Korn Ferry Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Financial Instruments

Financial Instruments

12 Months Ended

Apr. 30, 2019

Investments All Other Investments [Abstract]

5. Financial Instruments

The following tables show the Company’s financial instruments and balance sheet classification as of April 30, 2019 and 2018:

	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	$	579,998	$	—	$	—		$	579,998	$	579,998	$	—	$	—	$	—
Money market funds		46,362		—		—			46,362		46,362		—		—		—
Mutual funds (1)		135,439		6,301		(989	)		140,751		—		8,288		132,463		—
Total	$	761,799	$	6,301	$	(989	)	$	767,111	$	626,360	$	8,288	$	132,463	$	—

Level 2:
Foreign currency forward contracts	$	—	$	821	$	(722	)	$	99	$	—	$	—	$	—	$	99
Interest rate swap	$	—	$	619	$	—		$	619	$	—	$	—	$	—	$	619

	April 30, 2018
	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	$	519,818	$	—	$	—		$	519,818	$	519,818	$	—	$	—	$	—
Money market funds		1,030		—		—			1,030		1,030		—		—		—
Mutual funds (1)		127,077		11,040		(1,032	)		137,085		—		14,293		122,792		—
Total	$	647,925	$	11,040	$	(1,032	)	$	657,933	$	520,848	$	14,293	$	122,792	$	—

Level 2:
Foreign currency forward contracts	$	—	$	1,778	$	(1,025	)	$	753	$	—	$	—	$	—	$	753
Interest rate swap	$	—	$	2,076	$	—		$	2,076	$	—	$	—	$	—	$	2,076

(1)

These investments are held in trust for settlement of the Company’s vested obligations of $122.3 million and $118.2 million as of April 30, 2019 and 2018, respectively, under the ECAP (see Note 6 — Deferred Compensation and Retirement Plans). Unvested obligations under the deferred compensation plans totaled $24.6 million and $29.5 million as of April 30, 2019 and 2018, respectively. During fiscal 2019, 2018, and 2017, the fair value of the investments increased; therefore, the Company recognized income of $8.1 million, $10.3 million, and $10.8 million, respectively, which was recorded in other income, net.

Investments in marketable securities are based upon investment selections the employee elects from a pre-determined set of securities in the ECAP and the Company invests in marketable securities to mirror these elections. As of April 30, 2019 and 2018, the Company’s investments in marketable securities consist of mutual funds for which market prices are readily available.

Designated Derivatives - Interest Rate Swap Agreement

In March 2017, the Company entered into an interest rate swap contract with a notional amount of $129.8 million to hedge the variability to changes in cash flows attributable to interest rate risks caused by changes in interest rates related to its variable rate debt. The Company has designated the swap as a cash flow hedge. As of April 30, 2019 the notional amount was $106.6 million. The interest rate swap agreement matures on June 15, 2021 and locks the interest rates on a portion of the debt outstanding at 1.919%, exclusive of the credit spread on the debt.

The fair value of the derivative designated as a cash flow hedge instrument is as follows:

	April 30,
	2019		2018
	(in thousands)
Derivative asset:
Interest rate swap contract	$	619	$	2,076

During fiscal 2019, 2018 and 2017, the Company recognized the following gains and losses on the interest rate swap:

	Year Ended April 30,
	2019			2018			2017
	(in thousands)
(Losses) gains recognized in other comprehensive income (net of tax effects of ($281), $828, and ($406), respectively)	$	(800	)	$	1,465		$	(635	)
Gains (losses) reclassified from accumulated other comprehensive income into interest (expense) income, net	$	376		$	(730	)	$	(94	)

As the critical terms of the hedging instrument and the hedged forecasted transaction are the same, the Company has concluded the changes in the fair value or cash flows attributable to the risk being hedged are expected to completely offset at inception and on an ongoing basis.

We estimate that $0.4 million of derivative gains included in accumulated other comprehensive income as of April 30, 2019 will be reclassified into interest expense, net within the following 12 months. The cash flows related to interest rate swap contracts 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:

	April 30,
	2019		2018
	(in thousands)
Derivative assets:
Foreign currency forward contracts	$	821	$	1,778
Derivative liabilities:
Foreign currency forward contracts	$	722	$	1,025

As of April 30, 2019, the total notional amounts of the forward contracts purchased and sold were $51.4 million and $40.0 million, respectively. As of April 30, 2018, the total notional amounts of the forward contracts purchased and sold were $80.8 million and $78.5 million, respectively. The Company recognizes forward contracts as a net asset or net liability on the consolidated balance sheets as such contracts are covered by master netting agreements. During fiscal 2019 and 2017, the Company incurred gains of $1.2 million and $0.6 million, respectively, related to forward contracts which is recorded in general and administrative expenses in the accompanying consolidated statements of income. These foreign currency gains offset foreign currency losses that result from transactions denominated in a currency other than the Company’s functional currency. During fiscal 2018, the Company incurred losses of $3.7 million related to forward contracts which is recorded in general and administrative expenses in the accompanying consolidated statements of income. These foreign currency losses offset foreign currency gains that result from transactions denominated in a currency other than the Company’s functional currency. The cash flows related to foreign currency forward contracts are included in cash flows from operating activities.