among other things, eliminated the fungible share counting provision and decreased the total number of shares of the Company’s common stock available for stock-based awards by
Restricted Stock
The Company grants time-based restricted stock awards to executive officers and other senior employees generally vesting over a conjunction with the Company’s performance review. Time-based restricted stock awards are granted at a price equal to fair value, which is determined based on the closing price of the Company’s common stock on the grant date. The Company recognizes compensation expense for time-based restricted stock awards on a straight-line basis over the vesting period.
period. In addition, certain key management members typically receive time-based restricted stock awards upon commencement of employment and may receive them annually inThe Company also grants market-based restricted stock units to executive officers and other senior employees. The market-based units vest after
16
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
Restricted stock activity during the nine months ended January 31, 2020 is summarized below:
|
|
Shares |
|
|
Weighted- Average Grant Date Fair Value |
|
||
|
|
(in thousands, except per share data) |
|
|||||
Non-vested, April 30, 2019 |
|
|
|
|
|
$ |
|
|
Granted |
|
|
|
|
|
$ |
|
|
Vested |
|
|
( |
) |
|
$ |
|
|
Forfeited/expired |
|
|
( |
) |
|
$ |
|
|
Non-vested, January 31, 2020 |
|
|
|
|
|
$ |
|
|
As of January 31, 2020, there were
As of January 31, 2020, there was $
Employee Stock Purchase Plan
The Company has an ESPP that, in accordance with Section 423 of the Internal Revenue Code, allows eligible employees to authorize payroll deductions of up to
Common Stock
During the three and nine months ended January 31, 2020, the Company repurchased (on the open market or through privately negotiated transactions)
17
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
5. Financial Instruments
The following tables show the Company’s financial instruments and balance sheet classification as of January 31, 2020 and April 30, 2019:
|
|
January 31, 2020 |
|
|||||||||||||||||||||||||||||
|
|
Fair Value Measurement |
|
|
Balance Sheet Classification |
|
||||||||||||||||||||||||||
|
|
Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Cash and Cash Equivalents |
|
|
Marketable Securities, Current |
|
|
Marketable Securities, Non- current |
|
|
Income Taxes & Other Receivables |
|
||||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||||||
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Money market funds |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Mutual funds (1) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
Corporate notes/bonds |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
Total debt investments |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
Foreign currency forward contracts |
|
$ |
— |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
|
April 30, 2019 |
|
|||||||||||||||||||||||||||||
|
|
Fair Value Measurement |
|
|
Balance Sheet Classification |
|
||||||||||||||||||||||||||
|
|
Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Cash and Cash Equivalents |
|
|
Marketable Securities, Current |
|
|
Marketable Securities, Non- current |
|
|
Income Taxes & Other Receivables |
|
||||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||||||
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Money market funds |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Mutual funds (1) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
$ |
— |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
Interest rate swap |
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
(1) |
|
Investments in marketable securities classified as available-for-sale securities are made based on the Company’s investment policy, which restricts the types of investments that can be made. As of January 31, 2020, marketable securities classified as available-for-sale consist of commercial paper and corporate notes/bonds for which market prices for similar assets are readily available. Investments that have an original maturity of 90 days or less and are considered highly liquid investments are classified as cash equivalents. As of January 31, 2020, available-for-sale marketable securities have remaining maturities ranging from
18
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
Designated Derivatives - Interest Rate Swap Agreement
In March 2017, the Company entered into an interest rate swap contract with a notional amount of $
The fair value of the derivative designated as a cash flow hedge instrument was as follows:
|
|
January 31, 2020 |
|
|
April 30, 2019 |
|
||
|
|
(in thousands) |
|
|||||
Derivative asset: |
|
|
|
|
|
|
|
|
Interest rate swap contract |
|
$ |
— |
|
|
$ |
|
|
During the three and nine months ended January 31, 2020 and 2019, the Company recognized the following gains and losses on the interest rate swap:
|
|
Three Months Ended January 31, |
|
|
Nine Months Ended January 31, |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Gains (losses) recognized in other comprehensive income (net of tax effects of $ |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
(Losses) gains reclassified from accumulated other comprehensive loss into interest expense, net |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
The cash flows related to the interest rate swap contract are included in net cash provided by operating activities.
Foreign Currency Forward Contracts Not Designated as Hedges
The fair value of derivatives not designated as hedge instruments are as follows:
|
|
January 31, 2020 |
|
|
April 30, 2019 |
|
||
|
|
(in thousands) |
|
|||||
Derivative assets: |
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
$ |
|
|
|
$ |
|
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
$ |
|
|
|
$ |
|
|
As of January 31, 2020, the total notional amounts of the forward contracts purchased and sold were $
19
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
6. Deferred Compensation and Retirement Plans
The Company has several deferred compensation and retirement plans for eligible consultants and vice presidents that provide defined benefits to participants based on the deferral of current compensation or contributions made by the Company subject to vesting and retirement or termination provisions. Among these plans is a defined benefit pension plan for certain employees in the U.S.. The assets of this plan are held separately from the assets of the sponsor in self-administered funds. All other defined benefit obligations from other plans are unfunded.
The components of net periodic benefit costs are as follows:
|
|
Three Months Ended January 31, |
|
|
Nine Months Ended January 31, |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets (1) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net periodic service credit amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net periodic benefit costs (2) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(1) |
|
(2) |
|
The Company purchased COLI contracts insuring the lives of certain employees eligible to participate in the deferred compensation and pension plans as a means of setting aside funds to cover such plans. The gross CSV of these contracts of $
The Company’s ECAP is intended to provide certain employees an opportunity to defer salary and/or bonus on a pre-tax basis. In addition, the Company, as part of its compensation philosophy, makes discretionary contributions into the ECAP and such contributions may be granted to key employees annually based on the employee’s performance. Certain key management may also receive Company ECAP contributions upon commencement of employment. The Company amortizes these contributions on a straight-line basis over the service period, generally a four-to-
The ECAP is accounted for whereby the changes in the fair value of the vested amounts owed to the participants are adjusted with a corresponding charge (or credit) to compensation and benefits costs. During the three and nine months ended January 31, 2020, deferred compensation liability increased; therefore, the Company recognized compensation expense of $
20
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
7. Fee Revenue
Substantially all fee revenue is derived from talent and organizational consulting services and digital sales, fees for professional services related to executive and professional recruitment performed on a retained basis and RPO, standalone or as part of a solution.
Contract Balances
A contract asset (unbilled receivables) is recorded when the Company transfers control of products or services before there is an unconditional right to payment. A contract liability (deferred revenue) is recorded when cash is received in advance of performance of the obligation. Deferred revenue represents the future performance obligations to transfer control of products or services for which we have already received consideration. Deferred revenue is presented in other accrued liabilities on the consolidated balance sheet.
The following table outlines our contract asset and liability balances as of January 31, 2020 and April 30, 2019:
|
|
January 31, 2020 |
|
|
April 30, 2019 |
|
||
|
|
(in thousands) |
|
|||||
Contract assets (unbilled receivables) |
|
$ |
|
|
|
$ |
|
|
Contract liabilities (deferred revenue) |
|
$ |
|
|
|
$ |
|
|
During the nine months ended January 31, 2020, we recognized revenue of $
Performance Obligations
The Company has elected to apply the practical expedient to exclude the value of unsatisfied performance obligations for contracts with a duration of one year or less, which applies to all executive search and professional search fee revenue. As of January 31, 2020, the aggregate transaction price allocated to the performance obligations that are unsatisfied for contracts with an expected duration of greater than one year at inception was $
Disaggregation of Revenue
The Company disaggregates its revenue by line of business and further by region for Executive Search. This information is presented in Note 10—Segments.
The following table provides further disaggregation of fee revenue by industry:
|
|
Three Months Ended January 31, |
|
|||||||||||||
|
|
2020 |
|
|
2019 |
|
||||||||||
|
|
Dollars |
|
|
% |
|
|
Dollars |
|
|
% |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Industrial |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
Financial Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Sciences/Healthcare |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Goods |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education/Non-Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee Revenue |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
21
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
|
|
Nine Months Ended January 31, |
|
|||||||||||||
|
|
2020 |
|
|
2019 |
|
||||||||||
|
|
Dollars |
|
|
% |
|
|
Dollars |
|
|
% |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Industrial |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
Financial Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Sciences/Healthcare |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Goods |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education/Non-Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee Revenue |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
8. Income Taxes
The provision for income tax was an expense of $
9. Restructuring Charges, Net
During the three months ended January 31, 2020, the Company adopted a restructuring plan to rationalize its cost structure to realize the efficiencies and operational improvement that the investments in the Digital business, as discussed in Note 10—Segments, have enabled us to, or position us to, realize. The restructuring plan impacts both the Consulting and Digital segments and includes the elimination of redundant positions, which resulted in restructuring charges, net of $
Changes in the restructuring liability during the three months ended January 31, 2020 are as follows:
|
|
Restructuring Liability |
|
|
|
|
(in thousands) |
|
|
As of October 31, 2019 |
|
$ |
|
|
Restructuring charges, net |
|
|
|
|
Reductions for cash payments |
|
|
( |
) |
Non-cash payments |
|
|
( |
) |
Exchange rate fluctuations |
|
|
|
|
As of January 31, 2020 |
|
$ |
|
|
Changes in the restructuring liability during the nine months ended January 31, 2020 are as follows:
|
|
Restructuring Liability |
|
|
|
|
(in thousands) |
|
|
As of April 30, 2019 |
|
$ |
|
|
Restructuring charges, net |
|
|
|
|
Reductions for cash payments |
|
|
( |
) |
Non-cash payments |
|
|
( |
) |
Exchange rate fluctuations |
|
|
|
|
As of January 31, 2020 |
|
$ |
|
|
As of January 31, 2020 and April 30, 2019, the restructuring liability is included in the current portion of other accrued liabilities on the consolidated balance sheets, except for $
22
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
10. Segments
Over the past year the Company invested in its digital business in order to digitize and harmonize the structure of its IP content and data and to build a technology platform for the efficient delivery of these assets directly to an end consumer or indirectly through a consultant engagement. These investments combined with the recent acquisition of the Acquired Companies have provided the Company the opportunity to reassess how the Company manages its Advisory business. Given the Company’s strategy and development of financial and operational metrics for the Consulting and Digital businesses the Company’s chief operating decision maker has begun to regularly make resource allocation decisions and assess performance separately between Consulting and Digital. Therefore, on November 1, 2019, the Company changed the composition of its global segments and under the new reporting format, the Advisory segment has been separated into two segments, Consulting and Digital. Revenues are directly attributed to a segment and expenses not directly associated with a specific segment are allocated based on the most relevant measures applicable, including revenues, headcount and other factors. Due to this change, the Company completed a qualitative assessment for any potential goodwill impairment both prior and subsequent to the aforementioned change and determined that no impairment indicators were present. Operating results prior to November 1, 2019 have been revised to conform to the new segment reporting.
The Company operates through
|
1. |
Consulting helps clients synchronize their strategy and their talent by addressing four fundamental needs: Organizational Strategy, Assessment and Succession, Leadership Development, and Rewards and Benefits. This is supported and underpinned by a comprehensive range of some of the world’s leading lP and data. |
|
2. |
Digital is an integrated platform that gives clients direct access to people and organizational data, insights, analytics and digital assets. It is comprised of individual products that when used together, give clients a common language for all talent matters. |
|
3. |
Executive Search helps organizations recruit board level, chief executive and other senior executive and general management talent. Behavioral interviewing and proprietary assessments are used to determine ideal organizational fit, and salary benchmarking builds appropriate frameworks for compensation and retention. |
|
4. |
RPO and Professional Search combines people, process expertise and IP-enabled technology to deliver enterprise talent acquisition solutions to clients. Transaction sizes range from single professional searches to team, department and line of business projects, and global outsource recruiting solutions. |
Executive Search is managed by geographic regional leaders. Worldwide operations for Consulting, Digital, and RPO and Professional Search are managed by their Chief Executive Officers. The Executive Search geographic regional leaders and the Chief Executive Officers of Consulting, Digital and RPO and Professional Search, report directly to the Chief Executive Officer of the Company. The Company also operates a Corporate segment to record global expenses.
The Company evaluates performance and allocates resources based on the Company’s chief operating decision maker’s review of (1) fee revenue and (2) adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”). To the extent that such charges occur, Adjusted EBITDA excludes restructuring charges, integration/acquisition costs, certain separation costs and certain non-cash charges (goodwill, intangible asset and other than temporary impairment). The accounting policies for the reportable segments are the same as those described in the summary of significant accounting policies in Note 1—Organization and Summary of Significant Accounting Policies, except the items described above are excluded from EBITDA to arrive at Adjusted EBITDA. The Company’s chief operating decision maker is not provided asset information by reportable segment.
23
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
Financial highlights by business segment are as follows:
|
|
Three Months Ended January 31, 2020 |
|
|||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Executive Search |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
Consulting |
|
|
Digital |
|
|
North America |
|
|
EMEA |
|
|
Asia Pacific |
|
|
Latin America |
|
|
Subtotal |
|
|
RPO & Professional Search |
|
|
Corporate |
|
|
Consolidated |
|
||||||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||||||||||||||
Fee revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Korn Ferry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (loss), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Integration/acquisition costs |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Restructuring, charges, net |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Separation costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Adjusted EBITDA |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
Three Months Ended January 31, 2019 |
|
|||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Executive Search |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
Consulting |
|
|
Digital |
|
|
North America |
|
|
EMEA |
|
|
Asia Pacific |
|
|
Latin America |
|
|
Subtotal |
|
|
RPO & Professional Search |
|
|
Corporate |
|
|
Consolidated |
|
||||||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||||||||||||||
Fee revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Korn Ferry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (loss), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Integration/acquisition costs |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
24
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
|
|
Nine Months Ended January 31, 2020 |
|
|||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Executive Search |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
Consulting |
|
|
Digital |
|
|
North America |
|
|
EMEA |
|
|
Asia Pacific |
|
|
Latin America |
|
|
Subtotal |
|
|
RPO & Professional Search |
|
|
Corporate |
|
|
Consolidated |
|
||||||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||||||||||||||
Fee revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Korn Ferry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (loss), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Integration/acquisition costs |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Restructuring charges, net |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Separation costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Adjusted EBITDA |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
Nine Months Ended January 31, 2019 |
|
|||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Executive Search |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
Consulting |
|
|
Digital |
|
|
North America |
|
|
EMEA |
|
|
Asia Pacific |
|
|
Latin America |
|
|
Subtotal |
|
|
RPO & Professional Search |
|
|
Corporate |
|
|
Consolidated |
|
||||||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||||||||||||||
Fee revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Korn Ferry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (loss), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
EBITDA |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Integration/acquisition costs |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Tradename write-offs |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Adjusted EBITDA |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
25
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
11. Long-Term Debt
4.625% Senior Unsecured Notes due 2027
On December 16, 2019, the Company completed a private placement of
Year |
|
Percentage |
|
2022 |
|
|
|
2023 |
|
|
|
2024 and thereafter |
|
|
|
The Notes allow the Company to pay $
Long-term debt, at amortized cost, consisted of the following:
In thousands |
|
January 31, 2020 |
|
|
April 30, 2019 |
|
||
Senior Unsecured Notes |
|
$ |
|
|
|
$ |
— |
|
Revolver |
|
|
— |
|
|
|
|
|
Less: Unamortized discount and issuance costs |
|
|
( |
) |
|
|
( |
) |
Long-term borrowings, net of unamortized discount and debt issuance costs |
|
$ |
|
|
|
$ |
|
|
Credit Facility
On
26
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
The principal balance of the Revolver, if any, is due on the date of its termination. The Revolver matures on
At the Company’s option, loans issued under the Credit Agreement will bear interest at either LIBOR or an alternate base rate, in each case plus the applicable interest rate margin. The interest rate applicable to loans outstanding under the Credit Agreement may fluctuate between LIBOR plus
As of January 31, 2020, there was
The Company had a total of $
12. Leases
The Company’s lease portfolio is comprised of operating leases for office space and equipment and finance leases for equipment. Equipment leases are comprised of vehicles and office equipment. The majority of the Company’s leases include both lease and non-lease components. Non-lease components primarily include maintenance, insurance, taxes and other utilities. The Company has decided to combine fixed payments for non-lease components with its lease payments and account for them as a single lease component, which increases its ROU assets and lease liabilities. Some of the leases include one or more options to renew or terminate the lease at the Company’s discretion. Generally, the renewal and termination options are not included in the ROU assets and lease liabilities as they are not reasonably certain of exercise. The Company has elected not to recognize a ROU asset or lease liability for leases with an initial term of 12 months or less.
As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of the future minimum lease payments. The Company applies the portfolio approach when determining the incremental borrowing rate since it has a centrally managed treasury function. The Company’s incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments in a similar economic environment.
Operating leases contain both office and equipment leases, have remaining terms that range from less than
As a result of the acquisition of the Acquired Companies, the Company recognized ROU assets of $
27
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
The components of lease expense were as follows:
|
|
Three Months Ended January 31, 2020 |
|
|
Nine Months Ended January 31, 2020 |
|
||
|
|
(in thousands) |
|
|||||
Finance lease cost |
|
|
|
|
|
|
|
|
Amortization of ROU assets |
|
$ |
|
|
|
$ |
|
|
Interest on lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost |
|
|
|
|
|
|
|
|
Short-term lease cost |
|
|
|
|
|
|
|
|
Variable lease cost |
|
|
|
|
|
|
|
|
Lease impairment cost |
|
|
|
|
|
|
|
|
Sublease income |
|
|
( |
) |
|
|
( |
) |
Total lease cost |
|
$ |
|
|
|
$ |
|
|
Supplemental cash flow information related to leases was as follows:
|
|
Nine Months Ended January 31, 2020 |
|
|
|
|
(in thousands) |
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
Operating cash flows from operating leases |
|
$ |
|
|
Financing cash flows from finance leases |
|
$ |
|
|
|
|
|
|
|
ROU assets obtained in exchange for lease obligations: |
|
|
|
|
Operating leases |
|
$ |
|
|
Finance leases |
|
$ |
|
|
Supplemental balance sheet information related to leases was as follows:
|
|
January 31, 2020 |
|
|
|
|
(in thousands) |
|
|
Finance Leases: |
|
|
|
|
|
|
|
|
|
Property and equipment, at cost |
|
$ |
|
|
Accumulated depreciation |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
|
|
|
|
|
Other accrued liabilities |
|
$ |
|
|
Other liabilities |
|
|
|
|
Total finance lease liabilities |
|
$ |
|
|
|
|
|
|
|
Weighted average remaining lease terms: |
|
|
|
|
Operating leases |
|
|
|
|
Finance leases |
|
|
|
|
|
|
|
|
|
Weighted average discount rate: |
|
|
|
|
Operating leases |
|
|
|
% |
Finance leases |
|
|
|
% |
28
|
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS January 31, 2020 (continued) |
Maturities of lease liabilities were as follows:
Year Ending April 30, |
|
Operating |
|
|
Financing |
|
||
|
|
(in thousands) |
|
|||||
2020 (excluding the nine months ended January 31, 2020) |
|
$ |
|
|
|
$ |
|
|
2021 |
|
|
|
|
|
|
|
|
2022 |
|
|
|
|
|
|
|
|
2023 |
|
|
|
|
|
|
|
|
2024 |
|
|
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
Total lease payments |
|
|
|
|
|
|
|
|
Less: imputed interest |
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
13. Acquisition
On November 1, 2019, the Company completed its acquisition of the Acquired Companies for $
The Acquired Companies contribute a world-class portfolio of learning, development and performance improvement offerings and expertise to Korn Ferry and bolster the Company’s substantial leadership development capabilities. The Acquired Companies specialize in transforming sales performance and customer experience, offer frontline leadership development and provide organizational and project management training. These companies are included in the new Digital segment which, working closely with the new Consulting segment, will provide clients with direct access to data, insights and analytics from one of the world’s most comprehensive people and organizational databases. The addition of the Acquired Companies further expands Korn Ferry’s vast intellectual property and content and leverages the firm’s digital delivery platforms. Actual results of operations of the Acquired Companies are included in the Company’s consolidated financial statements from November 1, 2019, the effective date of the acquisition.
The following table provides a summary of the net assets acquired:
|
(in thousands) |
|
|
Current assets (1) |
$ |
|
|
Long-term assets |
|
|
|
Intangibles assets (2) |
|
|
|
Current liabilities |
|
|
|
Long-term liabilities |
|
|
|
Net assets acquired |
|
|
|
Purchase price |
|
|
|
Goodwill(3) |
$ |
|
|
(1) |
|
(2) |
|
(3) |
|
The aggregate purchase price was allocated on a preliminary basis to the assets acquired and liabilities assumed on their estimated fair values at the date of acquisition. As of January 31, 2020, these allocations remain preliminary with regard to income taxes. The measurement period for purchase price allocation ends as soon as information on the facts and circumstances becomes available, not to exceed 12 months.
14. Subsequent Event
Quarterly Dividend Declaration
On
29
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q may contain certain statements that we believe are, or may be considered to be, “forward-looking” statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements generally can be identified by use of statements that include phrases such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “may,” “will,” “likely,” “estimates,” “potential,” “continue” or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals as well as the expected benefits of the acquisition of Miller Heiman Group, AchieveForum and Strategy Execution (collectively, the “Acquired Companies”), the timing and expected benefits of our recently adopted restructuring plan and the potential negative impact of the coronavirus (COVID-19) outbreak on our business, employees, customers and our ability to provide services in affected regions, also are forward-looking statements. All of these forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those contemplated by the relevant forward-looking statement. The principal risk factors that could cause actual performance and future actions to differ materially from the forward-looking statements include, but are not limited to, changes in demand for our services as a result of automation, dependence on and costs of attracting and retaining qualified and experienced consultants, maintaining our relationships with customers and suppliers and retaining key employees, maintaining our brand name and professional reputation, the expected timing of the consummation of the Plan (as defined below), the impact of the Plan’s rebranding on the Company’s products and services, potential legal liability and regulatory developments, portability of client relationships, global and local political or economic developments in or affecting countries where we have operations, currency fluctuations in our international operations, risks related to growth, restrictions imposed by off-limits agreements, competition, consolidation of the industries we serve, reliance on information processing systems, cyber security vulnerabilities, changes to data security, data privacy, and data protection laws, dependence on third parties for the execution of critical functions, limited protection of our intellectual property (“IP”), our ability to enhance and develop new technology, our ability to successfully recover from a disaster or other business continuity problems, employment liability risk, an impairment in the carrying value of goodwill and other intangible assets, the effects of the Tax Cuts and Jobs Act (the “Tax Act”) and other future changes in tax laws, treaties, or regulations on our business and our company, deferred tax assets that we may not be able to use, our ability to develop new products and services, the impact of the withdrawal of the United Kingdom from the European Union, changes in our accounting estimates and assumptions, alignment of our cost structure, the utilization and billing rates of our consultants, seasonality, expansion of social media platforms, ability to effect acquisition and integrate the Acquired Companies; the ability to recognize the anticipated benefits of the acquisition of the Acquired Companies; the costs related to the acquisition of the Acquired Companies; our indebtedness, the phase-out of LIBOR, the potential negative impact of the coronavirus (COVID-19) outbreak on our business, employees, customers and our ability to provide services in affected regions, and the matters disclosed under the heading “Risk Factors” in the this Quarterly Report on Form 10-Q and in the Company’s other Exchanges Act reports, including Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2019 (“Form 10-K”). Readers are urged to consider these factors carefully in evaluating the forward-looking statements. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances.
The following presentation of management’s discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. We also make available on the Investor Relations portion of our website earnings slides and other important information, which we encourage you to review.
30
Executive Summary
Korn Ferry (referred to herein as the “Company,” or in the first-person notations “we,” “our,” and “us”) is a global organizational consulting firm. We help clients synchronize strategy and talent to drive superior performance. We work with organizations to design their structures, roles, and responsibilities. We help them hire the right people to bring their strategy to life. And we advise them on how to reward, develop, and motivate their people. We operate through four global segments:
|
1. |
Consulting helps clients synchronize their strategy and their talent by addressing four fundamental needs: Organizational Strategy, Assessment and Succession, Leadership Development, and Rewards and Benefits. This is supported and underpinned by a comprehensive range of some of the world’s leading lP and data. |
|
2. |
Digital is an integrated platform that gives clients direct access to people and organizational data, insights, analytics and digital assets. It is comprised of individual products that when used together, give clients a common language for all talent matters. |
|
3. |
Executive Search helps organizations recruit board level, chief executive and other senior executive and general management talent. Behavioral interviewing and proprietary assessments are used to determine ideal organizational fit, and salary benchmarking builds appropriate frameworks for compensation and retention. |
|
4. |
RPO and Professional Search combines people, process expertise and IP-enabled technology to deliver enterprise talent acquisition solutions to clients. Transaction sizes range from single professional searches to team, department and line of business projects, and global outsource recruiting solutions. |
Consulting and Digital were formerly referred to, and reported together, as Korn Ferry Advisory (“Advisory”). Over the past year we have invested in the digital business in order to digitize and harmonize the structure of our IP content and data and to build a technology platform for the efficient delivery of these assets directly to an end consumer or indirectly through a consultant engagement. These investments combined with the recent acquisitions resulted in reassessing how we manage our Advisory business. Therefore, beginning in the third quarter of fiscal 2020, we separated Advisory into two segments in order to better align with the Company’s strategy (which included the acquisition of the Acquired Companies) and the decisions of the Company’s chief operating decision maker, which has begun to regularly make resource allocation decisions and assess performance separately between Consulting and Digital.
|
▪ |
Approximately 71% of the executive searches we performed in fiscal 2019 were for board level, chief executive and other senior executive and general management positions. Our 3,993 search engagement clients in fiscal 2019 included many of the world’s largest and most prestigious public and private companies. |
|
▪ |
We have built strong client loyalty, with 90% of the assignments performed during fiscal 2019 having been on behalf of clients for whom we had conducted assignments in the previous three fiscal years. |
|
▪ |
Approximately 70% of our revenues were generated from clients that utilize multiple lines of business. |
|
▪ |
A vital pillar of our growth strategy is our Digital business. Our data and IP are embedded into the core business processes of our clients, helping us generate long-term relationships through large scale and technology-based talent programs. We continue to seek ways to scale-up these highly profitable products to our global clients. |
|
▪ |
In fiscal 2019, Korn Ferry was recognized as a top five RPO provider in the Baker’s Dozen list, marking our 12th consecutive year on the list. Through decades of experience, we have enhanced our RPO solution to deliver quality candidates that drive our clients’ business strategies. We leverage proprietary IP and data sets to guide clients on the critical skills and competencies to look for, compensation information to align with market demand, and assessment tools to ensure candidate fit. |
While most organizations can develop a sound strategy, they often struggle with how to make it stick. That is where we come in: synchronizing an organization’s strategy with its talent to drive superior performance. We help companies design their organization—the structure, roles and responsibilities—to seize these opportunities. In addition, we help organizations select and hire the talent they need to execute their strategy—and show them the best way to compensate, develop and motivate their people.
31
We do this through our five core solution sets:
Organizational Strategy |
We map talent strategy to business strategy by designing operating models and organizational structures that align to them, helping organizations put their plans into action. We make sure they have the right people, in the right roles, engaged and enabled to do the right things. |
Assessment and Succession |
We provide actionable, research-backed insights that allow organizations to understand the true capabilities of their people so they can make decisions that ensure the right leaders are ready—when and where they are needed—in the future. |
Talent Acquisition |
From executive search to RPO, we integrate scientific research with our practical experience and industry-specific expertise to recruit professionals of all levels and functions for client organizations. |
Leadership Development |
We help leaders at all levels of an organization achieve their vision, purpose and strategy. We combine expertise, science and proven techniques with forward thinking and creativity to build leadership experiences that help entry- to senior-level leaders grow and deliver superior results. |
Rewards and Benefits |
We help organizations design rewards to achieve their strategic objectives. We help them pay their people fairly for doing the right things—with rewards they value—at a cost the organization can afford. |
On June 12, 2018, the Company’s Board of Directors approved the One Korn Ferry rebranding plan for the Company (the “Plan”). The Plan includes going to market under a single, master brand architecture, solely as Korn Ferry and sunsetting all the Company’s sub-brands used at that time, including Futurestep, Hay Group and Lominger, among others. This integrated go-to-market approach was a key driver in our fee revenue growth in fiscal year 2018, 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 and changed its name, effective January 1, 2019, to “Korn Ferry.” Two of the Company’s former 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 one-time, non-cash write-off of tradenames of $106.6 million during the nine months ended January 31, 2019.
On November 1, 2019, we completed the acquisitions of the Acquired Companies from TwentyEighty, Inc. for $108.6 million. The addition of the Acquired Companies has further expanded our vast intellectual property and content and leveraged the firm’s digital delivery platforms. We have invested in our digital business to digitize and harmonize the structure of our IP content and data and in building a technology platform for the efficient delivery of these assets directly to an end consumer or indirectly through a consulting engagement. These investments combined with the acquisition of the Acquired Companies resulted in reassessing how we manage our Advisory business. On November 1, 2019, we adopted a restructuring plan to rationalize our cost structure to realize the efficiencies and operational improvement that these investments have enabled us to, or positioned us to, realize. The plan impacts both Consulting and Digital and includes the elimination of redundant positions and consolidation of office space. During the three and nine months ended January 31, 2020, we recognized $18.1 million of restructuring charges associated with severance and recorded $2.8 million of integration/acquisition costs associated with impairment of 16 office leases. We expect the restructuring actions to be completed by July 31, 2020.
In December 2019, a new strain of the coronavirus (COVID-19) was reported to have spread to over 100 countries, territories or areas worldwide. Initially, the negative business impact of the coronavirus outbreak was most pronounced in the Asia Pacific Region, and in particular China and Hong Kong. In recent weeks and days, however, the impact has become more global. Recently, select governments and companies have implemented social distancing - limiting either travel or in person individual or group face-to-face interaction. The extent to which further, incremental measures are put in place or additional government bodies adopt such measures is unknown. The measures taken to date will impact our business for the fiscal fourth quarter and potentially beyond. We expect that all of our business segments across all of our geographies will be impacted to some degree, but the significance of the impact of the coronavirus outbreak on our business and the duration for which it may have an impact cannot be determined at this time.
32
The Company currently operates through four global segments. See Note 10—Segments in the Notes to Consolidated Unaudited Financial Statements for discussion of the Company’s global business segments. The Company evaluates performance and allocates resources based on the chief operating decision maker’s review of (1) fee revenue and (2) adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”). To the extent that such charges occur, Adjusted EBITDA excludes restructuring charges, integration/acquisition costs, certain separation costs and certain non-cash charges (goodwill, intangible asset and other than temporary impairment). In the three months ended January 31, 2020, Adjusted EBITDA excluded $18.1 million of restructuring charges, $6.7 million of integration/acquisition costs and $1.8 million of separation costs. In the nine months ended January 31, 2020, Adjusted EBITDA excluded $18.1 million of restructuring charges, $9.3 million of integration/acquisition costs and $1.8 million of separation costs. In the nine months ended January 31, 2019, Adjusted EBITDA excluded $106.6 million of write-off of tradenames related to the Plan and $6.7 million of integration/acquisition costs.
EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin are non-GAAP financial measures. They have limitations as analytical tools, should not be viewed as a substitute for financial information determined in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”), and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. In addition, they may not necessarily be comparable to non-GAAP performance measures that may be presented by other companies.
Management believes the presentation of these non-GAAP financial measures provides meaningful supplemental information regarding Korn Ferry’s performance by excluding certain charges, items of income and other items that may not be indicative of Korn Ferry’s ongoing operating results. The use of these non-GAAP financial measures facilitates comparisons to Korn Ferry’s historical performance and the identification of operating trends that may otherwise be distorted by the factors discussed above. Korn Ferry includes these non-GAAP financial measures because management believes it is useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn Ferry’s ongoing operations and financial and operational decision-making. The accounting policies for the reportable segments are the same as those described in the summary of significant accounting policies in the accompanying consolidated financial statements, except that the above noted items are excluded from EBITDA to arrive at Adjusted EBITDA. Management further believes that EBITDA is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures, effective tax rates and tax attributes and capitalized asset values, all of which can vary substantially from company to company.
Fee revenue was $515.3 million during the three months ended January 31, 2020, an increase of $40.8 million, or 9%, compared to $474.5 million in the three months ended January 31, 2019. Exchange rates unfavorably impacted fee revenue by $3.1 million, or 1%, in the three months ended January 31, 2020 compared to the year-ago quarter. During the three months ended January 31, 2020, we recorded operating income of $31.6 million, a decrease of $31.1 million, compared to $62.7 million in the three months ended January 31, 2019, with the Executive Search, RPO & Professional Search, Digital and Consulting segments contributing $32.7 million, $14.1 million, $8.5 million, and $2.7 million, respectively, offset by Corporate expenses of $26.4 million. Net income attributable to Korn Ferry in the three months ended January 31, 2020 was $20.0 million, a decrease of $25.0 million as compared to $45.0 million in the year-ago quarter. During the three months ended January 31, 2020, Adjusted EBITDA was $78.1 million, an increase of $0.4 million, compared to $77.7 million in the year-ago quarter, with the Executive Search, Digital, Consulting and RPO & Professional Search segments contributing $40.7 million, $25.9 million, $18.7 million and $15.2 million, respectively, offset by Corporate expenses, net of other income of $22.3 million.
Our cash, cash equivalents and marketable securities decreased by $18.6 million to $748.5 million at January 31, 2020, compared to $767.1 million at April 30, 2019. This decrease was mainly due to annual bonuses earned in fiscal 2019 and paid during the first quarter of fiscal 2020, sign-on and retention payments, $108.6 million paid for the acquisition of the Acquired Companies, $68.1 million for stock repurchases in the open market, $33.8 million in payments for the purchase of property and equipment, and $17.3 million in dividends paid during the nine months ended January 31, 2020. These decreases were substantially offset by cash flows from operations and an increase in net borrowings of $180.7 million as a result of our note offering and borrowings under our credit agreement (discussed further below). As of January 31, 2020, we held marketable securities to settle obligations under our Executive Capital Accumulation Plan (“ECAP”) with a cost value of $143.9 million and a fair value of $151.6 million. Our vested obligations for which these assets were held in trust totaled $135.7 million as of January 31, 2020 and our unvested obligations totaled $23.2 million.
Our working capital increased by $50.8 million to $636.7 million as of January 31, 2020, as compared to $585.9 million at April 30, 2019. We believe that cash on hand and funds from operations and other forms of liquidity will be sufficient to meet our anticipated working capital, capital expenditures, general corporate requirements, repayment of the debt obligations and dividend payments under our dividend policy in the next twelve months. We had $646.0 million and $420.2 million available for borrowing under our current and prior revolvers at January 31, 2020 and April 30, 2019, respectively. As of January 31, 2020 and April 30, 2019, there was $4.0 million and $2.9 million of standby letters of credit issued, respectively, under our credit agreements. We had a total of $11.1 million and $8.5 million of standby letters of credits with other financial institutions as of January 31, 2020 and April 30, 2019, respectively.
33
Results of Operations
The following table summarizes the results of our operations as a percentage of fee revenue:
(Numbers may not total exactly due to rounding)
|
|
Three Months Ended January 31, |
|
|
Nine Months Ended January 31, |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
Fee revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Reimbursed out-of-pocket engagement expenses |
|
|
2.5 |
|
|
|
2.5 |
|
|
|
2.4 |
|
|
|
2.5 |
|
Total revenue |
|
|
102.5 |
|
|
|
102.5 |
|
|
|
102.4 |
|
|
|
102.5 |
|
Compensation and benefits |
|
|
67.6 |
|
|
|
67.8 |
|
|
|
68.0 |
|
|
|
68.2 |
|
General and administrative expenses |
|
|
13.8 |
|
|
|
12.9 |
|
|
|
13.3 |
|
|
|
20.0 |
|
Reimbursed expenses |
|
|
2.5 |
|
|
|
2.5 |
|
|
|
2.4 |
|
|
|
2.5 |
|
Cost of services |
|
|
6.0 |
|
|
|
3.6 |
|
|
|
4.4 |
|
|
|
3.8 |
|
Depreciation and amortization |
|
|
2.9 |
|
|
|
2.5 |
|
|
|
2.7 |
|
|
|
2.4 |
|
Restructuring charges, net |
|
|
3.5 |
|
|
|
— |
|
|
|
1.2 |
|
|
|
— |
|
Operating income |
|
|
6.1 |
|
|
|
13.2 |
|
|
|
10.3 |
|
|
|
5.5 |
|
Net income |
|
|
4.1 |
% |
|
|
9.6 |
% |
|
|
7.2 |
% |
|
|
3.8 |
% |
Net income attributable to Korn Ferry |
|
|
3.9 |
% |
|
|
9.5 |
% |
|
|
7.1 |
% |
|
|
3.6 |
% |
The operating results prior to November 1, 2019 have been revised to conform to the new segment reporting.
The following tables summarize the results of our operations by business segment:
(Numbers may not total exactly due to rounding)
|
|
Three Months Ended January 31, |
|
|
Nine Months Ended January 31, |
|
||||||||||||||||||||||||||
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||||||||||||||||||
|
|
Dollars |
|
|
% |
|
|
Dollars |
|
|
% |
|
|
Dollars |
|
|
% |
|
|
Dollars |
|
|
% |
|
||||||||
|
|
(dollars in thousands) |
|
|||||||||||||||||||||||||||||
Fee revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting |
|
$ |
140,525 |
|
|
|
27.3 |
% |
|
$ |
139,029 |
|
|
|
29.3 |
% |
|
$ |
422,103 |
|
|
|
28.3 |
% |
|
$ |
423,958 |
|
|
|
29.5 |
% |
Digital |
|
|
99,389 |
|
|
|
19.3 |
|
|
|
62,473 |
|
|
|
13.2 |
|
|
|
223,097 |
|
|
|
15.0 |
|
|
|
190,008 |
|
|
|
13.2 |
|
Executive Search: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
106,888 |
|
|
|
20.7 |
|
|
|
114,215 |
|
|
|
24.1 |
|
|
|
332,428 |
|
|
|
22.3 |
|
|
|
342,175 |
|
|
|
23.8 |
|
EMEA |
|
|
44,301 |
|
|
|
8.6 |
|
|
|
45,940 |
|
|
|
9.7 |
|
|
|
130,652 |
|
|
|
8.8 |
|
|
|
137,522 |
|
|
|
9.6 |
|
Asia Pacific |
|
|
25,089 |
|
|
|
4.9 |
|
|
|
25,687 |
|
|
|
5.4 |
|
|
|
78,395 |
|
|
|
5.3 |
|
|
|
79,918 |
|
|
|
5.6 |
|
Latin America |
|
|
7,283 |
|
|
|
1.4 |
|
|
|
7,554 |
|
|
|
1.6 |
|
|
|
23,140 |
|
|
|
1.6 |
|
|
|
24,339 |
|
|
|
1.7 |
|
Total Executive Search |
|
|
183,561 |
|
|
|
35.6 |
|
|
|
193,396 |
|
|
|
40.8 |
|
|
|
564,615 |
|
|
|
37.8 |
|
|
|
583,954 |
|
|
|
40.7 |
|
RPO & Professional Search |
|
|
91,850 |
|
|
|
17.8 |
|
|
|
79,606 |
|
|
|
16.8 |
|
|
|
282,448 |
|
|
|
18.9 |
|
|
|
237,357 |
|
|
|
16.5 |
|
Total fee revenue |
|
|
515,325 |
|
|
|
100.0 |
% |
|
|
474,504 |
|
|
|
100.0 |
% |
|
|
1,492,263 |
|
|
|
100.0 |
% |
|
|
1,435,277 |
|
|
|
100.0 |
% |
Reimbursed out-of-pocket engagement expense |
|
|
12,654 |
|
|
|
|
|
|
|
11,668 |
|
|
|
|
|
|
|
36,091 |
|
|
|
|
|
|
|
36,050 |
|
|
|
|
|
Total revenue |
|
$ |
527,979 |
|
|
|
|
|
|
$ |
486,172 |
|
|
|
|
|
|
$ |
1,528,354 |
|
|
|
|
|
|
$ |
1,471,327 |
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
Nine Months Ended January 31, |
|
||||||||||||||||||||||||||
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||||||||||||||||||
|
|
Dollars |
|
|
Margin (1) |
|
|
Dollars |
|
|
Margin (1) |
|
|
Dollars |
|
|
Margin (1) |
|
|
Dollars |
|
|
Margin (1) |
|
||||||||
|
|
(dollars in thousands) |
|
|||||||||||||||||||||||||||||
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting |
|
$ |
2,663 |
|
|
|
1.9 |
% |
|
$ |
11,782 |
|
|
|
8.5 |
% |
|
$ |
24,272 |
|
|
|
5.8 |
% |
|
$ |
(47,431 |
) |
|
|
(11.2 |
%) |
Digital |
|
|
8,463 |
|
|
|
8.5 |
|
|
|
17,497 |
|
|
|
28.0 |
|
|
|
41,036 |
|
|
|
18.4 |
|
|
|
23,057 |
|
|
|
12.1 |
|
Executive Search: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
21,808 |
|
|
|
20.4 |
|
|
|
30,596 |
|
|
|
26.8 |
|
|
|
80,254 |
|
|
|
24.1 |
|
|
|
92,438 |
|
|
|
27.0 |
|
EMEA |
|
|
4,644 |
|
|
|
10.5 |
|
|
|
7,525 |
|
|
|
16.4 |
|
|
|
18,466 |
|
|
|
14.1 |
|
|
|
21,813 |
|
|
|
15.9 |
|
Asia Pacific |
|
|
5,070 |
|
|
|
20.2 |
|
|
|
5,929 |
|
|
|
23.1 |
|
|
|
17,866 |
|
|
|
22.8 |
|
|
|
19,337 |
|
|
|
24.2 |
|
Latin America |
|
|
1,198 |
|
|
|
16.4 |
|
|
|
653 |
|
|
|
8.6 |
|
|
|
2,999 |
|
|
|
13.0 |
|
|
|
3,460 |
|
|
|
14.2 |
|
Total Executive Search |
|
|
32,720 |
|
|
|
17.8 |
|
|
|
44,703 |
|
|
|
23.1 |
|
|
|
119,585 |
|
|
|
21.2 |
|
|
|
137,048 |
|
|
|
23.5 |
|
RPO & Professional Search |
|
|
14,144 |
|
|
|
15.4 |
|
|
|
12,176 |
|
|
|
15.3 |
|
|
|
44,279 |
|
|
|
15.7 |
|
|
|
36,337 |
|
|
|
15.3 |
|
Corporate |
|
|
(26,395 |
) |
|
|
|
|
|
|
(23,475 |
) |
|
|
|
|
|
|
(75,374 |
) |
|
|
|
|
|
|
(70,460 |
) |
|
|
|
|
Total operating income |
|
$ |
31,595 |
|
|
|
6.1 |
% |
|
$ |
62,683 |
|
|
|
13.2 |
% |
|
$ |
153,798 |
|
|
|
10.3 |
% |
|
$ |
78,551 |
|
|
|
5.5 |
% |
34
(1) |
Margin calculated as a percentage of fee revenue by business segment. |
|
|
Three Months Ended January 31, 2020 |
|
|||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Executive Search |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
Consulting |
|
|
Digital |
|
|
North America |
|
|
EMEA |
|
|
Asia Pacific |
|
|
Latin America |
|
|
Subtotal |
|
|
RPO & Professional Search |
|
|
Corporate |
|
|
Consolidated |
|
||||||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||||||||||||||
Fee revenue |
|
$ |
140,525 |
|
|
$ |
99,389 |
|
|
$ |
106,888 |
|
|
$ |
44,301 |
|
|
$ |
25,089 |
|
|
$ |
7,283 |
|
|
$ |
183,561 |
|
|
$ |
91,850 |
|
|
$ |
— |
|
|
$ |
515,325 |
|
Total revenue |
|
$ |
144,298 |
|
|
$ |
100,663 |
|
|
$ |
110,230 |
|
|
$ |
45,077 |
|
|
$ |
25,365 |
|
|
$ |
7,351 |
|
|
$ |
188,023 |
|
|
$ |
94,995 |
|
|
$ |
— |
|
|
$ |
527,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Korn Ferry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,993 |
|
Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
963 |
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,055 |
) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,919 |
|
Income tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,775 |
|
Operating income (loss) |
|
$ |
2,663 |
|
|
$ |
8,463 |
|
|
$ |
21,808 |
|
|
$ |
4,644 |
|
|
$ |
5,070 |
|
|
$ |
1,198 |
|
|
$ |
32,720 |
|
|
$ |
14,144 |
|
|
$ |
(26,395 |
) |
|
|
31,595 |
|
Depreciation and amortization |
|
|
4,417 |
|
|
|
5,832 |
|
|
|
847 |
|
|
|
422 |
|
|
|
329 |
|
|
|
295 |
|
|
|
1,893 |
|
|
|
979 |
|
|
|
1,742 |
|
|
|
14,863 |
|
Other income (loss), net |
|
|
558 |
|
|
|
193 |
|
|
|
3,963 |
|
|
|
29 |
|
|
|
106 |
|
|
|
162 |
|
|
|
4,260 |
|
|
|
88 |
|
|
|
(44 |
) |
|
|
5,055 |
|
EBITDA |
|
|
7,638 |
|
|
|
14,488 |
|
|
|
26,618 |
|
|
|
5,095 |
|
|
|
5,505 |
|
|
|
1,655 |
|
|
|
38,873 |
|
|
|
15,211 |
|
|
|
(24,697 |
) |
|
|
51,513 |
|
Integration/acquisition costs |
|
|
— |
|
|
|
4,332 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,372 |
|
|
|
6,704 |
|
Restructuring, charges, net |
|
|
11,061 |
|
|
|
7,032 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18,093 |
|
Separation costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,783 |
|
|
|
— |
|
|
|
— |
|
|
|
1,783 |
|
|
|
— |
|
|
|
— |
|
|
|
1,783 |
|
Adjusted EBITDA |
|
$ |
18,699 |
|
|
$ |
25,852 |
|
|
$ |
26,618 |
|
|
$ |
6,878 |
|
|
$ |
5,505 |
|
|
$ |
1,655 |
|
|
$ |
40,656 |
|
|
$ |
15,211 |
|
|
$ |
(22,325 |
) |
|
$ |
78,093 |
|
Operating margin |
|
|
1.9 |
% |
|
|
8.5 |
% |
|
|
20.4 |
% |
|
|
10.5 |
% |
|
|
20.2 |
% |
|
|
16.4 |
% |
|
|
17.8 |
% |
|
|
15.4 |
% |
|
|
|
|
|
|
6.1 |
% |
Adjusted EBITDA margin |
|
|
13.3 |
% |
|
|
26.0 |
% |
|
|
24.9 |
% |
|
|
15.5 |
% |
|
|
21.9 |
% |
|
|
22.7 |
% |
|
|
22.1 |
% |
|
|
16.6 |
% |
|
|
|
|
|
|
15.2 |
% |
|
|
Three Months Ended January 31, 2019 |
|
|||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Executive Search |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
Consulting |
|
|
Digital |
|
|
North America |
|
|
EMEA |
|
|
Asia Pacific |
|
|
Latin America |
|
|
Subtotal |
|
|
RPO & Professional Search |
|
|
Corporate |
|
|
Consolidated |
|
||||||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||||||||||||||
Fee revenue |
|
$ |
139,029 |
|
|
$ |
62,473 |
|
|
$ |
114,215 |
|
|
$ |
45,940 |
|
|
$ |
25,687 |
|
|
$ |
7,554 |
|
|
$ |
193,396 |
|
|
$ |
79,606 |
|
|
$ |
— |
|
|
$ |
474,504 |
|
Total revenue |
|
$ |
143,204 |
|
|
$ |
62,473 |
|
|
$ |
117,725 |
|
|
$ |
46,639 |
|
|
$ |
26,046 |
|
|
$ |
7,573 |
|
|
$ |
197,983 |
|
|
$ |
82,512 |
|
|
$ |
— |
|
|
$ |
486,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Korn Ferry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
44,964 |
|
Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
480 |
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|