Korn Ferry Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Leases

Leases

3 Months Ended

Jul. 31, 2022

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 combines fixed payments for non-lease components with its lease payments and accounts 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 the 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 and have remaining terms that range from less than one year to 10 years, some of which also include options to extend or terminate the lease. Finance leases are comprised of equipment leases and have remaining terms that range from less than one year to six years. Finance lease assets are included in property and equipment, net while finance lease liabilities are included in other accrued liabilities and other liabilities.

The components of lease expense were as follows:

	Three Months Ended July 31,
	2022			2021
	(in thousands)
Finance lease cost
Amortization of ROU assets	$	373		$	280
Interest on lease liabilities		48			24
		421			304
Operating lease cost		12,415			13,818
Short-term lease cost		163			269
Variable lease cost		2,655			1,668
Sublease income		(507	)		(231	)
Total lease cost	$	15,147		$	15,828

Supplemental cash flow information related to leases was as follows:

	Three Months Ended July 31,
	2022		2021
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	15,513	$	14,771
Financing cash flows from finance leases	$	412	$	289

ROU assets obtained in exchange for lease obligations:
Operating leases	$	3,555	$	1,238
Finance leases	$	2,384	$	306

Supplemental balance sheet information related to leases was as follows:

	July 31, 2022			April 30, 2022
	(in thousands)
Finance Leases:

Property and equipment, at cost	$	7,254		$	5,770
Accumulated depreciation		(2,708	)		(3,085	)
Property and equipment, net	$	4,546		$	2,685

Other accrued liabilities	$	1,328		$	1,049
Other liabilities		3,250			1,657
Total finance lease liabilities	$	4,578		$	2,706

Weighted average remaining lease terms:
Operating leases	4.9 years			5.1 years
Finance leases	4.3 years			3.3 years

Weighted average discount rate:
Operating leases		4.4	%		4.3	%
Finance leases		4.3	%		3.2	%

Maturities of lease liabilities were as follows:

Year Ending April 30,	Operating		Financing
	(in thousands)
2023 (excluding the three months ended July 31, 2022)	$	40,153	$	1,151
2024		47,870		1,245
2025		40,610		1,001
2026		37,324		716
2027		17,940		522
Thereafter		24,736		388
Total lease payments		208,633		5,023
Less: imputed interest		21,322		445
Total	$	187,311	$	4,578