§ | ▪ | our clients’ perception of our ability to add value through our services; |
§ | ▪ | the market demand for the services we provide; |
§ | ▪ | an increase in the number of clients in the government sector in the industries we serve; |
§ | ▪ | the introduction of new services by us or our competitors; |
§ | ▪ | our competition and the pricing policies of our competitors; and |
§ | ▪ | current economic conditions. |
If we are unable to achieve and maintain adequate overall utilization, as well as maintain or increase the billing rates for our consultants, our financial results could materially suffer. In addition, our consultants oftentimes perform services at the physical locations of our clients. If there are natural disasters, disruptions to travel and transportation or problems with communications systems, our ability to perform services for, and interact with, our clients at their physical locations may be negatively impacted, which could have an adverse effect on our business and results of operations. The profitability of our fixed-fee engagements with clients may not meet our expectations if we underestimate the cost of these engagements when pricing them. When making proposals for fixed-fee engagements, we estimate the costs and timing for completing the engagements. These estimates reflect our best judgment regarding the efficiencies of our methodologies and consultants as we plan to deploy them on engagements. Any increased or unexpected costs or unanticipated delays in connection with the performance of fixed-fee engagements, including delays caused by factors outside our control, could make these contracts less profitable or unprofitable, which would have an adverse effect on our profit margin. For the years ended April 30, 2019, 2018, and 2017, fixed-fee engagements represented 27%, 28%, and 29% of our revenues, respectively. Changes in our accounting estimates and assumptions could negatively affect our financial position and results of operations. We prepare our consolidated financial statements in accordance with GAAP.U.S. generally accepted accounting principles (“GAAP”). These accounting principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements. We are also required to make certain judgments that affect the reported amounts of revenues and expenses during each reporting period. We periodically evaluate our estimates and assumptions including those relating to revenue recognition, restructuring, deferred compensation, goodwill and other intangible assets, contingent consideration, annual performance relatedperformance-related bonuses, allowance for doubtful accounts, share-based payments and deferred income taxes. We base ourActual results could differ from the estimates we make based on historical experience and various assumptions that we believe believed to be reasonable based on specific circumstances. Actual results could differ from these estimates,circumstances, and changes in accounting standards could have an adverse impact on our future financial position and results of operations. 
Foreign currency exchange rate risks may adversely affect our results of operations.A material portion of our revenue and expenses are generated by our operations in foreign countries, and we expect that our foreign operations will account for a material portion of our revenue and expenses in the future. Most of our international expenses and revenue are denominated in foreign currencies. As a result, our financial results could be affected by changes in foreign currency exchange rates or weak economic conditions in foreign markets in which we have operations, among other factors. Fluctuations in the value of those currencies in relation to the U.S. dollar have caused and will continue to cause dollar-translated amounts to vary from one period to another. Given the volatility of exchange rates, we may not be able to manage effectively our currency translation or transaction risks, which may adversely affect our financial condition and results of operations. 14
Unfavorable tax laws, tax law changes and tax authority rulings may adversely affect results. We are subject to income taxes in the U.S. and in various foreign jurisdictions. Domestic and international tax liabilities are subject to the allocation of income among various tax jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings among countries with differing statutory tax rates or changes in tax laws. The amount of income taxes and other taxes are subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. authorities. If these audits result in assessments different from estimated amounts recorded, future financial results may include unfavorable tax adjustments. Future changes in tax laws, treaties or regulations, and their interpretations or enforcement, may be unpredictable, particularly as taxing jurisdictions face an increasing number of political, budgetary and other fiscal challenges. Tax rates in the jurisdictions in which we operate may change as a result of macroeconomic and other factors outside of our control, making it increasingly difficult for multinational corporations like ourselves to operate with certainty about taxation in many jurisdictions. As a result, we could be materially adversely affected by future changes in tax law or policy (or in their interpretation or enforcement) in the jurisdictions where we operate, including the United States, which could have a material adverse effect on our business, cash flow, results of operations, financial condition, as well as our effective income tax rate. Technical guidance on a broad range of topics related to the Tax Cuts and Jobs Act could have a material impact on our business and our company. On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law, making significant changes to the taxation of U.S. business entities. The most significant impacts of the Tax Act on the Company include (1) a reduction in the U.S. corporate federal statutory income tax rate from 35.0% to 21.0% effective January 1, 2018, and (2) a one-time tax on accumulated foreign earnings (the “Transition Tax”), which is applicable at a rate of 15.5% on cash and other specified assets and 8% on other residual earnings. We finalized our computation of the Transition Tax and remeasurement of deferred tax balances in accordance with our current understanding of the Tax Act and currently available guidance. For additional information regarding the Tax Act and the tax amounts recorded in our consolidated financial statements, see Note 8—Income Taxes. While our financial statements as of and for the year ended April 30, 2019 reflect the impact due to the Tax Act, further technical guidance on a broad range of topics related to the Tax Act is expected and may have a material adverse effect on our business, cash flow, results from operations, financial condition, as well as our effective income tax rate. We have deferred tax assets that we may not be able to use under certain circumstances. If we are unable to generate sufficient future taxable income in certain jurisdictions, or if there is a significant change in the time period within which the underlying temporary differences become taxable or deductible, we could be required to increase our valuation allowances against our deferred tax assets. This would result in an increase in our effective tax rate, and an adverse effect on our future operating results. In addition, changes in statutory tax rates may also change our deferred tax assets or liability balances, with either a favorable or unfavorable impact on our effective tax rate. Our deferred tax assets may also be impacted by new legislation or regulation. Our indebtedness could impair our financial condition and reduce funds available to us for other purposes and our failure to comply with the covenants contained in our debt instruments could result in an event of default that could adversely affect our operating results.operations and financial condition. On June 15, 2016,December 19, 2018, the Company entered into a senior secured $400$650.0 millionAmended and Restated Credit Agreement with a syndicate of banks made up of a $275 million term loan and $125 million of secured revolving loans.banks. As of April 30, 2017, $259.52019, $226.9 million was outstanding under the term loan and there is no outstanding balance under the revolving loans.loan. If we do not generate sufficient cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing plans. We cannot ensure that we wouldwill be able to refinance our debt or enter into alternative financing plans in adequate amounts on commercially reasonable terms, terms acceptable to us or at all, or that such plans guarantee that we would be able to meet our debt obligations. Our existing debt agreements contain financial and restrictive covenants that limit the total amount of debt that we may incur and may limit our ability to engage in other activities that we may believe are in our long-term best interests, including the disposition or acquisition of assets or other companies or the payment of dividends to our shareholders.stockholders. Our failure to comply with these covenants may result in an event of default, which, if not cured or waived, could accelerate the maturity of our indebtedness or prevent us from accessing additional funds under our revolving credit facility. If the maturity of our indebtedness is accelerated, we may not have sufficient cash resources to satisfy our debt obligations, and we may not be able to continue our operations as planned. The expansion of social media platforms presents new risks and challenges that can cause damage to our brand and reputation. There has been a marked increase in the use of social media platforms, including weblogs (or blogs), social media websites and other forms of Internet-based communications, which allow individuals access to a broad audience of 15
consumers and other interested persons. The inappropriate and/or unauthorized use of such media vehicles by our clients or employees could increase our costs, cause damage to our brand, lead to litigation or result in information leakage, including the improper collection and/or dissemination of personally identifiable information of candidates and clients. In addition, negative or inaccurate posts or comments about us on any social networking platforms could damage our reputation, brand image and goodwill. Technological advances may significantly disrupt the labor market and weaken demand for human capital at a rapid rate. Our success is directly dependent on our customers’ demands for talent. As technology continues to evolve, more tasks currently performed by people may be replaced by automation, robotics, machine learning, artificial intelligence and other technological advances outside of our control. The human resource industry has been and continues to be impacted by significant technological changes, enabling companies to offer services competitive with ours. Many of those technological changes may (i) reduce demand for our services, (ii) enable the development of competitive products or services, or (iii) enable our current customers to reduce or bypass the use of our services, particularly in lower-skill job categories. Additionally, rapid changes in artificial intelligence and block chain-based technology are increasing the competitiveness landscape. We may not be successful in anticipating or responding to these changes and demand for our services could be further reduced by advanced technologies being deployed by our competitors. The effort to gain technological expertise and develop new technologies in our business may require us to incur significant expenses. In some cases, we depend on key vendors and partners to provide technology and other support. If these third parties fail to perform their obligations or cease to work with us, our ability to execute on our strategic initiatives could be adversely affected. Limited protection of our intellectual property could harm our business, and we face the risk that our services or products may infringe upon the intellectual property rights of others. We cannot guarantee that trade secrets, trademark and copyright law protections are adequate to deter misappropriation of our IP (which has become an important part of our business). Existing laws of some countries in which we provide services or products may offer only limited protection of our IP rights. Redressing infringements may consume significant management time and financial resources. Also, we may be unable to detect the unauthorized use of our IP and take the necessary steps to enforce our rights, which may have a material adverse impact on our business, financial condition or results of operations. We cannot be sure that our services and products, or the products of others that we offer to our clients, do not infringe on the IP rights of third parties, and we may have infringement claims asserted against us or our clients. These claims may harm our reputation, result in financial liability and prevent us from offering some services or products. We have invested in specialized technology and other intellectual property for which we may fail to fully recover our investment, or which may become obsolete. We have invested in developing specialized technology and IP, including proprietary systems, processes and methodologies, such as Searcher Express and KF Insight, that we believe provide us a competitive advantage in serving our current clients and winning new engagements. Many of our service and product offerings rely on specialized technology or IP that is subject to rapid change, and to the extent that this technology and IP is rendered obsolete and of no further use to us or our clients, our ability to continue offering these services, and grow our revenues, could be adversely affected. There is no assurance that we will be able to develop new, innovative or improved technology or IP or that our technology and IP will effectively compete with the IP developed by our competitors. If we are unable to develop new technology and IP or if our competitors develop better technology or IP, our revenues and results of operations could be adversely affected. We rely heavily on our information systems and if we lose that technology, or fail to further develop our technology, our business could be harmed. Our success depends in large part upon our ability to store, retrieve, process, manage and protect substantial amounts of information. To achieve our strategic objectives and to remain competitive, we must continue to develop and enhance our information systems. This may require the acquisition of equipment and software and the development of new proprietary software, either internally or through independent consultants. If we are unable to design, develop, implement and utilize, in a cost-effective manner, information systems that provide the capabilities necessary for us to compete effectively, or for any reason any interruption or loss of our information processing capabilities occurs, this could harm our business, results of operations and financial condition. We cannot be sure that our insurance against the effects of a disaster regarding our information technology or our disaster recovery procedures currently in place will continue to be available at reasonable prices, cover all our losses or compensate us for the possible loss of clients occurring during any period that we are unable to provide business services. We are subject to risk as it relates to software that we license from third parties. We license software from third parties, much of which is integral to our systems and our business. The licenses are generally terminable if we breach our obligations under the license agreements. If any of these relationships were terminated or if any of these parties were to cease doing business or cease to support the applications we currently 16
utilize, we may be forced to spend significant time and money to replace the licensed software. However, we cannot assure you that the necessary replacements will be available on reasonable terms, if at all. We are increasingly dependent on third parties for the execution of critical functions. We do not maintain all of our technology infrastructure, and we have outsourced certain other critical applications or business processes to external providers, including cloud-based services. The failure or inability to perform on the part of one or more of these critical suppliers or partners could cause significant disruptions and increased costs. We are also dependent on security measures that some of our third-party vendors and customers are taking to protect their own systems and infrastructures. If our third-party vendors do not maintain adequate security measures, do not require their sub-contractors to maintain adequate security measures, do not perform as anticipated and in accordance with contractual requirements, or become targets of cyber-attacks, we may experience operational difficulties and increased costs, which could materially and adversely affect our business. Cyber security vulnerabilities and incidents could lead to the improper disclosure of information obtained from our clients, candidates and employees that could result in liability and harm to our reputation. We use information technology and other computer resources to carry out operational and marketing activities and to maintain our business records.We rely on information technology systems to process, transmit, and store electronic information and to communicate among our locations around the world and with our clients, partners, and employees. The breadth and complexity of this infrastructure increases the potential risk of security breaches which could lead to potential unauthorized disclosure of confidential information. Our systems and networks are vulnerable to computer viruses, malware, worms, hackers and other security issues, including physical and electronic break-ins, router disruption, sabotage or espionage, disruptions from unauthorized access and tampering (including through social engineering such as phishing attacks), impersonation of authorized users and coordinated denial-of-service attacks. For example, in the past we have experienced cyber security incidents resulting from unauthorized access to our systems, which to date have not had a material impact on our business or results of operations; however, there is no assurance that such impacts will not be material in the future. The continued occurrence of high-profile data breaches against various entities and organizations provides evidence of an external environment that is increasingly hostile to information security. This environment demands that we continuously improve our design and coordination of security controls across our business groups and geographies in order to protect information that we develop or that is obtained from our clients, candidates and employees. Despite these efforts, given the ongoing and increasingly sophisticated attempts to access the information of entities, our security controls over this information, our training of employees, and other practices we follow may not prevent the improper disclosure of such information. Our efforts and the costs incurred to bolster our security against attacks cannot provide absolute assurance that future data breaches will not occur. We depend on our overall reputation and brand name recognition to secure new engagements. Perceptions that we do not adequately protect the privacy of information could inhibit attaining new engagements, qualified consultants and could potentially damage currently existing client relationships. Data security, data privacy and data protection laws, such as the European Union General Data Protection Regulation (“GDPR”), and other evolving regulations and cross-border data transfer restrictions, may limit the use of our services, increase our costs and adversely affect our business. We are subject to numerous U.S. and foreign jurisdiction laws and regulations designed to protect client, colleague, supplier and company data, such as the GDPR, which became effective in May 2018, and requires companies to meet stringent requirements regarding the handling of personal data, including its use, protection and transfer and the ability of persons whose data is stored to correct or delete such data about themselves. Complying with the enhanced obligations imposed by the GDPR has resulted and may continue to result in additional costs to our business and has required and may further require us to amend certain of our business practices. Failure to meet the GDPR requirements could result in significant penalties, including fines up to 4% of annual worldwide revenue. The GDPR also confers a private right of action on certain individuals and associations. Laws and regulations in this area are evolving and generally becoming more stringent. For example, the New York State Department of Financial Services has issued cybersecurity regulations that outline a variety of required security measures for protection of data. Other U.S. states, including California and South Carolina, have also recently enacted cybersecurity laws requiring certain security measures of regulated entities that are broadly similar to GDPR requirements, and we expect that other states will continue to do so. As these laws continue to evolve, we may be required to make changes to our services, solutions and/or products so as to enable the Company and/or our clients to meet the new legal requirements, including by taking on more onerous obligations in our contracts, limiting our storage, transfer and processing of data and, in some cases, limiting our service and/or solution offerings in certain locations. Changes in these laws, or the interpretation and application thereof, may also increase our potential exposure through significantly higher potential penalties for non-compliance. The costs of compliance with, and other burdens imposed by, such laws and regulations and client demand in this area may limit the use of, or demand for, our services, solutions and/or products, make it more difficult and costly to meet client expectations, or lead to significant fines, penalties or liabilities for noncompliance, any of which could adversely affect our business, financial condition, and results of operations. 17
In addition, due to the uncertainty and potentially conflicting interpretations of these laws, it is possible that such laws and regulations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us to comply with applicable laws or satisfactorily protect personal information could result in governmental enforcement actions, litigation, or negative publicity, any of which could inhibit sales of our services, solutions and/or products. Further, enforcement actions and investigations by regulatory authorities related to data security incidents and privacy violations continue to increase. It is possible that future enactment of more restrictive laws, rules or regulations and/or future enforcement actions or investigations could have an adverse impact on us through increased costs or restrictions on our businesses and noncompliance could result in regulatory penalties and significant legal liability. Acquisitions, or our inability to effect acquisitions, may have an adverse effect on our business. We have completed several strategic acquisitions of businesses in the last several years, including our acquisition of Hay Group in fiscal 2016. Targeted acquisitions have been part of our growth strategy, and we may in the future selectively acquire businesses that are complementary to our existing service offerings. However, we cannot be certain that we will be able to continue to identify appropriate acquisition candidates or acquire them on satisfactory terms. Our ability to consummate such acquisitions on satisfactory terms will depend on: | ▪ | the extent to which acquisition opportunities become available; |
| ▪ | our success in bidding for the opportunities that do become available; |
| ▪ | negotiating terms that we believe are reasonable; and |
| ▪ | regulatory approval, if required. |
Our ability to make strategic acquisitions may also be conditioned on our ability to fund such acquisitions through the incurrence of debt or the issuance of equity. Our credit agreement dated as of December 19, 2018 limits us from consummating acquisitions unless we are in pro forma compliance with our financial covenants, and our pro forma domestic liquidity after giving effect to the acquisition is at least $50.0 million, and certain other conditions are met. If we are required to incur substantial indebtedness in connection with an acquisition, and the results of the acquisition are not favorable, the increased indebtedness could decrease the value of our equity. In addition, if we need to issue additional equity to consummate an acquisition, doing so would cause dilution to existing stockholders. If we are unable to make strategic acquisitions, or the acquisitions we do make are not on terms favorable to us or not effected in a timely manner, it may impede the growth of our business, which could adversely impact our profitability and our stock price. We have provisions that make an acquisition of us more difficult and expensive. Anti-takeover provisions in our Certificate of Incorporation, our Bylaws and under Delaware law make it more difficult and expensive for us to be acquired in a transaction that is not approved by our Board of Directors. Some of the provisions in our Certificate of Incorporation and Bylaws include: | ▪ | limitations on stockholder actions; |
| ▪ | advance notification requirements for director nominations and actions to be taken at stockholder meetings; and |
| ▪ | the ability to issue one or more series of preferred stock by action of our Board of Directors. |
These provisions could discourage an acquisition attempt or other transaction in which stockholders could receive a premium over the current market price for the common stock. We may not be able to successfully integrate or realize the expected benefits from our acquisitions. Our future success may depend in part on our ability to complete the integration of acquisition targets successfully into our operations. The process of integrating an acquired business may subject us to a number of risks, including: | ▪ | diversion of management attention; |
| ▪ | amortization of intangible assets, adversely affecting our reported results of operations; |
| ▪ | inability to retain and/or integrate the management, key personnel and other employees of the acquired business; |
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| ▪ | inability to properly integrate businesses resulting in operating inefficiencies; |
| ▪ | inability to establish uniform standards, disclosure controls and procedures, internal control over financial reporting and other systems, procedures and policies in a timely manner; |
| ▪ | inability to retain the acquired company’s clients; |
| ▪ | exposure to legal claims for activities of the acquired business prior to acquisition; and |
| ▪ | incurrence of additional expenses in connection with the integration process. |
If our acquisitions are not successfully integrated, our business, financial condition and results of operations, as well as our professional reputation, could be materially adversely affected. Further, we cannot assure that acquisitions will result in the financial, operational or other benefits that we anticipate. Some acquisitions may not be immediately accretive to earnings and some expansion may result in significant expenditures. Businesses we acquire may have liabilities or adverse operating issues which could harm our operating results. Businesses we acquire may have liabilities or adverse operating issues, or both, that we either fail to discover through due diligence or underestimate prior to the consummation of the acquisition. These liabilities and/or issues may include the acquired business’ failure to comply with, or other violations of, applicable laws, rules or regulations or contractual or other obligations or liabilities. As the successor owner, we may be financially responsible for, and may suffer harm to our reputation or otherwise be adversely affected by, such liabilities and/or issues. An acquired business also may have problems with internal controls over financial reporting, which could in turn cause us to have significant deficiencies or material weaknesses in our own internal controls over financial reporting. These and any other costs, liabilities, issues, and/or disruptions associated with any past or future acquisitions, and the related integration, could harm our operating results. As a result of our acquisitions, we have substantial amounts of goodwill and intangible assets, and changes in business conditions could cause these assets to become impaired, requiring write-downs that would adversely affect our operating results. All of our acquisitions have been accounted for as purchases and involved purchase prices well in excess of tangible asset values, resulting in the creation of a significant amount of goodwill and other intangible assets. As of April 30, 2019, goodwill and purchased intangibles accounted for approximately 25% and 4%, respectively, of our total assets. Under U.S. GAAP, we do not amortize goodwill and intangible assets acquired in a purchase business combination that are determined to have indefinite useful lives, but instead review them annually (or more frequently if impairment indicators arise) for impairment. As discussed above, in connection with the Plan, the Company now offers substantially all of the Company’s current products and services using the “Korn Ferry” name, branding and trademarks, and has sunset substantially all sub-brands, including Futurestep, Hay Group and Lominger, among others. The Hay Group and Lominger brands came to the Company through acquisitions and, in connection with the accounting for those acquisitions, $106.6 million of the purchase price was allocated to indefinite lived tradename intangible assets. On June 12, 2018, the Company concluded that as a result of the decision to discontinue the use of such sub-brands in the near term, the Company was required under U.S. generally accepted accounting principles to record in the first quarter of fiscal 2019 a one-time, non-cash intangible asset impairment charge of $106.6 million. The discontinuation of such brands could adversely affect our business. Further, although we have to date determined that none of our other assets have been impaired, future events or changes in circumstances that result in an impairment of goodwill or other intangible assets would have a negative impact on our profitability and operating results. An impairment in the carrying value of goodwill and other intangible assets could negatively impact our consolidated results of operations and net worth. Goodwill is initially recorded as the excess of amounts paid over the fair value of net assets acquired. While goodwill is not amortized, it is reviewed for impairment at least annually or more frequently if impairment indicators are present. In assessing the carrying value of goodwill, we make qualitative and quantitative assumptions and estimates about revenues, operating margins, growth rates and discount rates based on our business plans, economic projections, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and management’s judgment in applying these factors. Goodwill valuations have been calculated using an income approach based on the present value of future cash flows of each reporting unit and a market approach. We could be required to evaluate the carrying value of goodwill prior to the annual assessment if we experience 19
unexpected, significant declines in operating results or sustained market capitalization declines. These types of events and the resulting analyses could result in goodwill impairment charges in the future. Impairment charges, such as the impairment charge that we recorded in the first quarter of fiscal 2019 related to the discontinuation of the Hay Group and Lominger brands, could substantially affect our results of operations and net worth in the periods of such charges. We are a cyclical Company whose performance is tied to local and global economic conditions. Demand for our services is affected by global economic conditions and the general level of economic activity in the geographic regions and industries in which we operate. When conditions in the global economy, including the credit markets deteriorate, or economic activity slows, many companies hire fewer permanent employees and some companies, as a cost-saving measure, choose to rely on their own human resources departments rather than third-party search firms to find talent, and under these conditions, companies may cut back on human resource initiatives, all of which negatively affects our financial condition and results of operations. We may also experience more competitive pricing pressure during periods of economic decline. If the geopolitical uncertainties result in a reduction in business confidence, if the national or global economy or credit market conditions in general deteriorate, the unemployment rate increases or any changes occur in U.S. trade policy (including any increases in tariffs that result in a trade war), such uncertainty or changes could put negative pressure on demand for our services and our pricing, resulting in lower cash flows and a negative effect on our business, financial condition and results of operations. In addition, some of our clients may experience reduced access to credit and lower revenues resulting in their inability to meet their payment obligations to us. We face risks associated with social and political instability, legal requirements and economic conditions in our international operations. We operate in 52 countries and, during the year ended April 30, 2019, generated 55% of our fee revenue from operations outside of the U.S. We are exposed to the risk of changes in social, political, legal and economic conditions inherent in international operations. Examples of risks inherent in transacting business worldwide that we are exposed to include: | ▪ | uncertainties and instability in economic and market conditions caused by the United Kingdom’s (the “U.K.”) vote to exit the E.U. (“Brexit”); |
| ▪ | uncertainty regarding how the U.K.’s access to the E.U. Single Market and the wider trading, legal, regulatory and labor environments, especially in the U.K. and E.U., will be impacted by Brexit, including the resulting impact on our business and that of our clients; |
| ▪ | changes in and compliance with applicable laws and regulatory requirements, including U.S. laws affecting the activities of U.S. companies abroad, including the Foreign Corrupt Practices Act of 1977 and sanctions programs administered by the U.S. Department of the Treasury Office of Foreign Assets Control, and similar foreign laws such as the U.K. Bribery Act, as well as the fact that many countries have legal systems, local laws and trade practices that are unsettled and evolving, and/or commercial laws that are vague and/or inconsistently applied; |
| ▪ | difficulties in staffing and managing global operations, which could impact our ability to maintain an effective system of internal control; |
| ▪ | difficulties in building and maintaining a competitive presence in existing and new markets; |
| ▪ | social, economic and political instability; |
| ▪ | differences in cultures and business practices; |
| ▪ | statutory equity requirements; |
| ▪ | differences in accounting and reporting requirements; |
| ▪ | differences in labor and market conditions; |
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| ▪ | potential adverse tax consequences; |
| ▪ | multiple regulations concerning pay rates, benefits, vacation, statutory holiday pay, workers’ compensation, union membership, termination pay, the termination of employment, and other employment laws; and |
| ▪ | the introduction of greater uncertainty with respect to trade policies, tariffs, disputes or disruptions, the termination or suspension of treaties, boycotts and government regulation affecting trade between the U.S. and other countries. |
We cannot ensure that one or more of these factors will not harm our business, financial condition or results of operations. The United Kingdom’s withdrawal from the E.U. may adversely impact our operations in the United Kingdom and elsewhere. In fiscal 2019, 10.5% of our fee revenue was recorded in the U.K. The British government and the E.U. continue to negotiate the terms of the U.K.'s future relationship with the E.U. While many separation issues have been resolved, significant uncertainty remains. The uncertainties surrounding the timing and terms of the U.K.’s exit and its consequences could adversely impact customer and investor confidence, result in additional market volatility and adversely affect our businesses and results of operations. Completion of a so-called “hard/no-deal Brexit,” whereby the U.K. exits the E.U. with no negotiated market access or agreements on issues such as customs and citizen mobility, would likely cause economic, logistical, and legal disruptions. These impacts, and others that we cannot currently anticipate, could result in delays or reductions in contract awards, canceled contracts, changes in exchange rates, difficulty in recruiting or in gaining permission to employ existing staff, or less favorable payment terms. At this time, we cannot predict the impact that an actual exit from the E.U. will have on our business generally and our UK and European operations more specifically, and no assurance can be given that our operating results, financial condition and prospects would not be adversely impacted by the result. The interest rates under our Credit Agreement and related interest rate swap may be impacted by the phase-out of the London Interbank Offered Rate (“LIBOR”). LIBOR is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a reference for setting the interest rates on loans globally. We generally use LIBOR as a reference rate to calculate interest rates under our credit facility. In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear if LIBOR will cease to exist at that time or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index, the Secured Overnight Financing Rate (“SOFR”), calculated using short-term repurchase agreements backed by Treasury securities. Whether or not SOFR, or another alternative reference rate, attains market traction as a LIBOR replacement tool remains in question. If LIBOR ceases to exist, we may need to amend our Credit Agreement and related interest rate swap to replace LIBOR with an agreed upon replacement index, and certain of the interest rates under our Credit Agreement may change. The new rates may not be as favorable to us as those in effect prior to any LIBOR phase-out. You may not receive the level of dividends provided for in the dividend policy our Board of Directors has adopted or any dividends at all. We are not obligated to pay dividends on our common stock. Our Board of Directors adopted a dividend policy on December 8, 2014, that reflects an intention to distribute to our stockholders a regular quarterly cash dividend of $0.10 per share of common stock. Although the Company paid our first dividend under this program on April 9, 2015 and has declared a quarterly dividend every quarter since the adoption of the dividend policy, the declaration and payment of all future dividends to holders of our common stock are subject to the discretion of our Board of Directors, which may amend, revoke or suspend our dividend policy at any time and for any reason, including earnings, capital requirements, financial conditions and other factors our Board of Directors may deem relevant. The terms of our indebtedness may also restrict us from paying cash dividends on our common stock under certain circumstances. See below “—Our ability to pay dividends will be restricted by agreements governing our debt, including our credit agreement, and by Delaware law.” Over time, our capital and other cash needs may change significantly from our current needs, which could affect whether we pay dividends and the level of any dividends we may pay in the future. If we were to use borrowings under our credit facility to fund our payment of dividends, we would have less cash and/or borrowing capacity available for future dividends and other purposes, which could negatively affect our financial condition, our results of operations, our liquidity and our ability to maintain and expand our business. Accordingly, you may not receive dividends in the intended amounts, or at all. Any reduction or elimination of dividends may negatively affect the market price of our common stock. 21
Our ability to pay dividends will be restricted by agreements governing our debt, including our credit agreement, and by Delaware law. Our credit agreement restricts our ability to pay dividends. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”Resources,” where we describe the terms of our indebtedness, including provisions limiting our ability to declare and pay dividends. As a result of such restrictions, we may be limited in our ability to pay dividends unless we amend our credit agreement or otherwise obtain a waiver from our lenders. In addition, as a result of general economic conditions, conditions in the lending markets, the results of our business or for any other reason, we may elect or be required to amend or refinance our senior credit facility, at or prior to maturity, or enter into additional agreements for indebtedness. Any such amendment, refinancing or additional agreement may contain covenants which could limit in a significant manner or entirely our ability to pay dividends to you.
Additionally, under the Delaware General Corporation Law (“DGCL”), our Board of Directors may not authorize payment of a dividend unless it is either paid out of surplus, as calculated in accordance with the DGCL, or if we do not have a surplus, it is paid out of net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. If, as a result of these restrictions, we are required to reduce or eliminate the payment of dividends, a decline in the market price or liquidity, or both, of our common stock could result. This may in turn result in losses by you. Our dividend policy may limit our ability to pursue growth opportunities. If we pay dividends at the level currently anticipated under our dividend policy, we may not retain a sufficient amount of cash to finance growth opportunities, meet any large unanticipated liquidity requirements or fund our operations in the event of a significant business downturn. In addition, because a portion of cash available will be distributed to holders of our common stock under our dividend policy, our ability to pursue any material expansion of our business, including through acquisitions, increased capital spending or other increases of our expenditures, will depend more than it otherwise would on our ability to obtain third party financing. We cannot assure you that such financing will be available to us at all, or at an acceptable cost. If we are unable to take timely advantage of growth opportunities, our future financial condition and competitive position may be harmed, which in turn may adversely affect the market price of our common stock. We may be subject to the actions of activist shareholders. Our Board of Directors and management team are increasingly dependent on third partiescommitted to acting in the best interest of all of our shareholders. We value constructive input from investors and regularly engage in dialogue with our shareholders regarding strategy and performance. Activist shareholders who disagree with the composition of the Board of Directors, our strategy or the way the Company is managed may seek to effect change through various strategies and channels. Responding to shareholder activism can be costly and time-consuming, disrupt our operations, and divert the attention of management and our employees from our strategic initiatives. Activist campaigns can create perceived uncertainties as to our future direction, strategy, or leadership and may result in the loss of potential business opportunities, harm our ability to attract new employees, investors, and customers, and cause our stock price to experience periods of volatility or stagnation. Our business could be disrupted as a result of actions of certain stockholders. If any of our stockholders commence a proxy contest, advocate for change, make public statements critical of our performance or business, or engage in other similar activities, then our business could be adversely affected because we may have difficulty attracting and retaining clients due to perceived uncertainties as to our future direction and negative public statements about our business; responding to proxy contests and other similar actions by stockholders is likely to result in us incurring substantial additional costs and significantly divert the attention of management and our employees; and, if individuals are elected to our Board with a specific agenda, the execution of critical functions.our strategic plan may be disrupted or a new strategic plan altogether may be implemented, which could have a material adverse impact on our business, financial condition or results of operations. Further, any of these matters or any such actions by stockholders may impact and result in volatility of the price of our common stock. We do not maintain allOur inability to successfully recover should we experience a disaster or other business continuity problem could cause material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability.
Should we experience a disaster or other business continuity problem, such as an earthquake, hurricane, terrorist attack, pandemic, security breach, power loss, telecommunications failure or other natural or man-made disaster, our continued success will depend, in part, on the availability of our personnel, our office facilities, and the proper functioning of our computer, telecommunication and other related systems and operations. In such an event, we could experience near-term operational challenges with regard to particular areas of our operations. In particular, our 22
ability to recover from any disaster or other business continuity problem will depend on our ability to protect our technology infrastructure and weagainst damage from business continuity events that could have outsourceda significant disruptive effect on our operations. We could potentially lose client data or experience material adverse interruptions to our operations or delivery of services to our clients in a disaster. A disaster on a significant scale or affecting certain other critical applicationsof our key operating areas within or business processes to external providers, including cloud-based services. The failureacross regions, or our inability to perform on the partsuccessfully recover should we experience a disaster or other business continuity problem, could materially interrupt our business operations and cause material financial loss, loss of onehuman capital, regulatory actions, reputational harm, damaged client relationships or more of these critical suppliers or partners could cause significant disruptions and increased costs.legal liability. Item 1B.Unresolved Staff Comments Not applicable. Item 2.Properties Our corporate office is located in Los Angeles, California. We lease our corporate office and all 114104 of our Executive Search, Hay Group,Advisory, and FuturestepRPO & Professional Search offices located in North America, EMEA, Asia Pacific and Latin America. As of April 30, 2017,2019, we leased an aggregate of approximately 1.4 million square feet of office space. The leases generally have remaining terms of one to 1311 years and contain customary terms and conditions. We believe that our facilities are adequate for our current needs, and we do not anticipate any difficulty replacing such facilities or locating additional facilities to accommodate any future growth. Item 3.Legal Proceedings From time to time, we are involved in litigation both as a plaintiff and a defendant, relating to claims arising out of our operations. As of the date of this report, we are not engaged in any legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on our business, financial condition or results of operations. Item 4.Mine Safety Disclosures Not applicable. Information about our Executive Officers of the Registrant Name | | | | | Name | | Age as of
April 30,
2017 2019 | | | Position | Gary D. Burnison | | 56 | 58 | | | President and Chief Executive Officer | Robert P. Rozek | | 56 | 58 | | | Executive Vice President, Chief Financial Officer and Chief Corporate Officer | Mark Arian | | 56 | 58 | | | Chief Executive Officer, Hay GroupAdvisory | Byrne Mulrooney | | 56 | 58 | | | Chief Executive Officer, FuturestepRPO Professional Search & Products |
Our executive officers serve at the discretion of our Board of Directors. There is no family relationship between any executive officer or director. The following information sets forth the business experience for at least the past five years for each of our executive officers. Gary D. Burnison has been President and Chief Executive Officer since July 2007. He was Executive Vice President and Chief Financial Officer from March 2002 until June 30, 2007, and Chief Operating Officer from November 2003 until June 30, 2007. Prior to joining Korn Ferry, Mr. Burnison was Principal and Chief Financial Officer of Guidance Solutions, a privately held consulting firm, from 1999 to 2001. Prior to that, he served as an executive officer and a member of the boardBoard of directorsDirectors of Jefferies and Company, Inc., the principal operating subsidiary of Jefferies Group, Inc. from 1995 to 1999. Earlier, Mr. Burnison was a partnerPartner at KPMG Peat Marwick. Mr. Burnison earned a bachelor’s degree in business administration from the University of Southern California. Robert P. Rozek joined the Company in February 2012 as our Executive Vice President and Chief Financial Officer and, in December 2015, also became our Chief Corporate Officer. Prior to joining Korn Ferry, he served as Executive Vice President and Chief Financial Officer of Cushman & Wakefield, Inc., a privately held commercial real estate services firm, from June 2008 to February 2012. Prior to joining Cushman & Wakefield, Inc., Mr. Rozek served as Senior Vice President and Chief Financial Officer of Las Vegas Sands Corp., a leading global developer of destination properties (integrated resorts) that feature premium accommodations, world-class gaming and entertainment, convention and exhibition facilities and many other amenities, from 2006 to 2008. Prior to that, Mr. Rozek held senior leadership positions at Eastman Kodak, and spent five years as a partnerPartner with PricewaterhouseCoopers LLP. Mr. Rozek is a graduate of Canisius College in New York with a bachelor’s degree in accounting. 23
Mark Arian joined the Company as Chief Executive Officer of Korn Ferry’s Hay GroupAdvisory segment in April 2017. Prior to Korn Ferry, Mr. Arian served as a Managing Principal at Ernst and Young LLP, a multinational professional services firm that provides audit, tax, business risk, technology and security risk services, and human capital services worldwide, from March 2014 until March of 2017. In that capacity, he led the People Advisory Services – Services—Financial Services Sector, and his responsibilities included commercial, people and key account leadership. Between 2008 and 2014, Mr. Arian held various leadership positions at AON and AON Hewitt, a provider of insurance, reinsurance, human capital and management consulting services, serving as an Executive Vice President and leading its strategic Mergers and Acquisitions (“M&A&A”) and business transformation offering globally. Mr. Arian has also held various leadership positions at Towers Perrin (now Wills Towers Watson) including serving as the Global M&A and Global Change Management Leader,leader, and Hewitt Associates, where Mr. Arian built and led the Corporate Restructuring and Change Practice. Mr. Arian is a graduate of Duke University and holds a juris doctorate from Columbia University. Byrne Mulrooney joined the Company in April 2010 as Chief Executive Officer of Futurestep.RPO & Professional Search. Prior to joining Korn Ferry, he was President and Chief Operating Officer of Flynn Transportation Services, a third partythird-party logistics company, from 2007 to 2010. Prior to that, he led Spherion’s workforce solutions business in North America, which provides workforce solutions in professional services and general staffing, including recruitment process outsourcing and managed services, from 2003 to 2007. Mr. Mulrooney held executive positions for almost 20 years at EDS and IBM in client services, sales, marketing and operations. Mr. Mulrooney is a graduate of Villanova University in Pennsylvania. He holds a master’s degree in management from Northwestern University’s J.L. Kellogg Graduate School of Management. 24
PART II. Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Our common stock is listed on the New York Stock Exchange under the symbol ‘KFY’. The following table sets forth the high and low sales price per share of the common stock for the periods indicated, as reported on the New York Stock Exchange: | | | | | | | | | | | | High | | | Low | | Fiscal Year Ended April 30, 2017 | | | | | | | | | First Quarter | | $ | 30.78 | | | $ | 18.57 | | Second Quarter | | $ | 24.85 | | | $ | 19.94 | | Third Quarter | | $ | 31.53 | | | $ | 19.95 | | Fourth Quarter | | $ | 33.14 | | | $ | 27.47 | | Fiscal Year Ended April 30, 2016 | | | | | | | | | First Quarter | | $ | 36.34 | | | $ | 30.73 | | Second Quarter | | $ | 36.74 | | | $ | 32.02 | | Third Quarter | | $ | 38.93 | | | $ | 28.69 | | Fourth Quarter | | $ | 31.27 | | | $ | 25.21 | |
On June 20, 2017,21, 2019, the last reported sales price on the New York Stock Exchange for the Company’s common stock, was $33.72$40.05 per share and there were approximately 9,70124,047 beneficial stockholders of the Company’s common stock. Performance Graph We have presented below a graph comparing the cumulative total stockholder return on the Company’s shares with the cumulative total stockholder return on (1) the Standard & Poor’s 500 Stock Index and (2) a company-established peer group. Cumulative total return for each of the periods shown in the performance graph is measured assuming an initial investment of $100 on April 30, 20122014 and the reinvestment of any dividends paid by the Company and any company in the peer group on the date the dividends were paid. Our peer group is comprised of a broad number of publicly traded companies, which are principally or in significant part involved in either professional staffing or consulting. The peer group is comprised of the following 1413 companies: CBIZ, Inc. (CBZ), FTI Consulting, Inc. (FCN), Heidrick & Struggles International, Inc. (HSII), Huron Consulting Group Inc. (HURN), ICF International, Inc. (ICFI), Insperity, Inc. (NSP), Kelly Services, Inc. (KELYA), Kforce Inc. (KFRC), Navigant Consulting, Inc. (NCI), Resources Connection, Inc. (RECN), Robert Half International, Inc. (RHI), The Dun & Bradstreet Corporation (DNB), Willis Towers Watson (WLTW) and TrueBlue, Inc. (TBI). We believe this group of professional services firms is reflective of similar sized companies in terms of our market capitalization, revenue or profitability, and therefore provides a more meaningful comparison of stock performance. The returns of each company have been weighted according to their respective stock market capitalization at the beginning of each measurement period for purposes of arriving at a peer group average. The stock price performance depicted in this graph is not necessarily indicative of future price performance. This graph will not be deemed to be incorporated by reference by any general statement incorporating this Annual Report on Form 10-K into any filing by us under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate this information by reference and shall not otherwise be deemed soliciting material or deemed filed under the Securities Act of 1933 or the Securities Exchange Act of 1934.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN(*) Among Korn/Korn Ferry, International, the S&P 500 Index, and a Peer Group 
Copyright© 2017Copyright© 2019 Standard & Poor’s,Poor's, a division of S&P Global. All rights reserved.
(*) | $100 invested on April 30, 20122014 in stock or index, including reinvestment of dividends. Fiscal year ended April 30, 2017.2019. |
25
Capital Allocation Approach The Company and its Board of Directors endorse a balanced approach to capital allocation. The Company’s first priority is to invest in growth initiatives, such as the hiring of consultants, the continued development of intellectual propertyIP and derivative products and services, and the investment in synergistic accretive M&A transactions that earn a return superior to the Company’sCompany's cost of capital. Next, the Company’s capital allocation approach contemplates the planned return of a portion of excess capital to stockholders, in the form of a regular quarterly dividend, subject to the factors discussed below under “Dividends” and in more detail in the “Risk Factors” section of this Annual Report on Form 10-K. Additionally, the Company considers share repurchases on an opportunistic basis and subject to the terms of our credit agreement.Credit Agreement. See Note 10— Long Term Debt for a description of the Credit Agreement. Dividends On December 8, 2014, the Board of Directors adopted a dividend policy, reflecting an intention to distribute to our stockholders a regular quarterly cash dividend of $0.10 per share. In fiscal 2016, the Board of Directors declared the following dividends: | | | | | | | | | | | | | | | Declaration Date | | Dividend Per Share | | Record Date | | Total Amount (in thousands) | | Payment Date | June 10, 2015 | | $0.10 | | June 25, 2015 | | $5,115 | | July 15, 2015 | September 7, 2015 | | $0.10 | | September 25, 2015 | | $5,174 | | October 15, 2015 | December 8, 2015 | | $0.10 | | December 21, 2015 | | $5,770 | | January 15, 2016 | March 8, 2016 | | $0.10 | | March 25, 2016 | | $5,774 | | April 15, 2016 |
In fiscal 2017, the Board of Directors declared the following dividends:
| | | | | | | | | | | | | | | Declaration Date | | Dividend Per Share | | Record Date | | Total Amount (in thousands) | | Payment Date | June 15, 2016 | | $0.10 | | June 27, 2016 | | $5,909 | | July 15, 2016 | September 7, 2016 | | $0.10 | | September 26, 2016 | | $5,841 | | October 14, 2016 | December 6, 2016 | | $0.10 | | December 20, 2016 | | $5,796 | | January 17, 2017 | March 6, 2017 | | $0.10 | | March 23, 2017 | | $5,772 | | April 14, 2017 |
The declaration and payment of future dividends under the quarterly dividend policy will be at the discretion of the Board of Directors and will depend upon many factors, including the Company’s earnings, capital requirements,
financial conditions, the terms of the Company’s indebtedness and other factors that the Board of Directors may deem to be relevant. The Board of Directors may amend, revoke or suspend the dividend policy at any time and for any reason. Our senior secured revolving credit agreement, dated June 15, 2016, permits us to pay dividends to our stockholders and make share repurchases so long as our pro forma leverage ratio, defined as, the ratio of consolidated funded indebtedness to consolidated adjusted EBITDA, is no greater than 2.50 to 1.00, and our pro forma domestic liquidity is at least $50.0 million.
Stock Repurchase Program On December 8, 2014,March 6, 2019, the Board of Directors approved an increase in the Company’s stock repurchase program of approximately $200 million, which brings our available capacity to an aggregate of $150.0repurchase shares in the open market or privately negotiated transactions to approximately $250 million. Common stock may be repurchased from time to time in open market or privately negotiated transactions at the Company’s discretion subject to market conditions and other factors. During the second quarter of fiscal 2017, the Company began to repurchase shares through this program. The Company repurchased approximately $37.4 million, $33.1 million and $28.8 million of the Company’s common stock during fiscal 2017. Our dividend policy as well as any2019, 2018 and 2017, respectively. Any decision to execute on our stock repurchase program will depend on our earnings, capital requirements, financial condition and other factors considered relevant by our Board of Directors. Our credit agreement permits us to pay dividends to our stockholders and make share repurchases so long as our pro forma leverage ratio is no greater than 2.503.25 to 1.00, and our pro forma domestic liquidity is at least $50.0 million.million, including the revolving credit commitment minus amounts outstanding on the revolver, issued letters of credit and swing loans. Issuer Purchases of Equity Securities The following table summarizes common stock repurchased by us during the fourth quarter of fiscal 2017:2019: | | | | | | | | | | | | | | | | | | | | Shares
Purchased
(1) | | | Average
Price Paid
Per Share | | | Shares
Purchased
as Part of
Publicly-
Announced
Programs (2) | | | Approximate
Dollar Value of
Shares that
May Yet be
Purchased
under the
Programs (2) | | February 1, 2017 — February 28, 2017 | | | 174,384 | | | $ | 28.27 | | | | 174,384 | | | $ | 128.8 million | | March 1, 2017 — March 31, 2017 | | | 62,177 | | | $ | 30.96 | | | | 61,380 | | | $ | 126.9 million | | April 1, 2017 — April 30, 2017 | | | 196,689 | | | $ | 30.65 | | | | 185,714 | | | $ | 121.2 million | | | | | | | | | | | | | | | | | | | Total | | | 433,250 | | | $ | 29.74 | | | | 421,478 | | | | | | | | | | | | | | | | | | | | | | |
| | Shares Purchased (1) | | | Average Price Paid Per Share | | | Shares Purchased as Part of Publicly- Announced Programs (2) | | | Approximate Dollar Value of Shares that May Yet be Purchased under the Programs (2) | February 1, 2019 — February 28, 2019 | | | — | | | $ | — | | | | — | | | $50.7 million | March 1, 2019 — March 31, 2019 | | | 3,245 | | | $ | 48.66 | | | | — | | | $250.7 million | April 1, 2019 — April 30, 2019 | | | 904 | | | $ | 46.50 | | | | — | | | $250.7 million | Total | | | 4,149 | | | $ | 48.19 | | | | — | | | |
(1) | Represents withholding of a portion of restricted shares to cover taxes on vested restricted shares and shares purchased as part of our publicly announced programs.shares. |
(2) | On December 8, 2014, theMarch 6, 2019, our Board of Directors also approved an increase into the Company’s stockshare repurchase program to an aggregate of $150.0$250 million. The shares can be repurchased in open market transactions or privately negotiated transactions at the Company’s discretion. We repurchased approximately $12.5 million of the Company’s common stock under theThe share repurchase program during the fourth quarter of fiscal 2017.has no expiration date. |
26
Item 6.Selected Financial Data The following selected financial data are qualified by reference to, and should be read together with, our “Audited Consolidated Financial Statements and Notes to Consolidated Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report on Form 10-K. The selected statementstatements of income data set forth below for the fiscal years ended April 30, 2017, 20162019, 2018 and 20152017 and the selected balance sheetsheets data as of April 30, 2019 and 2018 are derived from our audited consolidated financial statements, appearing elsewhere in this Annual Report on Form 10-K. The selected balance sheets data as of April 30, 2017, 2016 and 2016 are derived from our consolidated financial statements, audited by Ernst & Young LLP, appearing elsewhere in this Form 10-K. The selected balance sheet data as of April 30, 2015 2014 and 2013 and the selected statement of income data set forth below for the fiscal years ended April 30, 20142016 and 20132015 are derived from audited consolidated financial statements and notes thereto which are not included in this Annual Report on Form 10-K report and were audited by Ernst & Young LLP.
10-K. | | | | | | | | | | | | | | | | | | | | | | | | Year Ended April 30, | | | | | 2017 | | | 2016 (1) | | | 2015 (2) | | | 2014 | | | 2013 | | | | | (in thousands, except per share data and other operating data) | | Selected Statement of Income Data: | | | | | | | | | | | | | | | | | | | | | Fee revenue | | $ | 1,565,521 | | | $ | 1,292,112 | | | $ | 1,028,152 | | | $ | 960,301 | | | $ | 812,831 | | Reimbursed out-of-pocket engagement expenses | | | 56,148 | | | | 54,602 | | | | 37,914 | | | | 35,258 | | | | 36,870 | | | | | | | | | | | | | | | | | | | | | | | Total revenue | | | 1,621,669 | | | | 1,346,714 | | | | 1,066,066 | | | | 995,559 | | | | 849,701 | | Compensation and benefits | | | 1,071,507 | | | | 897,345 | | | | 691,450 | | | | 646,889 | | | | 555,346 | | General and administrative expenses | | | 226,232 | | | | 213,018 | | | | 145,917 | | | | 152,040 | | | | 142,771 | | Reimbursed expenses | | | 56,148 | | | | 54,602 | | | | 37,914 | | | | 35,258 | | | | 36,870 | | Cost of services | | | 71,482 | | | | 59,824 | | | | 39,692 | | | | 39,910 | | | | 28,977 | | Depreciation and amortization | | | 47,260 | | | | 36,220 | | | | 27,597 | | | | 26,172 | | | | 19,004 | | Restructuring charges, net (3) | | | 34,600 | | | | 33,013 | | | | 9,468 | | | | 3,682 | | | | 22,857 | | | | | | | | | | | | | | | | | | | | | | | Total operating expenses | | | 1,507,229 | | | | 1,294,022 | | | | 952,038 | | | | 903,951 | | | | 805,825 | | | | | | | | | | | | | | | | | | | | | | | Operating income | | | 114,440 | | | | 52,692 | | | | 114,028 | | | | 91,608 | | | | 43,876 | | Other income (loss), net | | | 11,820 | | | | (4,167 | ) | | | 7,458 | | | | 9,769 | | | | 6,309 | | Interest (expense) income, net | | | (10,251 | ) | | | 237 | | | | (1,784 | ) | | | (2,363 | ) | | | (2,365 | ) | Equity in earnings of unconsolidated subsidiaries, net | | | 333 | | | | 1,631 | | | | 2,181 | | | | 2,169 | | | | 2,110 | | Income tax provision | | | 29,104 | | | | 18,960 | | | | 33,526 | | | | 28,492 | | | | 16,637 | | | | | | | | | | | | | | | | | | | | | | | Net income | | | 87,238 | | | | 31,433 | | | | 88,357 | | | | 72,691 | | | | 33,293 | | Net income attributable to noncontrolling interest | | | (3,057 | ) | | | (520 | ) | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | Net income attributable to Korn/Ferry International | | $ | 84,181 | | | $ | 30,913 | | | $ | 88,357 | | | $ | 72,691 | | | $ | 33,293 | | | | | | | | | | | | | | | | | | | | | | | Basic earnings per share | | $ | 1.48 | | | $ | 0.58 | | | $ | 1.78 | | | $ | 1.51 | | | $ | 0.71 | | Diluted earnings per share | | $ | 1.47 | | | $ | 0.58 | | | $ | 1.76 | | | $ | 1.48 | | | $ | 0.70 | | Basic weighted average common shares outstanding | | | 56,205 | | | | 52,372 | | | | 49,052 | | | | 48,162 | | | | 47,224 | | Diluted weighted average common shares outstanding | | | 56,900 | | | | 52,929 | | | | 49,766 | | | | 49,145 | | | | 47,883 | | Cash dividends declared per common share | | $ | 0.40 | | | $ | 0.40 | | | $ | 0.10 | | | $ | — | | | $ | — | | Other Operating Data: | | | | | | | | | | | | | | | | | | | | | Fee revenue by business segment: | | | | | | | | | | | | | | | | | | | | | Executive search: | | | | | | | | | | | | | | | | | | | | | North America | | $ | 356,625 | | | $ | 371,345 | | | $ | 330,634 | | | $ | 306,768 | | | $ | 290,317 | | EMEA | | | 146,506 | | | | 144,319 | | | | 153,465 | | | | 147,917 | | | | 128,807 | | Asia Pacific | | | 80,169 | | | | 80,506 | | | | 84,148 | | | | 84,816 | | | | 73,221 | | Latin America | | | 34,376 | | | | 26,744 | | | | 29,160 | | | | 29,374 | | | | 30,134 | | | | | | | | | | | | | | | | | | | | | | | Total executive search | | | 617,676 | | | | 622,914 | | | | 597,407 | | | | 568,875 | | | | 522,479 | | Hay Group | | | 724,186 | | | | 471,145 | | | | 267,018 | | | | 254,636 | | | | 168,115 | | Futurestep | | | 223,659 | | | | 198,053 | | | | 163,727 | | | | 136,790 | | | | 122,237 | | | | | | | | | | | | | | | | | | | | | | | Total fee revenue | | $ | 1,565,521 | | | $ | 1,292,112 | | | $ | 1,028,152 | | | $ | 960,301 | | | $ | 812,831 | | | | | | | | | | | | | | | | | | | | | | | Number of offices (at period end) (4) | | | 114 | | | | 150 | | | | 78 | | | | 84 | | | | 87 | | Number of consultants (at period end) | | | 1,330 | | | | 1,164 | | | | 694 | | | | 646 | | | | 607 | | Number of new engagements opened | | | 8,126 | | | | 7,430 | | | | 6,755 | | | | 6,483 | | | | 6,126 | | Number of full-time employees: | | | | | | | | | | | | | | | | | | | | | Executive search | | | 1,791 | | | | 1,682 | | | | 1,562 | | | | 1,566 | | | | 1,471 | | Hay Group | | | 3,598 | | | | 3,626 | | | | 894 | | | | 794 | | | | 886 | | Futurestep | | | 1,710 | | | | 1,530 | | | | 1,147 | | | | 958 | | | | 835 | | Corporate | | | 133 | | | | 109 | | | | 84 | | | | 78 | | | | 80 | | | | | | | | | | | | | | | | | | | | | | | Total full-time employees | | | 7,232 | | | | 6,947 | | | | 3,687 | | | | 3,396 | | | | 3,272 | | | | | | | | | | | | | | | | | | | | | | | Selected Balance Sheet Data as of April 30: | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 410,882 | | | $ | 273,252 | | | $ | 380,838 | | | $ | 333,717 | | | $ | 224,066 | | Marketable securities (5) | | | 119,937 | | | | 141,430 | | | | 144,576 | | | | 134,559 | | | | 141,916 | | Working capital | | | 385,095 | | | | 188,010 | | | | 331,148 | | | | 270,535 | | | | 175,038 | | Total assets | | | 2,062,898 | | | | 1,898,600 | | | | 1,317,801 | | | | 1,233,666 | | | | 1,115,229 | | Long-term obligations | | | 517,271 | | | | 375,035 | | | | 196,542 | | | | 191,197 | | | | 182,210 | | Total stockholders’ equity | | | 1,087,048 | | | | 1,047,301 | | | | 815,249 | | | | 755,536 | | | | 664,468 | |
| | Year Ended April 30, | | | | 2019 | | | 2018 | | | 2017 | | | 2016 (1) | | | 2015 | | | | (in thousands, except per share data and other operating data) | | Selected Consolidated Statements of Income Data: | | | | | | | | | | | | | | | | | | | | | Fee revenue | | $ | 1,926,033 | | | $ | 1,767,217 | | | $ | 1,565,521 | | | $ | 1,292,112 | | | $ | 1,028,152 | | Reimbursed out-of-pocket engagement expenses | | | 47,829 | | | | 52,302 | | | | 56,148 | | | | 54,602 | | | | 37,914 | | Total revenue | | | 1,973,862 | | | | 1,819,519 | | | | 1,621,669 | | | | 1,346,714 | | | | 1,066,066 | | | | | | | | | | | | | | | | | | | | | | | Compensation and benefits | | | 1,311,240 | | | | 1,199,057 | | | | 1,065,659 | | | | 891,472 | | | | 685,411 | | General and administrative expenses | | | 351,991 | | | | 237,390 | | | | 226,232 | | | | 213,018 | | | | 145,917 | | Reimbursed expenses | | | 47,829 | | | | 52,302 | | | | 56,148 | | | | 54,602 | | | | 37,914 | | Cost of services | | | 75,487 | | | | 73,658 | | | | 71,482 | | | | 59,824 | | | | 39,692 | | Depreciation and amortization | | | 46,489 | | | | 48,588 | | | | 47,260 | | | | 36,220 | | | | 27,597 | | Restructuring charges, net (2) | | | — | | | | 78 | | | | 34,600 | | | | 33,013 | | | | 9,468 | | Total operating expenses | | | 1,833,036 | | | | 1,611,073 | | | | 1,501,381 | | | | 1,288,149 | | | | 945,999 | | | | | | | | | | | | | | | | | | | | | | | Operating income | | | 140,826 | | | | 208,446 | | | | 120,288 | | | | 58,565 | | | | 120,067 | | Other income (loss), net | | | 10,094 | | | | 11,119 | | | | 10,328 | | | | (6,409 | ) | | | 4,408 | | Interest expense, net | | | (16,891 | ) | | | (13,832 | ) | | | (14,607 | ) | | | (3,394 | ) | | | (4,773 | ) | Equity in earnings of unconsolidated subsidiaries, net | | | 311 | | | | 297 | | | | 333 | | | | 1,631 | | | | 2,181 | | Income tax provision | | | 29,544 | | | | 70,133 | | | | 29,104 | | | | 18,960 | | | | 33,526 | | Net income | | | 104,796 | | | | 135,897 | | | | 87,238 | | | | 31,433 | | | | 88,357 | | Net income attributable to noncontrolling interest | | | (2,145 | ) | | | (2,118 | ) | | | (3,057 | ) | | | (520 | ) | | | — | | Net income attributable to Korn Ferry | | $ | 102,651 | | | $ | 133,779 | | | $ | 84,181 | | | $ | 30,913 | | | $ | 88,357 | | Basic earnings per share | | $ | 1.84 | | | $ | 2.39 | | | $ | 1.48 | | | $ | 0.58 | | | $ | 1.78 | | Diluted earnings per share | | $ | 1.81 | | | $ | 2.35 | | | $ | 1.47 | | | $ | 0.58 | | | $ | 1.76 | | Basic weighted average common shares outstanding | | | 55,311 | | | | 55,426 | | | | 56,205 | | | | 52,372 | | | | 49,052 | | Diluted weighted average common shares outstanding | | | 56,096 | | | | 56,254 | | | | 56,900 | | | | 52,929 | | | | 49,766 | | Cash dividends declared per common share | | $ | 0.40 | | | $ | 0.40 | | | $ | 0.40 | | | $ | 0.40 | | | $ | 0.10 | | Other Operating Data: | | | | | | | | | | | | | | | | | | | | | Fee revenue by segment: | | | | | | | | | | | | | | | | | | | | | Executive search: | | | | | | | | | | | | | | | | | | | | | North America | | $ | 455,826 | | | $ | 408,098 | | | $ | 356,625 | | | $ | 371,345 | | | $ | 330,634 | | EMEA | | | 182,829 | | | | 173,725 | | | | 146,506 | | | | 144,319 | | | | 153,465 | | Asia Pacific | | | 104,291 | | | | 96,595 | | | | 80,169 | | | | 80,506 | | | | 84,148 | | Latin America | | | 31,896 | | | | 30,624 | | | | 34,376 | | | | 26,744 | | | | 29,160 | | Total executive search | | | 774,842 | | | | 709,042 | | | | 617,676 | | | | 622,914 | | | | 597,407 | | Advisory | | | 821,048 | | | | 785,013 | | | | 724,186 | | | | 471,145 | | | | 267,018 | | RPO & Professional Search | | | 330,143 | | | | 273,162 | | | | 223,659 | | | | 198,053 | | | | 163,727 | | Total fee revenue | | $ | 1,926,033 | | | $ | 1,767,217 | | | $ | 1,565,521 | | | $ | 1,292,112 | | | $ | 1,028,152 | | Number of offices (at period end) (3) | | | 104 | | | | 106 | | | | 114 | | | | 150 | | | | 78 | | Number of consultants (at period end) | | | 1,448 | | | | 1,392 | | | | 1,330 | | | | 1,164 | | | | 694 | | Number of new engagements opened | | | 9,725 | | | | 9,149 | | | | 8,126 | | | | 7,430 | | | | 6,755 | | Number of full-time employees: | | | | | | | | | | | | | | | | | | | | | Executive search | | | 1,960 | | | | 1,865 | | | | 1,791 | | | | 1,682 | | | | 1,562 | | Advisory | | | 3,603 | | | | 3,454 | | | | 3,598 | | | | 3,626 | | | | 894 | | RPO & Professional Search | | | 2,942 | | | | 2,188 | | | | 1,710 | | | | 1,530 | | | | 1,147 | | Corporate | | | 173 | | | | 136 | | | | 133 | | | | 109 | | | | 84 | | Total full-time employees | | | 8,678 | | | | 7,643 | | | | 7,232 | | | | 6,947 | | | | 3,687 | | Selected Consolidated Balance Sheets Data as of April 30: | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 626,360 | | | $ | 520,848 | | | $ | 410,882 | | | $ | 273,252 | | | $ | 380,838 | | Marketable securities (4) | | | 140,751 | | | | 137,085 | | | | 119,937 | | | | 141,430 | | | | 144,576 | | Working capital | | | 585,852 | | | | 455,799 | | | | 385,095 | | | | 188,010 | | | | 331,148 | | Total assets | | | 2,334,852 | | | | 2,287,914 | | | | 2,062,898 | | | | 1,898,600 | | | | 1,317,801 | | Long-term obligations | | | 540,507 | | | | 509,839 | | | | 517,271 | | | | 375,035 | | | | 196,542 | | Total stockholders’ equity | | | 1,243,387 | | | | 1,219,615 | | | | 1,087,048 | | | | 1,047,301 | | | | 815,249 | |
(1) | Due to the acquisition of Legacy Hay Group on December 1, 2015, which accounted for $186.8 million and $740.2 million of fee revenue and total assets, respectively, during fiscal 2016, financial data trends for fiscal 2017 and 2016 are not comparable to the prior periods. See Note 12 – Acquisitions, in the Notes to our Consolidated Financial Statements in this Annual Report on Form 10-K for discussion of fiscal 2016 acquisitions.period. |
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(2) | Due to the acquisition of Pivot Leadership on March 1, 2015, which accounted for $3.7 million and $20.0 million of fee revenue and total assets, respectively, during fiscal 2015, financial data trends for fiscal 2015 are not comparable to prior periods. See Note 12 – Acquisitions, in the Notes to our Consolidated Financial Statements in this Annual Report on Form 10-K for discussion of fiscal 2015 acquisitions. |
(3) | During fiscal 2018 and 2017, the Company continued to implement the fiscal 2016 restructuring plan in order to integrate the Hay GroupAdvisory entities that were acquired in fiscal 2016 by eliminating redundant positions and operational, general and administrative expenses and consolidating office space. This resulted in restructuring charges of $0.1 million and $34.6 million of whichin fiscal 2018 and 2017, respectively. Of the amount recorded in restructuring charges in fiscal 2017, $16.0 million related to severance and $18.6 million related to consolidation of office spaces. In fiscal 2016, the Company implemented athe restructuring plan in order to rationalize its cost structure by eliminating redundant positions and consolidating office space due to the acquisition of Legacy Hay on December 1, 2015. Asas a result, we recorded $33.0 million in restructuring charges, of which $32.1 million related to severance and $0.9 million related to consolidation and abandonment of premises. In fiscal 2015, the Company took actions to rationalize its cost structure as a result of efficiencies obtained from prior year technology investments that enabled further integration of the legacy business and the recent acquisitions (PDI and Global Novations), as well as other cost saving initiatives. As a result, we recorded $9.2 million of severance and $0.3 million relating to the consolidation/abandonment of premises. In fiscal 2014, the Company continued the implementation of the fiscal 2013 restructuring plan in order to integrate the prior year acquisitions by consolidating and eliminating certain redundant office space around the world and by continuing to consolidate certain overhead functions. As a result, we recorded $0.8 million and $16.3 million of severance during fiscal 2014 and 2013, respectively, and $2.9 million and $6.5 million related to the consolidation of premises during fiscal 2014 and 2013, respectively. |
(4)(3) | The number of offices decreased by eight as of April 30, 2018 compared to April 30, 2017 and 36 as of April 30, 2017 compared to April 30, 2016, due to the continued implementation of the 2016 restructuring plan. |
(5)(4) | As of April 30, 2019, 2018, 2017, 2016, 2015, 2014 and 2013,2015, the Company’s marketable securities included $140.8 million, $137.1 million, $119.9 million, $141.4 million, $131.4 million, $116.2 million, and $98.0$131.4 million, respectively, held in trust for settlement of the Company’s obligations under certain of its deferred compensation plans. See Note 5 – 5—Financial Instruments in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K. |
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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-looking Statements This Annual Report on Form 10-K 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.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 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 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, the impact of the rebranding on the Company’s products and services, the costs of the Plan, 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 in industries, reliance on information processing systems, cyber security vulnerabilities, changes to data security, data privacy, and data protection laws, limited protection of our intellectual property (“IP”), our ability to enhance and develop new technology, our ability to successfully recover from a disaster or 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, risks related to the integration of recently acquired businesses, the utilization and billing rates of our consultants, seasonality, the phase-out of LIBOR, and the matters disclosed under the heading “Risk Factors” in the Company’s Exchange Act reports, including Item 1A included in this Annual Report.Report on Form 10-K. Readers are urged to consider these
factors carefully in evaluating the forward-looking statements. The forward-looking statements included in this Annual Report on Form 10-K are made only as of the date of this Annual Report on Form 10-K 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 Annual Report on Form 10-K.
Executive Summary Korn/Korn Ferry International (referred to herein as the “Company,” “Korn Ferry,”“Company” or in the first person notations “we,” “our,” and “us”) is the preeminent a global people and organizational advisory firm. Our services includeconsulting firm. We currently operate through three global segments: Executive Search, advisory solutionsKorn Ferry Advisory (Advisory) and products through Hay Group (formerly known as LeadershipKorn Ferry RPO and Professional Search (“RPO & Talent Consulting (“Legacy LTC”Professional Search”) which was combined with HG (Luxembourg) S.à.r.l (“Legacy Hay”) in December 2015) and recruitment for non-executive professionals and recruitment process outsourcing (“RPO”) through Futurestep. Approximately 71% of the executive searches we performed in fiscal 2017 were for. Executive Search focuses on recruiting board level, chief executive and other senior executive and general management positions.positions, in addition to research-based interviewing and assessment solutions, for clients predominantly in the consumer goods, financial services, industrial, life sciences/healthcare and technology industries. Our 3,589 search engagementAdvisory segment assists clients in fiscal 2017 included manyto synchronize strategy and talent by addressing four fundamental needs: Organizational Strategy, Assessment and Succession, Leadership Development, and Rewards and Benefits, all underpinned by a comprehensive array of world-leading intellectual property, products and tools. RPO & Professional Search uses data-backed insight and IP, matched with strategic collaboration and innovative technology, to meet people challenges head-on—and succeed. Solutions span all aspects of Recruitment Process Outsourcing (“RPO”), Professional Search and Project Recruitment. We also operate a Corporate segment to record global expenses of the Company.
▪ | 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 our business. |
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▪ | A pillar of our growth strategy is the Products business. In fiscal 2019, product sales comprised 31% of our Advisory revenue. Our subscription services delivered online help us generate long-term relationships with our clients through large scale and technology-based human resources programs. We continue to seek ways to further scale 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 most prestigious publicresponsibilities—to seize these opportunities. In addition, we help organizations select and private companies, including approximately 57% ofhire the FORTUNE 500, middle market talent they need to execute their strategy—and emerging growth companies, as well as governmentshow them the best way to compensate, develop and nonprofit organizations. motivate their people. We have built strong client loyalty, with 82% of assignments performed during fiscal 2017 having been on behalf of clients for whom we had conducted assignments in the previous three fiscal years. Approximately 61% of our revenues were generated from clients that utilize multiple lines of business. Superior performance comes from having the right conditions for success in two key areas – the organization and its people. Organizational conditions encourage people to put forth their best effort and invest their energy towards achieving the organization’s purpose. We can help a client operationalize its business strategydo this through our sixfive core solution sets:
| | | Organizational Strategy Execution & Organization Design | | We establish the conditions for success by clarifying strategy; designing an operating model and organization structure that aligns to it; and defining a high performance culture. We enable strategic change by engaging and motivating people to perform. | Talent Strategy and Work Design
| | We map talent strategy to business strategy by designing operating models and helporganizational structures that align to them, helping organizations put their planplans into action. We make sure they have the right people, in the right roles, engaged and enabled to do the right things. | Rewards and Benefits
| | We help organizations align reward with strategy. We help them pay their people fairly for doing the right things – with rewards they value – at a cost the organization can afford. | 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 — ready—when and where they are needed — needed—in the future. | Executive Search and RecruitmentTalent Acquisition
| | WeFrom executive search to recruitment process outsourcing (“RPO”), we integrate scientific research with our practical experience and industry-specific expertise to recruit professionals of all levels and functions at organizations across every industry.for client organizations. | Leadership Development | | We activate purpose, vision, and strategy throughhelp leaders at all levels of an organization achieve their vision, purpose and organizations.strategy. We combine expertise, science and proven techniques with forward thinking and creativity to build leadership experiences that help entryentry- 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. |
DuringOn June 12, 2018, the Company’s Board of Directors approved the One Korn Ferry rebranding plan for the Company (the “Plan”). This Plan includes going to market under a single, master brand architecture, solely as Korn Ferry and sunsetting all the Company’s sub-brands, 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 2017, we continued the implementation of our fiscal 2016 restructuring plan in order to rationalize our cost structure by eliminating redundant positions, general and administrative expenses and consolidation of office space that were created dueyear 2018, which led to the acquisition of Legacy Hay in December 2015. In particular, the majority of our efforts in both fiscal 2017 and 2016, were focused on activities associated with integration ofdecision to further integrate our go-to-market activities our intellectual propertyunder one master brand — Korn Ferry. As a result, the Company discontinued the use of all sub-brands and content, our solution setschanged its name, effective January 1, 2019, to “Korn Ferry.” Two of the Company’s sub-brands, Hay Group and service offerings, and our back office systems and business processes.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 these efforts, we recorded $34.6the decision to discontinue their use, the Company took a one-time, non-cash write-off of tradenames of $106.6 million of restructuring charges with $16.0 million related to severance costs and $18.6 million related to the consolidation of office space during the fiscal 2017 while in fiscal 2016 we recorded $33.0 million of restructuring charges with $32.1 million related to severance costs and $0.9 million related to the consolidation/abandonment of premises.2019.
The Company currently operates inthrough three global business segments: Executive Search, Hay Group and Futurestep.segments. See Note 11 – Business 11—Segments, in the Notes to our Consolidated Financial Statements in this Annual Report on Form 10-K, for additional 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). For fiscal 2017, and fiscal 2016, Adjusted EBITDA includesincluded a deferred revenue adjustment related to the Legacy Haya previous acquisition, reflecting revenue that Hay GroupAdvisory would have realized if not for business combination accounting that requiresrequired a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue. For fiscal 2019 and 2018, management no longer had adjusted fee revenue. 30
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 GAAP,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, such measuresthey may not necessarily be comparable to non-GAAP performance measures that may be presented by other companies. Management believes the presentation of thisthese non-GAAP financial measuremeasures 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 thisthese non-GAAP financial measuremeasures facilitates comparisons to Korn Ferry’s historical performance and the identification of operating trends that may otherwise be distorted by certain charges and other items that may not be indicative of Korn Ferry’s ongoing operating results.the factors discussed above. Korn Ferry includes thisthese non-GAAP financial measuremeasures 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. Similarly, adjusted fee revenue, which includes revenue that Advisory would have realized over the ensuing year after the acquisition if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue, is a non-GAAP financial measure. Adjusted fee revenue is not a measure that substitutes an individually tailored revenue recognition or measurement method for those of GAAP. ThisGAAP; rather, it is an adjustment for a short period of time that will provideprovides better comparability in the currentbetween fiscal 2017 and priorsubsequent periods. Management believes the presentation of adjusted fee revenue assists management in its evaluation of ongoing operations and provides useful information to investors because it allows investors to make more meaningful period-to-period comparisons of the Company’s operating results, to better identify operating trends that may otherwise be distorted by write-offs required under business combination accounting and to perform related trend analysis and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry’s ongoing operations and financial and operational decision-making. The deferred revenue adjustment is no longer included in the result of operation as of Q2 of fiscal 2017 as the impact of purchase accounting no longer has an impact on actual results. Fee revenue increased $273.4was $1,926.0 million during fiscal 2019, an increase of $158.8 million, or 21% in fiscal 2017 to $1,565.5 million9%, compared to $1,292.1$1,767.2 million in fiscal 2016,2018, with increases in fee revenue in Hay Group and Futurestep segments, offset by a decrease in Executive Search.all segments. During fiscal 2017,2019, we recorded operating income of $114.4$140.8 million with the Executive Search, Hay Group,Advisory and FuturestepRPO & Professional Search segments contributing $124.3$179.1 million, $47.3$5.6 million (net of $106.6 million impairment charge previously discussed) and $30.0$50.9 million, respectively, offset by Corporate expenses of $87.1$94.8 million. Net income attributable to Korn Ferry decreased by $31.1 million during fiscal 2019 to $102.7 million from $133.8 million in fiscal 20172018. Adjusted EBITDA was $84.2$311.0 million, an increase of $53.3$33 million during fiscal 2019, from net income attributable to Korn FerryAdjusted EBITDA of $30.9$278.0 million in the year-ago period. During fiscal 2016. Adjusted EBITDA was $235.0 million for fiscal 2017 with2019, the Executive Search, Hay GroupAdvisory and FuturestepRPO & Professional Search segments contributing $137.4contributed $193.8 million, $128.2$151.0 million and $32.8$54.4 million, respectively, offset by Corporate expenses net of other income of $63.4$88.2 million. Adjusted EBITDA was $235.0 million in fiscal 2017, an increase of $44.8 million from Adjusted EBITDA of $190.2 million during fiscal 2016. Our cash, cash equivalents and marketable securities increased $116.1by $109.2 million or 28%, to $530.8$767.1 million at April 30, 2017,2019, compared to $414.7$657.9 million at April 30, 2016.2018. This increase iswas mainly due to the drawdown on June 15, 2016proceeds from our Revolver of $275.0$226.9 million on our then-new term loan of which $140.0 million of the proceeds were used to pay-off the term loan that was outstanding as of April 30, 2016 and cash provided by operating activities, offset by annual bonuses earned in fiscal 20162018 and paid during fiscal 2019, sign-on and retention payments, $238.9 million in the first quarter of 2017, $50.1principal payments on our term loan, $46.7 million in payments for the purchase of
fixed assets, $28.8 property and equipment, $37.4 million in stock repurchases in the open market, $20.7 million paid in tax withholding on restricted stock vestings and $23.3$23.5 million in dividends paid during the fiscal year 2017.2019. As of April 30, 2017,2019, we held marketable securities to settle obligations under our Executive Capital Accumulation Plan (“ECAP”) with a cost value of $113.8$135.4 million and a fair value of $119.9$140.8 million. Our vested obligations for which these assets were held in trust totaled $99.5$122.3 million as of April 30, 20172019 and our unvested obligations totaled $37.6$24.6 million.
Our working capital increased by $197.1$130.1 million to $385.1$585.9 million in fiscal 2017.2019. 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 theour debt obligations incurred in connection with the Legacy Hay acquisition, the retention pool obligations pursuant to the Legacy Hay acquisition and dividend payments under our dividend policy in the next twelve months. We had $259.5$420.2 million outstandingavailable for borrowing under our Term Facility as of April 30, 2017, of which $20.6 million will be due within a year. We had no outstanding borrowings under our revolving credit facilityRevolver at April 30, 2017 or 2016.2019. As of April 30, 20172018, we had no borrowings under our previous revolver. As of April 30, 2018, we had a total of $122.1 million available under the previous revolver after issued letters of credit. As of April 30, 2019 and 2016,2018, there was $3.0 million and $2.8$2.9 million of standby letters of credit issued under our long-term debt arrangements, respectively.arrangements. We havehad a total of $8.1$8.5 million and $6.4$7.4 million of standby letters of credits with other financial institutions as of April 30, 20172019 and 2016,2018, respectively. The standby letters of credits were generally issued as a result of entering into office premise leases. Critical Accounting Policies The following discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements. Preparation of our periodic filings requires us to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of 31
our financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates and assumptions and changes in the estimates are reported in current operations as new information is learned or upon the amounts becoming fixed and determinable. In preparing our consolidated financial statements and accounting for the underlying transactions and balances, we apply our accounting policies as disclosed in the notes to our consolidated financial statements. We consider the policies discussed below as critical to an understanding of our consolidated financial statements because their application places the most significant demands on management’s judgment and estimates. Specific risks for these critical accounting policies are described in the following paragraphs. Senior management has discussed the development, selection and key assumptions of the critical accounting estimates with the Audit Committee of the Board of Directors. Revenue Recognition. Management is required to establish policies and procedures to ensure that revenue is recorded over the performance period for valid engagements and related costs are matched against such revenue. Substantially all fee revenue is derived from fees for professional services related to executive searchand professional recruitment performed on a retained basis, recruitment for non-executive professionals, recruitment process outsourcing, peopletalent and organizational advisory services and the sale of product services, 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 that we expect 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. Fee revenue from executive and non-executive professional search activities and recruitment for non-executive professionals is generally one-third of the estimated first year compensation of the placed executive or non-executive professional, as applicable,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, we estimate 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. We generally recognize such revenue onover the course of a straight-line basis over a three-month period, commencing upon client acceptance,search and when it is legally entitled to payment as this isoutlined in the period over which the recruitment services are performed. Fees earned in excessbilling terms of the initial contract amount are recognized upon completion of the engagement, which reflect the difference between the final actual compensation of the placed executive and the estimate used for purposes of the previous billings. Since the initial contract fees are typically not contingent upon placement of a candidate, our assumptions primarily relate to establishing the period over which such service is performed. These assumptions determine the timing of revenue recognition and profitability for the reported period. If these assumptions do not accurately reflect the period over which revenue is earned, revenue and profit could differ. contract. Any revenues associated with services that are provided on a contingent basis are recognized once the contingency is resolved. In additionresolved as this is when control is transferred to recruitmentthe customer. These assumptions determine the timing of revenue recognition for non-executive professionals, Futurestep provides the reported period. RPO services and 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. Consulting fee revenue, primarily generated from Advisory, is recognized as services are rendered, and/or as milestones are achieved. Fee revenue from Hay Group is recognized as services are rendered for consulting engagements and other time based services, measured by total hours incurred to the total estimated hours at completion. It is possible that updated estimates for the consulting engagementengagements may vary from initial estimates with such updates being recognized in the
period of determination. Depending on the timing of billings and services rendered, we accrue or defer revenue as appropriate. Hay Group Product revenue is also derivedgenerated from a range of online tools designed to support human resource processes for pay, talent and engagement, and assessments, as well as licenses to proprietary intellectual property (“IP”) and tangible/digital products. IP subscriptions grant access to proprietary compensation and job evaluation databases. IP subscriptions are considered symbolic IP due to the saledynamic nature of product services, which includesthe content and, as a result, revenue from licenses and from the sale of products. Revenue from licenses is recognized using a straight-line method over the term of the contract (generally 12 months). Undercontract. Functional IP licenses grant customers the fixed term licenses, we are obligated to provide the licensee with access to any updates to the underlying intellectual property that are made by us during the term of the license. Once the term of the agreement expires, the client’s right to access or use IP content via delivery of a flat file. Because the intellectual property expiresIP content license has significant stand-alone functionality, revenue is recognized upon delivery and when an enforceable right to payment exists. Online assessments are delivered in the form of online questionnaires. A bundle of assessments represents one performance obligation, and revenue is recognized as assessment services are delivered and we have no further obligationsa legally enforceable right to the client under the license agreement. Revenue from perpetual licenses is recognized when the license is sold since our only obligation is to provide the client access to the intellectual property but is not obligated to provide maintenance, support, updates or upgrades. Productspayment. Tangible/digital products sold by us mainly consist of books and automated servicesdigital files covering a variety of topics including performance management, team effectiveness, and coaching and development. We recognize revenue for itsour products when the product has been sold or shipped, inas is the case offor books. Furthermore, a provision for doubtful accounts on recognized revenue is established with a charge to general and administrative expenses based on historical loss experience, 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. Annual Performance RelatedPerformance-Related Bonuses. 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 Hay GroupAdvisory and FuturestepRPO & Professional Search consultants), the level of engagements referred by a consultant in one line of business to a different line of business, Companyour performance including profitability, competitive forces and future economic conditions and their impact on our 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 32
objectives and the results of individual performance appraisals, and the current economic landscape. Accordingly, each quarter we reevaluate the assumptions used to estimate annual performance related bonus liability and adjustsadjust the carrying amount of the liability recorded on the consolidated balance sheetsheets and reportsreport any changes in the estimate in current operations. Because annual performance-based bonuses are communicated and paid only after we report itsour 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. Deferred Compensation. Estimating deferred compensation requires assumptions regarding the timing and probability of payments of benefits to participants and the discount rate. Changes in these assumptions could significantly impact the liability and related cost on our consolidated balance sheetsheets and statementstatements of income, respectively. For certain deferred compensation plans, management engages an independent actuary to periodically review these assumptions in order to confirm that they reflect the population and economics of our deferred compensation plans in all material respects and to assist us in estimating our deferred compensation liability and the related cost. The actuarial assumptions we use may differ from actual results due to changing market conditions or changes in the participant population. These differences could have a significant impact on our deferred compensation liability and the related cost. Carrying Values. Valuations are required under GAAP to determine the carrying value of various assets. Our most significant assets for which management is required to prepare valuations are carrying value of receivables, goodwill, intangible assets fair value of contingent consideration and recoverability of deferred income taxes. Management must identify whether events have occurred that may impact the carrying value of these assets and make assumptions regarding future events, such as cash flows and profitability. Differences between the assumptions used to prepare these valuations and actual results could materially impact the carrying amount of these assets and our operating results. Of the assets mentioned above, goodwill is the largest asset requiring a valuation. Fair value of goodwill for purposes of the goodwill impairment test is determined utilizing 1)(1) a discounted cash flow analysis based on forecastforecasted cash flows (including estimated underlying revenue and operating income growth rates) discounted using an estimated weighted-average cost of capital for market participants and 2)(2) a market approach, utilizing 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). We also reconcile the results of these analyses to its market capitalization. If the carrying amount of a reporting unit exceeds its estimated fair value, goodwill is considered potentially impaired and further tests are performed to measure the amount of impairment loss, if any. We recorded no goodwill impairment in conjunction with our annual goodwill impairment assessment performed as of January 31, 2017.2019. While historical performance and current expectations have resulted in fair values of goodwill in excess of carrying values, if our assumptions are not realized, it is possible that in the future an impairment charge may need to be recorded. However, it is not possible at this time to determine if an impairment charge would result or if such a charge would be material. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill impairment test will prove to be accurate predictions of the future. As of our testing date, 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, no impairment charge was recognized. There was also no indication of potential impairment during the fourth quarter of fiscal 20172019 that would have required further testing. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of the reporting units may include such items as follows: ◾ | ▪ | A prolonged downturn in the business environment in which the reporting units operate; |
◾ | ▪ | An economic climate that significantly differs from our future profitability assumptions in timing or degree; |
◾ | ▪ | The deterioration of the labor markets; and |
◾ | ▪ | Volatility in equity and debt markets.markets; and |
| ▪ | Competition and disruption in our core business. |
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Results of Operations The following table summarizes the results of our operations as a percentage of fee revenue: | | | | Year Ended April 30, | | | Year Ended April 30, | | | | | 2017 | | 2016 | | 2015 | | | 2019 | | | 2018 | | | 2017 | | Fee revenue | | | 100.0 | % | | 100.0 | % | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | Reimbursed out-of-pocket engagement expenses | | | 3.6 | | | 4.2 | | | 3.7 | | | | 2.5 | | | | 3.0 | | | | 3.6 | | | | | | | | | | | | | Total revenue | | | 103.6 | | | 104.2 | | | 103.7 | | | | 102.5 | | | | 103.0 | | | | 103.6 | | Compensation and benefits | | | 68.4 | | | 69.4 | | | 67.2 | | | | 68.1 | | | | 67.9 | | | | 68.0 | | General and administrative expenses | | | 14.5 | | | 16.5 | | | 14.2 | | | General and administrative expenses (1) | | | | 18.3 | | | | 13.4 | | | | 14.5 | | Reimbursed expenses | | | 3.6 | | | 4.2 | | | 3.7 | | | | 2.5 | | | | 3.0 | | | | 3.6 | | Cost of services | | | 4.6 | | | 4.6 | | | 3.9 | | | | 3.9 | | | | 4.2 | | | | 4.6 | | Depreciation and amortization | | | 3.0 | | | 2.8 | | | 2.7 | | | | 2.4 | | | | 2.7 | | | | 3.0 | | Restructuring charges, net | | | 2.2 | | | 2.6 | | | 0.9 | | | | — | | | | — | | | | 2.2 | | | | | | | | | | | | | Operating income | | | 7.3 | | | 4.1 | | | 11.1 | | | | 7.3 | | | | 11.8 | | | | 7.7 | | | | | | | | | | | | | Net income | | | 5.6 | % | | 2.4 | % | | 8.6 | % | | | 5.4 | % | | | 7.7 | % | | | 5.6 | % | | | | | | | | | | | | Net income attributable to Korn/Ferry International | | | 5.4 | % | | 2.4 | % | | 8.6 | % | | | | | | | | | | | | | Net income attributable to Korn Ferry | | | | 5.3 | % | | | 7.6 | % | | | 5.4 | % |
(1) | General and administrative expenses for fiscal 2019 includes write-off of tradenames of $106.6 million. |
The following tables summarize the results of our operations by business segment: (Numbers may not total exactly due to rounding) | | | | Year Ended April 30, | | | Year Ended April 30, | | | | | 2017 | | 2016 | | 2015 | | | 2019 | | | 2018 | | | 2017 | | | | | Dollars | | % | | Dollars | | % | | Dollars | | % | | | Dollars | | | % | | | Dollars | | | % | | | Dollars | | | % | | | | | (dollars in thousands) | | | (dollars in thousands) | | Fee revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Executive Search: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | North America | | $ | 356,625 | | | 22.8 | % | | $ | 371,345 | | | 28.7 | % | | $ | 330,634 | | | 32.2 | % | | $ | 455,826 | | | | 23.7 | % | | $ | 408,098 | | | | 23.1 | % | | $ | 356,625 | | | | 22.8 | % | EMEA | | | 146,506 | | | 9.4 | | | 144,319 | | | 11.2 | | | 153,465 | | | 14.9 | | | | 182,829 | | | | 9.5 | | | | 173,725 | | | | 9.8 | | | | 146,506 | | | | 9.4 | | Asia Pacific | | | 80,169 | | | 5.1 | | | 80,506 | | | 6.2 | | | 84,148 | | | 8.2 | | | | 104,291 | | | | 5.4 | | | | 96,595 | | | | 5.5 | | | | 80,169 | | | | 5.1 | | Latin America | | | 34,376 | | | 2.2 | | | 26,744 | | | 2.1 | | | 29,160 | | �� | | 2.8 | | | | 31,896 | | | | 1.7 | | | | 30,624 | | | | 1.7 | | | | 34,376 | | | | 2.2 | | | | | | | | | | | | | | | | | | | | | | Total Executive Search | | | 617,676 | | | 39.5 | | | 622,914 | | | 48.2 | | | 597,407 | | | 58.1 | | | | 774,842 | | | | 40.2 | | | | 709,042 | | | | 40.1 | | | | 617,676 | | | | 39.5 | | Hay Group | | | 724,186 | | | 46.3 | | | 471,145 | | | 36.5 | | | 267,018 | | | 26.0 | | | Futurestep | | | 223,659 | | | 14.3 | | | 198,053 | | | 15.3 | | | 163,727 | | | 15.9 | | | | | | | | | | | | | | | | | | | | | | | Advisory | | | | 821,048 | | | | 42.6 | | | | 785,013 | | | | 44.4 | | | | 724,186 | | | | 46.3 | | RPO & Professional Search | | | | 330,143 | | | | 17.1 | | | | 273,162 | | | | 15.5 | | | | 223,659 | | | | 14.3 | | Total fee revenue | | | 1,565,521 | | | 100.0 | % | | 1,292,112 | | | 100.0 | % | | 1,028,152 | | | 100.0 | % | | | 1,926,033 | | | | 100.0 | % | | | 1,767,217 | | | | 100.0 | % | | | 1,565,521 | | | | 100.0 | % | | | | | | | | | | | | | | | | | | Reimbursed out-of-pocket engagement expense | | | 56,148 | | | | | 54,602 | | | | | 37,914 | | | | | | 47,829 | | | | | | | | 52,302 | | | | | | | | 56,148 | | | | | | | | | | | | | | | | | | | | | | | Total revenue | | $ | 1,621,669 | | | | | $ | 1,346,714 | | | | | $ | 1,066,066 | | | | | $ | 1,973,862 | | | | | | | $ | 1,819,519 | | | | | | | $ | 1,621,669 | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year Ended April 30, | | | Year Ended April 30, | | | | | 2017 | | 2016 | | 2015 | | | 2019 | | | 2018 | | | 2017 | | | | | Dollars | | Margin(1) | | Dollars | | Margin(1) | | Dollars | | Margin(1) | | | Dollars | | | Margin(1) | | | Dollars | | | Margin(1) | | | Dollars | | | Margin(1) | | | | | (dollars in thousands) | | | (dollars in thousands) | | Operating income (loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Executive Search: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | North America | | $ | 81,550 | | | 22.9 | % | | $ | 100,381 | | | 27.0 | % | | $ | 80,818 | | | 24.4 | % | | $ | 120,754 | | | | 26.5 | % | | $ | 100,397 | | | | 24.6 | % | | $ | 81,621 | | | | 22.9 | % | EMEA | | | 27,854 | | | 19.0 | | | 20,607 | | | 14.3 | | | 18,867 | | | 12.3 | | | | 29,974 | | | | 16.4 | | | | 26,768 | | | | 15.4 | | | | 27,854 | | | | 19.0 | | Asia Pacific | | | 8,580 | | | 10.7 | | | 12,572 | | | 15.6 | | | 14,631 | | | 17.4 | | | | 24,364 | | | | 23.4 | | | | 18,425 | | | | 19.1 | | | | 8,580 | | | | 10.7 | | Latin America | | | 6,268 | | | 18.2 | | | (1,854 | ) | | (6.9 | ) | | 4,704 | | | 16.1 | | | | 3,998 | | | | 12.5 | | | | 4,022 | | | | 13.1 | | | | 6,268 | | | | 18.2 | | | | | | | | | | | | | | | | | | | Total Executive Search | | | 124,252 | | | 20.1 | | | 131,706 | | | 21.1 | | | 119,020 | | | 19.9 | | | | 179,090 | | | | 23.1 | | | | 149,612 | | | | 21.1 | | | | 124,323 | | | | 20.1 | | Hay Group | | | 47,302 | | | 6.5 | | | (3,415 | ) | | (0.7 | ) | | 28,175 | | | 10.6 | | | Futurestep | | | 29,986 | | | 13.4 | | | 26,702 | | | 13.5 | | | 19,940 | | | 12.2 | | | Advisory | | | | 5,617 | | | | 0.7 | | | | 100,535 | | | | 12.8 | | | | 47,429 | | | | 6.5 | | RPO & Professional Search | | | | 50,884 | | | | 15.4 | | | | 39,396 | | | | 14.4 | | | | 29,995 | | | | 13.4 | | Corporate | | | (87,100 | ) | | | | (102,301 | ) | | | | (53,107 | ) | | | | | (94,765 | ) | | | | | | | (81,097 | ) | | | | | | | (81,459 | ) | | | | | | | | | | | | | | | | | | | | | | Total operating income | | $ | 114,440 | | | 7.3 | % | | $ | 52,692 | | | 4.1 | % | | $ | 114,028 | | | 11.1 | % | | $ | 140,826 | | | | 7.3 | % | | $ | 208,446 | | | | 11.8 | % | | $ | 120,288 | | | | 7.7 | % | | | | | | | | | | | | | | | | | |
(1) | Margin calculated as a percentage of fee revenue by business segment. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended April 30, 2017 | | | | | Executive Search | | | | | | Futurestep | | | Corporate | | | Consolidated | | | | | North
America | | | EMEA | | | Asia
Pacific | | | Latin
America | | | Subtotal | | | Hay Group | | | | | | | | (in thousands) | | Fee revenue | | $ | 356,625 | | | $ | 146,506 | | | $ | 80,169 | | | $ | 34,376 | | | $ | 617,676 | | | $ | 724,186 | | | $ | 223,659 | | | $ | — | | | $ | 1,565,521 | | Deferred revenue adjustment due to acquisition | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,535 | | | | — | | | | — | | | | 3,535 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted fee revenue | | $ | 356,625 | | | $ | 146,506 | | | $ | 80,169 | | | $ | 34,376 | | | $ | 617,676 | | | $ | 727,721 | | | $ | 223,659 | | | $ | — | | | $ | 1,569,056 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total revenue | | $ | 369,803 | | | $ | 150,113 | | | $ | 81,744 | | | $ | 34,533 | | | $ | 636,193 | | | $ | 741,533 | | | $ | 243,943 | | | $ | — | | | $ | 1,621,669 | | Net income attributable to Korn/Ferry International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 84,181 | | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,057 | | Other income, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (11,820 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 10,251 | | Equity in earnings of unconsolidated subsidiaries, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (333 | ) | Income tax provision | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 29,104 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss) | | $ | 81,550 | | | $ | 27,854 | | | $ | 8,580 | | | $ | 6,268 | | | $ | 124,252 | | | $ | 47,302 | | | $ | 29,986 | | | $ | (87,100 | ) | | $ | 114,440 | | Depreciation and amortization | | | 3,812 | | | | 1,030 | | | | 1,060 | | | | 483 | | | | 6,385 | | | | 32,262 | | | | 2,818 | | | | 5,795 | | | | 47,260 | | Other income (loss), net | | | 844 | | | | (15 | ) | | | 300 | | | | 684 | | | | 1,813 | | | | 341 | | | | (91 | ) | | | 9,757 | | | | 11,820 | | Equity in earnings of unconsolidated subsidiaries, net | | | 333 | | | | — | | | | — | | | | — | | | | 333 | | | | — | | | | — | | | | — | | | | 333 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EBITDA | | | 86,539 | | | | 28,869 | | | | 9,940 | | | | 7,435 | | | | 132,783 | | | | 79,905 | | | | 32,713 | | | | (71,548 | ) | | | 173,853 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Restructuring charges, net | | | 1,719 | | | | 629 | | | | 1,495 | | | | 773 | | | | 4,616 | | | | 29,663 | | | | 101 | | | | 220 | | | | 34,600 | | Integration/acquisition costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | 14,440 | | | | — | | | | 7,939 | | | | 22,379 | | Deferred revenue adjustment due to acquisition | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,535 | | | | — | | | | — | | | | 3,535 | | Separation costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | 609 | | | | — | | | | — | | | | 609 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA | | $ | 88,258 | | | $ | 29,498 | | | $ | 11,435 | | | $ | 8,208 | | | $ | 137,399 | | | $ | 128,152 | | | $ | 32,814 | | | $ | (63,389 | ) | | $ | 234,976 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating margin | | | 22.9 | % | | | 19.0 | % | | | 10.7 | % | | | 18.2 | % | | | 20.1 | % | | | 6.5 | % | | | 13.4 | % | | | | | | | 7.3 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA margin | | | 24.7 | % | | | 20.1 | % | | | 14.3 | % | | | 23.9 | % | | | 22.2 | % | | | 17.6 | % | | | 14.7 | % | | | | | | | 15.0 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | Year Ended April 30, 2016 | | | Year Ended April 30, 2019 | | | | | Executive Search | | Hay Group | | | Futurestep | | | Corporate | | | Consolidated | | | Executive Search | | | | | | | | | | | | | | | | | | | | | North
America | | EMEA | | Asia
Pacific | | Latin
America | | Subtotal | | | North America | | | EMEA | | | Asia Pacific | | | Latin America | | | Subtotal | | | Advisory | | | RPO & Professional Search | | | Corporate | | | Consolidated | | | | | (in thousands) | | | (in thousands) | | Fee revenue | | $ | 371,345 | | | $ | 144,319 | | | $ | 80,506 | | | $ | 26,744 | | | $ | 622,914 | | | $ | 471,145 | | | $ | 198,053 | | | $ | — | | | $ | 1,292,112 | | | $ | 455,826 | | | $ | 182,829 | | | $ | 104,291 | | | $ | 31,896 | | | $ | 774,842 | | | $ | 821,048 | | | $ | 330,143 | | | $ | — | | | $ | 1,926,033 | | Deferred revenue adjustment due to acquisition | | | — | | | | — | | | | — | | | | — | | | | — | | | 10,967 | | | | — | | | | — | | | 10,967 | | | Total revenue | | | $ | 469,743 | | | $ | 186,131 | | | $ | 105,543 | | | $ | 31,960 | | | $ | 793,377 | | | $ | 838,620 | | | $ | 341,865 | | | $ | — | | | $ | 1,973,862 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted fee revenue | | $ | 371,345 | | | $ | 144,319 | | | $ | 80,506 | | | $ | 26,744 | | | $ | 622,914 | | | $ | 482,112 | | | $ | 198,053 | | | $ | — | | | $ | 1,303,079 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total revenue | | $ | 386,256 | | | $ | 148,285 | | | $ | 83,206 | | | $ | 26,781 | | | $ | 644,528 | | | $ | 488,217 | | | $ | 213,969 | | | $ | — | | | $ | 1,346,714 | | | Net income attributable to
Korn/Ferry International | | | | | | | | | | | | | | | | | | $ | 30,913 | | | Net income attributable to Korn Ferry | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 102,651 | | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | 520 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,145 | | Other loss, net | | | | | | | | | | | | | | | | | | 4,167 | | | Interest income, net | | | | | | | | | | | | | | | | | | (237 | ) | | Other income, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (10,094 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 16,891 | | Equity in earnings of unconsolidated subsidiaries, net | | | | | | | | | | | | | | | | | | (1,631 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (311 | ) | Income tax provision | | | | | | | | | | | | | | | | | | 18,960 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 29,544 | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss) | | $ | 100,381 | | | $ | 20,607 | | | $ | 12,572 | | | $ | (1,854 | ) | | $ | 131,706 | | | $ | (3,415 | ) | | $ | 26,702 | | | $ | (102,301 | ) | | $ | 52,692 | | | $ | 120,754 | | | $ | 29,974 | | | $ | 24,364 | | | $ | 3,998 | | | $ | 179,090 | | | $ | 5,617 | | | $ | 50,884 | | | $ | (94,765 | ) | | $ | 140,826 | | Depreciation and amortization | | 3,267 | | | 1,029 | | | 941 | | | 312 | | | 5,549 | | | 21,854 | | | 2,386 | | | 6,431 | | | 36,220 | | | | 3,890 | | | | 1,254 | | | | 1,428 | | | | 410 | | | | 6,982 | | | | 29,057 | | | | 3,255 | | | | 7,195 | | | | 46,489 | | Other (loss) income, net | | (147 | ) | | 433 | | | 21 | | | 312 | | | 619 | | | (868 | ) | | 364 | | | (4,282 | ) | | (4,167 | ) | | Other income (loss), net | | | | 6,388 | | | | 432 | | | | 281 | | | | 322 | | | | 7,423 | | | | 3,198 | | | | 268 | | | | (795 | ) | | | 10,094 | | Equity in earnings of unconsolidated subsidiaries, net | | 437 | | | | — | | | | — | | | | — | | | 437 | | | | — | | | | — | | | 1,194 | | | 1,631 | | | | 311 | | | | — | | | | — | | | | — | | | | 311 | | | | — | | | | — | | | | — | | | | 311 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EBITDA | | 103,938 | | | 22,069 | | | 13,534 | | | (1,230 | ) | | 138,311 | | | 17,571 | | | 29,452 | | | (98,958 | ) | | 86,376 | | | | 131,343 | | | | 31,660 | | | | 26,073 | | | | 4,730 | | | | 193,806 | | | | 37,872 | | | | 54,407 | | | | (88,365 | ) | | | 197,720 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Restructuring charges, net | | 499 | | | 5,807 | | | 577 | | | 322 | | | 7,205 | | | 25,682 | | | 49 | | | 77 | | | 33,013 | | | Integration/acquisition costs | | | — | | | | — | | | | — | | | | — | | | | — | | | 17,607 | | | | — | | | 27,802 | | | 45,409 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 6,559 | | | | — | | | | 187 | | | | 6,746 | | Venezuelan foreign currency loss | | | — | | | | — | | | | — | | | 6,635 | | | 6,635 | | | 7,085 | | | | — | | | | — | | | 13,720 | | | Deferred revenue adjustment due to acquisition | | | — | | | | — | | | | — | | | | — | | | | — | | | 10,967 | | | | — | | | | — | | | 10,967 | | | Separation costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | 744 | | | 744 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tradename write-offs | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 106,555 | | | | — | | | | — | | | | 106,555 | | Adjusted EBITDA | | $ | 104,437 | | | $ | 27,876 | | | $ | 14,111 | | | $ | 5,727 | | | $ | 152,151 | | | $ | 78,912 | | | $ | 29,501 | | | $ | (70,335 | ) | | $ | 190,229 | | | $ | 131,343 | | | $ | 31,660 | | | $ | 26,073 | | | $ | 4,730 | | | $ | 193,806 | | | $ | 150,986 | | | $ | 54,407 | | | $ | (88,178 | ) | | $ | 311,021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating margin | | 27.0 | % | | 14.3 | % | | 15.6 | % | | (6.9 | )% | | 21.1 | % | | (0.7 | )% | | 13.5 | % | | | | 4.1 | % | | | 26.5 | % | | | 16.4 | % | | | 23.4 | % | | | 12.5 | % | | | 23.1 | % | | | 0.7 | % | | | 15.4 | % | | | | | | | 7.3 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA margin | | 28.1 | % | | 19.3 | % | | 17.5 | % | | 21.4 | % | | 24.4 | % | | 16.4 | % | | 14.9 | % | | | | 14.6 | % | | | 28.8 | % | | | 17.3 | % | | | 25.0 | % | | | 14.8 | % | | | 25.0 | % | | | 18.4 | % | | | 16.5 | % | | | | | | | 16.1 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year Ended April 30, 2015 | | | Year Ended April 30, 2018 | | | | | Executive Search | | Hay Group | | | Futurestep | | | Corporate | | | Consolidated | | | Executive Search | | | | | | | | | | | | | | | | | | | | | North
America | | EMEA | | Asia
Pacific | | Latin
America | | Subtotal | | | North America | | | EMEA | | | Asia Pacific | | | Latin America | | | Subtotal | | | Advisory | | | RPO & Professional Search | | | Corporate | | | Consolidated | | | | | (in thousands) | | | (in thousands) | | Fee revenue | | $ | 330,634 | | | $ | 153,465 | | | $ | 84,148 | | | $ | 29,160 | | | $ | 597,407 | | | $ | 267,018 | | | $ | 163,727 | | | $ | — | | | $ | 1,028,152 | | | $ | 408,098 | | | $ | 173,725 | | | $ | 96,595 | | | $ | 30,624 | | | $ | 709,042 | | | $ | 785,013 | | | $ | 273,162 | | | $ | — | | | $ | 1,767,217 | | Total revenue | | $ | 344,913 | | | $ | 158,052 | | | $ | 87,142 | | | $ | 29,218 | | | $ | 619,325 | | | $ | 275,220 | | | $ | 171,521 | | | $ | — | | | $ | 1,066,066 | | | $ | 421,260 | | | $ | 177,234 | | | $ | 98,062 | | | $ | 30,717 | | | $ | 727,273 | | | $ | 801,005 | | | $ | 291,241 | | | $ | — | | | $ | 1,819,519 | | Net income attributable to
Korn/Ferry International | | | | | | | | | | | | | | | | | | $ | 88,357 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income attributable to Korn Ferry | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 133,779 | | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,118 | | Other income, net | | | | | | | | | | | | | | | | | | (7,458 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (11,119 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | 1,784 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 13,832 | | Equity in earnings of unconsolidated subsidiaries, net | | | | | | | | | | | | | | | | | | (2,181 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (297 | ) | Income tax provision | | | | | | | | | | | | | | | | | | 33,526 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 70,133 | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss) | | $ | 80,818 | | | $ | 18,867 | | | $ | 14,631 | | | $ | 4,704 | | | $ | 119,020 | | | $ | 28,175 | | | $ | 19,940 | | | $ | (53,107 | ) | | $ | 114,028 | | | $ | 100,397 | | | $ | 26,768 | | | $ | 18,425 | | | $ | 4,022 | | | $ | 149,612 | | | $ | 100,535 | | | $ | 39,396 | | | $ | (81,097 | ) | | $ | 208,446 | | Depreciation and amortization | | 3,515 | | | 1,764 | | | 1,045 | | | 350 | | | 6,674 | | | 13,427 | | | 1,882 | | | 5,614 | | | 27,597 | | | | 3,930 | | | | 1,689 | | | | 1,408 | | | | 455 | | | | 7,482 | | | | 31,527 | | | | 3,054 | | | | 6,525 | | | | 48,588 | | Other income (loss), net | | 288 | | | 83 | | | 369 | | | 109 | | | 849 | | | (22 | ) | | 54 | | | 6,577 | | | 7,458 | | | Other income, net | | | | 845 | | | | 168 | | | | 373 | | | | 181 | | | | 1,567 | | | | 2,501 | | | | 152 | | | | 6,899 | | | | 11,119 | | Equity in earnings of unconsolidated subsidiaries, net | | 426 | | | | — | | | | — | | | | — | | | 426 | | | | — | | | | — | | | 1,755 | | | 2,181 | | | | 297 | | | | — | | | | — | | | | — | | | | 297 | | | | — | | | | — | | | | — | | | | 297 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EBITDA | | 85,047 | | | 20,714 | | | 16,045 | | | 5,163 | | | 126,969 | | | 41,580 | | | 21,876 | | | (39,161 | ) | | 151,264 | | | | 105,469 | | | | 28,625 | | | | 20,206 | | | | 4,658 | | | | 158,958 | | | | 134,563 | | | | 42,602 | | | | (67,673 | ) | | | 268,450 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Restructuring charges, net | | 1,151 | | | 3,987 | | | 17 | | | 229 | | | 5,384 | | | 2,758 | | | 1,154 | | | 172 | | | 9,468 | | | Acquisition costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | 959 | | | 959 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Restructuring charges (recoveries), net | | | | — | | | | — | | | | 313 | | | | — | | | | 313 | | | | (241 | ) | | | 6 | | | | — | | | | 78 | | Integration/acquisition costs | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 9,151 | | | | — | | | | 279 | | | | 9,430 | | Adjusted EBITDA | | $ | 86,198 | | | $ | 24,701 | | | $ | 16,062 | | | $ | 5,392 | | | $ | 132,353 | | | $ | 44,338 | | | $ | 23,030 | | | $ | (38,030 | ) | | $ | 161,691 | | | $ | 105,469 | | | $ | 28,625 | | | $ | 20,519 | | | $ | 4,658 | | | $ | 159,271 | | | $ | 143,473 | | | $ | 42,608 | | | $ | (67,394 | ) | | $ | 277,958 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating margin | | 24.4 | % | | 12.3 | % | | 17.4 | % | | 16.1 | % | | 19.9 | % | | 10.6 | % | | 12.2 | % | | | | 11.1 | % | | | 24.6 | % | | | 15.4 | % | | | 19.1 | % | | | 13.1 | % | | | 21.1 | % | | | 12.8 | % | | | 14.4 | % | | | | | | | 11.8 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA margin | | 26.1 | % | | 16.1 | % | | 19.1 | % | | 18.5 | % | | 22.2 | % | | 16.6 | % | | 14.1 | % | | | | 15.7 | % | | | 25.8 | % | | | 16.5 | % | | | 21.2 | % | | | 15.2 | % | | | 22.5 | % | | | 18.3 | % | | | 15.6 | % | | | | | | | 15.7 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended April 30, 2017 | | | | Executive Search | | | | | | | | | | | | | | | | | | | | North America | | | EMEA | | | Asia Pacific | | | Latin America | | | Subtotal | | | Advisory | | | RPO & Professional Search | | | Corporate | | | Consolidated | | | | (in thousands) | | Fee revenue | | $ | 356,625 | | | $ | 146,506 | | | $ | 80,169 | | | $ | 34,376 | | | $ | 617,676 | | | $ | 724,186 | | | $ | 223,659 | | | $ | — | | | $ | 1,565,521 | | Deferred revenue adjustment due to acquisition | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,535 | | | | — | | | | — | | | | 3,535 | | Adjusted fee revenue | | $ | 356,625 | | | $ | 146,506 | | | $ | 80,169 | | | $ | 34,376 | | | $ | 617,676 | | | $ | 727,721 | | | $ | 223,659 | | | $ | — | | | $ | 1,569,056 | | Total revenue | | $ | 369,803 | | | $ | 150,113 | | | $ | 81,744 | | | $ | 34,533 | | | $ | 636,193 | | | $ | 741,533 | | | $ | 243,943 | | | $ | — | | | $ | 1,621,669 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income attributable to Korn Ferry | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 84,181 | | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,057 | | Other income, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (10,328 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 14,607 | | Equity in earnings of unconsolidated subsidiaries, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (333 | ) | Income tax provision | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 29,104 | | Operating income (loss) | | $ | 81,621 | | | $ | 27,854 | | | $ | 8,580 | | | $ | 6,268 | | | $ | 124,323 | | | $ | 47,429 | | | $ | 29,995 | | | $ | (81,459 | ) | | $ | 120,288 | | Depreciation and amortization | | | 3,812 | | | | 1,030 | | | | 1,060 | | | | 483 | | | | 6,385 | | | | 32,262 | | | | 2,818 | | | | 5,795 | | | | 47,260 | | Other income (loss), net | | | 844 | | | | (15 | ) | | | 300 | | | | 684 | | | | 1,813 | | | | 1,900 | | | | (91 | ) | | | 6,706 | | | | 10,328 | | Equity in earnings of unconsolidated subsidiaries, net | | | 333 | | | | — | | | | — | | | | — | | | | 333 | | | | — | | | | — | | | | — | | | | 333 | | EBITDA | | | 86,610 | | | | 28,869 | | | | 9,940 | | | | 7,435 | | | | 132,854 | | | | 81,591 | | | | 32,722 | | | | (68,958 | ) | | | 178,209 | | Restructuring charges, net | | | 1,719 | | | | 629 | | | | 1,495 | | | | 773 | | | | 4,616 | | | | 29,663 | | | | 101 | | | | 220 | | | | 34,600 | | Integration/acquisition costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | 14,440 | | | | — | | | | 7,939 | | | | 22,379 | | Deferred revenue adjustment due to acquisition | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,535 | | | | — | | | | — | | | | 3,535 | | Separation costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | 609 | | | | — | | | | — | | | | 609 | | Adjusted EBITDA | | $ | 88,329 | | | $ | 29,498 | | | $ | 11,435 | | | $ | 8,208 | | | $ | 137,470 | | | $ | 129,838 | | | $ | 32,823 | | | $ | (60,799 | ) | | $ | 239,332 | | Operating margin | | | 22.9 | % | | | 19.0 | % | | | 10.7 | % | | | 18.2 | % | | | 20.1 | % | | | 6.5 | % | | | 13.4 | % | | | | | | | 7.7 | % | Adjusted EBITDA margin | | | 24.8 | % | | | 20.1 | % | | | 14.3 | % | | | 23.9 | % | | | 22.3 | % | | | 17.8 | % | | | 14.7 | % | | | | | | | 15.3 | % |
Fiscal 20172019 Compared to Fiscal 20162018 Fee Revenue Fee Revenue. Revenue. Fee revenue increased $273.4by $158.8 million, or 21%9%, to $1,565.5$1,926.0 million in fiscal 20172019 compared to $1,292.1$1,767.2 million in fiscal 2016.2018. Exchange rates unfavorably impacted fee revenue by $27.9$48.3 million, or 2%3%, in fiscal 2017.2019 compared to the year-ago period. The higherincrease in fee revenue was attributable to organic growth in Hay Group and Futurestep, offset by a decrease in all solution areas. Executive Search. The increase in Hay Group was primarily due to the Legacy Hay acquisition that was completed on December 1, 2015. Executive Search. Executive Search reported fee revenue of $617.7$774.8 million, a decreasean increase of $5.2$65.8 million, or 1%9%, in fiscal 20172019 compared to $622.9$709.0 million in fiscal 2016.the year-ago period. As detailed below, Executive Search fee revenue was lowerhigher in North America and Asia Pacificall regions offset byin fiscal 2019 as compared to fiscal 2018. The higher fee revenue in Executive Search was mainly due to a 6% increase in the Latin Americanumber of engagements billed and EMEA regions in fiscal 2017 as compared to fiscal 2016. Exchange rates unfavorably impacted fee revenue by $12.3 million, or 2%, in fiscal 2017.
North America reported fee revenue of $356.6 million, a decrease of $14.8 million, or 4%, in fiscal 2017 compared to $371.4 million in fiscal 2016. North America’s decrease in fee revenue is primarily due a 3% decrease5% increase in the weighted-average fees billed per engagement (calculated using local currency) and 1% decreasein fiscal 2019 compared to the year-ago period. Exchange rates unfavorably impacted fee revenue by $14.8 million, or 2%, in fiscal 2019 as compared to the year-ago period.
North America reported fee revenue of $455.8 million, an increase of $47.7 million, or 12%, in fiscal 2019 compared to $408.1 million in the year-ago period. North America’s fee revenue was higher due to a 9% increase in the number of engagements billed duringand a 3% increase in the weighted-average fees billed per engagement (calculated using local currency) in fiscal 2017 as2019 compared to fiscal 2016. The overall decreasethe year-ago period. Technology, industrial and financial services were the main sectors contributing to the increase in fee revenue was driven by a decline in the life sciences/healthcare, education/non-profit and financial services sectorsfiscal 2019 as compared to the year-ago period, partially offset by an increase in the industrial sector. Exchangeperiod. The effect of exchange rates did not impacton fee revenue was minimal in fiscal 2017 when2019 as compared to the year-ago period. EMEA reported fee revenue of $146.5$182.8 million, an increase of $2.2$9.1 million, or 2%5%, in fiscal 20172019 compared to $144.3$173.7 million in fiscal 2016.2018. Exchange rates unfavorably impacted fee revenue by $5.7 million, or 3%, in fiscal 2019, compared to the year-ago period. The increase in fee revenue was due to a 6%5% increase in the number of engagements billed and a 4% increase in the weighted-average fees billed per engagement (calculated using local 36
currency) in fiscal 2019 compared to the year-ago period. The performance in the United Kingdom, Germany, United Arab Emirates, and France were the primary contributors to the increase in fee revenue in fiscal 2019 compared to the year-ago period. In terms of business sectors, financial services, industrial and technology had the largest increase in fee revenue in fiscal 2019 compared to the year-ago period, partially offset by a decrease in fee revenue in the life sciences/healthcare and consumer goods sectors. Asia Pacific reported fee revenue of $104.3 million, an increase of $7.7 million, or 8%, in fiscal 2019 compared to $96.6 million in fiscal 2018. Exchange rates unfavorably impacted fee revenue by $3.6 million, or 4%, in fiscal 2019, compared to the year-ago period. The increase in fee revenue was due to a 10% increase in the number of engagements billed and a 2% increase in the weighted-average fees billed per engagement (calculated using local currency) duringin fiscal 2017 as2019 compared to fiscal 2016. This was offset by unfavorable exchange rates which impacted fee revenue by $10.0 million, or 7%, in fiscal 2017 compared to fiscal 2016.the year-ago period. The performance in existing offices in Germany, United Arab EmiratesHong Kong, Australia, Singapore, and DenmarkNew Zealand were the primary contributors to the increase in fee revenue in fiscal 2017 compared to fiscal 2016, offset by a decrease in fee revenue in United Kingdom, France and Switzerland. In terms of business sectors, the technology and industrial sectors had the largest increase in fee revenue in fiscal 2017 as compared to fiscal 2016, partially offset by a decrease in fee revenue in the financial services, consumer goods and life sciences/healthcare sectors. Asia Pacific reported fee revenue of $80.2 million in fiscal 2017, essentially flat with the $80.5 million in fiscal 2016. Exchange rates unfavorably impacted fee revenue by $0.5 million in fiscal 2017 when2019 compared to the year-ago period. There were decreases in Hong Kong and Australia which were offset by an increase in fee revenue in China and Taiwan. Fee revenue in the technology, financial services andTechnology, education/non-profit, sectors decreased in fiscal 2017 as compared to fiscal 2016, offset by an increase in fee revenue in the consumer goods, and industrial sectors.
Latin America reported fee revenue of $34.4 million, an increase of $7.7 million, or 29%, in fiscal 2017 compared to $26.7 million in fiscal 2016. Exchange rates unfavorably impacted fee revenue in Latin America by $1.7 million, or 6%, in fiscal 2017 compared to fiscal 2016. The increase is due to $11.0 million in fee revenue from our Mexico subsidiary that we began consolidating in the fourth quarter of 2016 as a result of obtaining control of the entity. The rest of the change primarily relates to a decrease in fee revenue in Venezuela caused by currency devaluation, offset by higher fee revenues in Brazil in fiscal 2017 compared to fiscal 2016. Industrial, life sciences/healthcare and financial services were the main sectors contributing to the growthincrease in fee revenue in fiscal 20172019 as compared to fiscal 2016, offset by a decrease in fee revenue in the consumer goods sector.year-ago period.
Hay Group. Hay GroupLatin America reported fee revenue of $724.2$31.9 million, an increase of $253.1$1.3 million, or 54%4%, in fiscal 20172019 compared to $471.1$30.6 million in fiscal 2016. Exchange rates unfavorably impacted fee revenue by $11.0 million, or 2%, in fiscal 2017. The increase in fee revenue was primarily due to the Legacy Hay acquisition that was completed on December 1, 2015. As a result of the Legacy Hay acquisition, consulting fee revenue was higher by $146.5 million in fiscal 2017 compared to fiscal 2016, with the remaining increase of $106.6 million generated by higher fee revenue from our products business.
Futurestep. Futurestep reported fee revenue of $223.7 million, an increase of $25.6 million, or 13%, in fiscal 2017 compared to $198.1 million in fiscal 2016.2018. Exchange rates unfavorably impacted fee revenue by $4.6 million, or 2%15%, in fiscal 2017.2019, compared to the year-ago period. The increase in fee revenue was due to higher fee revenue in Peru, Colombia and Brazil in fiscal 2019, compared to the year-ago period. Consumer goods and financial services were the main sectors contributing to the increase in fee revenue in fiscal 2019, compared to the year-ago period, partially offset by a decrease in life sciences/healthcare and industrial sectors.
Advisory. Advisory reported fee revenue of $821.0 million, an increase of $36.0 million, or 5%, in fiscal 2019 compared to $785.0 million in fiscal 2018. Exchange rates unfavorably impacted fee revenue by $24.8 million, or 3%, compared to the year-ago period. Fee revenue from consulting services was higher by $27.8 million in fiscal 2019 compared to the year-ago period, with the remaining increase of $8.2 million generated by our products business. RPO & Professional Search. RPO & Professional Search reported fee revenue of $330.1 million, an increase of $56.9 million, or 21%, in fiscal 2019 compared to $273.2 million in fiscal 2018. Exchange rates unfavorably impacted fee revenue by $8.7 million, or 3%, compared to the year-ago period. Higher fee revenues in RPO and professional search of $13.6$33.0 million and $12.2$23.9 million, respectively, drove the increase in fee revenue. Compensation and Benefits Compensation and benefits expense increased $174.1$112.1 million, or 19%9%, to $1,071.5$1,311.2 million in fiscal 20172019 from $897.4$1,199.1 million in fiscal 2016.2018. Exchange rates favorably impacted compensation and benefits expense by $17.2$29.6 million, or 2%, duringin fiscal 20172019 compared to fiscal 2016.the year-ago period. The Legacy Hay acquisition was the main factor that contributed to the increase in compensation and benefits expense. Given the size of the Legacy Hay acquisition, all components of compensation and benefits expense increased withwas due to a 10% increase in average headcount, which contributed $41.4 million in higher salaries and related payroll taxes insurance costs and deferred compensation seeinga $13.5 million increase in amortization of long-term incentive awards. Also contributing to the largest increases.increase was higher performance-related bonus expense of $36.9 million, higher commission expense of $5.5 million and an increase in the use of outside contractors of $5.5 million all due to the need to service higher fee revenues from increased business. Compensation and benefits expense, as a percentage of fee revenue, was 68% in both fiscal 2019 and 2018. Executive Search compensation and benefits expense increased $8.1by $33.8 million, or 7%, to $502.4 million in fiscal 2019 compared to $468.6 million in fiscal 2018. Exchange rates favorably impacted compensation and benefits by $9.4 million, or 2%, to $409.0 million in fiscal 2017 compared to $400.9 million in fiscal 2016. This increase was primarily due to an increase in the fair value of amounts owed under certain deferred compensation plans of $10.3 million and higher salaries and related payroll expense of $10.9 million due to a 7% increase in average consultant headcount reflecting our continued growth-related investments back into the business in fiscal 20172019 compared to the year-ago period. The rest of the changeincrease was due to anhigher performance-related bonus expense of $17.7 million due to the increase of $6.7in fee revenue. Also contributing to the increase was a 5% increase in average headcount, which contributed $13.0 million in thehigher salaries and related payroll taxes, and a $8.2 million increase in amortization of long-term incentive awards offset by lower performance related bonus expense of $15.6 million duringin fiscal 20172019 compared to fiscal 2016. The decrease in performance related bonus expense was primarily due to lower fee revenue and profitability.the year-ago period. Executive Search compensation and benefits expense, as a percentage of fee revenue, wasdecreased to 65% in fiscal 2019 from 66% in fiscal 2017 compared to 64% in fiscal 2016.2018. Hay GroupAdvisory compensation and benefits expense increased $146.9by $26.8 million, or 47%5%, to $462.1$524.1 million in fiscal 20172019 from $315.2$497.3 million in fiscal 2016.2018. Exchange rates favorably impacted compensation and benefits by $14.2 million, or 3%, in fiscal 2019 compared to the year-ago period. The change was primarily due to $6.4 million in higher performance-related bonus expense, an increase of $5.4 million in commission expense and $2.2 million in outside contractors due to the need to accommodate the growth in fee revenue. The rest of the increase in compensation and benefits expense was primarily due to the Legacy Hay acquisition, which increased our average headcount during fiscal 2017 compared to fiscal 2016, resultingan increase in higheramortization of long-term incentive awards of $4.1 million and $2.4 million more in salaries and related payroll taxes performance related bonus expense, insurance costs, retirement plans and recruiting costs of $101.8 million, $15.1 million, $6.7 million, $6.5 million and $4.2 million, respectively. Hay Groupresulting from a 2% increase in the average consultant headcount in fiscal 2019 compared to the year-ago period. Advisory compensation and benefits expense, as a percentage of fee revenue, decreasedincreased to 64% in fiscal 20172019 from 67%63% in the year-ago period.
FuturestepRPO & Professional Search compensation and benefits expense increased $18.7by $41.4 million, or 14%21%, to $154.8$234.6 million in fiscal 20172019 from $136.1$193.2 million in fiscal 2016.2018. Exchange rates favorably impacted compensation and benefits by $5.9 million, or 3%, in fiscal 2019 compared to the year-ago period. The increase was due to higher
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salaries and related payroll taxes of $23.9 million resulting from a 21%32% increase in the average headcount in fiscal 20172019 compared to the year-ago period that resulted in higher salaries and related payroll taxes and insurance costs of $19.8 million and $1.9 million, respectively, partially offset by lower performance related bonus expense.fiscal 2018. The higher average headcount and the $2.3 million increase in the use of outside contractors was primarily driven by the need to service an increase in fee revenue in both professional searchthe RPO business. Also contributing to the increase in compensation and benefits was a higher performance-related bonus expense of $10.7 million. RPO businesses. Futurestep& Professional Search compensation and benefits expense, as a percentage of fee revenue, was 69%71% in both fiscal 20172019 and 2016.2018. Corporate compensation and benefits expense increased $0.4by $10.1 million, or 1%25%, to $45.6$50.1 million in fiscal 20172019 from $45.2$40.0 million in fiscal 2016. This2018. The increase was mainlyprimarily due to $1.6 million in higher outside contractor costsperformance-related bonus expense, higher salaries and a changerelated payroll taxes, an increase in the fair valueuse of vested amounts owed under certain deferredoutside contractors, higher stock-based compensation plansexpense and an increase in amortization of $1.5long-term incentive awards of $2.0 million, $2.2 million, $1.1 million, $0.9 million and $0.6 million, respectively, in fiscal 20172019 compared to the year-ago period. Offsetting these increasesThe rest of the increase was due to a change in the cash surrender value (“CSV”) of COLI that increased compensation and benefitbenefits expense was a decline in integration/acquisition costs and certain separation costs of $2.2by $1.6 million in fiscal 2017 as2019 compared to the year-ago period. General and Administrative Expenses General and administrative expenses increased $13.2$114.6 million, or 6%48%, to $226.2$352.0 million in fiscal 20172019 compared to $213.0$237.4 million in fiscal 2016.2018. Exchange rates favorably impacted general and administrative expenses by $5.2$8.3 million, or 2%3%, duringin fiscal 2017.2019 compared to the year-ago period. The increase in general and administrative expenses was primarily due to the Legacy Hay acquisition that took placewrite-off of tradenames of $106.6 million related to the Plan, an increase of $3.0 million in legal and other professional expenses, higher marketing and business development expenses of $2.4 million and an increase in premise and office expense of $1.2 million in fiscal 2016, partially offset by a decrease of $20.3 million in integration/acquisition costs and $13.7 million of Venezuelan foreign currency loss2019 as compared to the year-ago period. The Legacy Hay acquisition was the main factor that contributed to increases of $27.0 million, $8.4 million,
$5.3 million and $4.4 million, in premise and office expenses, marketing and business development expenses, travel-related expenses, and bad debt expense, respectively. General and administrationadministrative expenses, as a percentage of fee revenue, was 14%18% in fiscal 20172019 as compared to 16%13% in the year-ago period. Excluding the tradename write-offs, general and administrative expenses as a percentage of fee revenue was 13% in fiscal 2016.2019.
Executive Search general and administrative expenses decreased $5.6increased by $4.4 million, or 7%6%, to $69.7$82.1 million in fiscal 20172019 from $75.3$77.7 million in fiscal 2016.2018. The decreaseincrease in general and administrative expenses was mainly due to the $6.6$1.8 million more in premise and office expense and an increase of $0.9 million in Venezuelan foreign currency loss incurredlegal and other professional expenses. Also contributing to the increase were increases to travel-related expenses and marketing and business development expenses of $1.3 million and $0.7 million, respectively, in order to support the higher fee revenues generated in fiscal 2016, offset by higher bad debt expense of $1.5 million in fiscal 20172019 as compared to the year-ago period. Executive Search general and administrative expenses, as a percentage of fee revenue, was 11% in both fiscal 2017 compared to 12% in fiscal 2016.2019 and 2018. Hay GroupAdvisory general and administrative expenses increased $31.5by $105.9 million, or 48%108%, to $97.1$204.3 million in fiscal 2017 from $65.62019 compared to $98.4 million in fiscal 2016.the year-ago period. The increase in general and administrative expenses was primarilymainly due to the Legacy Hay acquisition that took placewrite-off of tradenames of $106.6 million in fiscal 2016, partially offset by a decrease of $1.8 million in integration/acquisition costs and $7.1 million of Venezuelan foreign currency loss2019 compared to the year-ago period. The acquisition of Legacy Hay was the main factor for increases of $24.0 million, $4.7 million, $4.2 million, $2.5 million and $1.6 million in premise and office expenses, marketing and business development expenses, travel-related expenses, bad debt expense and legal and other professional fees, respectively. Hay GroupAdvisory general and administrative expenses, as a percentage of fee revenue, was 25% in fiscal 2019 as compared to 13% in fiscal 2017 compared to 14% in fiscal 2016.
Futurestep general and administrative expenses increased $2.5 million, or 12%, to $23.9 million in fiscal 2017 compared to $21.4 million in fiscal 2016. General and administrative expenses increased $1.4 million, $0.4 million and $0.4 million in premise and office expenses, marketing and business development expenses and bad debt expense, respectively, during fiscal 2017 compared to the year-ago period due in large part to an increase in fee revenue. Futurestepperiod. Excluding the tradename write-offs, general and administrative expenses as a percentage of fee revenue was 11%12% in both fiscal 20172019.
RPO & Professional Search general and 2016.administrative expenses increased by $1.4 million, or 5%, to $28.1 million in fiscal 2019 from $26.7 million in fiscal 2018. The increase was due primarily to increases in premise and office expense of $1.1 million, in fiscal 2019 compared to the year-ago period. RPO & Professional Search general and administrative expenses, as a percentage of fee revenue, was 9% in fiscal 2019 compared to 10% in the year-ago period. Corporate general and administrative expenses decreased $15.2increased by $2.9 million, or 30%8%, to $35.5$37.5 million in fiscal 20172019 compared to $50.7$34.6 million in fiscal 2016. General2018. The increase was due primarily to increases in legal and administrativeother professional expenses decreased due to a declineand software licenses of $18.4$2.2 million in integration/acquisition costs, offset by increases of $3.2and $1.7 million, in marketing and business development expensesrespectively, in fiscal 20172019 compared to the year-ago period. This was offset by a foreign exchange gain of $1.0 million in fiscal 2019 compared to a foreign exchange loss of $1.2 million in fiscal 2018. Cost of Services Expense Cost of services expense consistconsists primarily of non-billable contractor and product costs related to the delivery of various services and products, primarily in FuturestepRPO & Professional Search and Hay Group.Advisory. Cost of services expense increased $11.7 million, or 20%, to $71.5was $75.5 million in fiscal 20172019 compared to $59.8$73.7 million in fiscal 2016. The increase is mainly due to higher fee revenue in Hay Group due to the Legacy Hay acquisition.2018. Cost of services expense, as a percentage of fee revenue, was 5%4% in both fiscal 20172019 and 2016.2018. Depreciation and Amortization Expenses Depreciation and amortization expenses were $47.3$46.5 million, a decrease of $2.1 million, or 4%, in fiscal 2019 compared to $48.6 million in fiscal 2017,2018. The decrease was due to lower amortization expense associated with intangible assets as some of our intangible assets became fully amortized. 38
Operating Income Operating income was $140.8 million, a decrease of $67.6 million, in fiscal 2019 compared to $208.4 million in fiscal 2018. The decrease in operating income was primarily driven by the write-off of tradenames of $106.6 million, an increase of $11.1 million compared to $36.2 million in fiscal 2016. The increase is mainly due to the Legacy Hay acquisition. The increase relates primarily to technology investments that were made in the current and prior year in software and computer equipment, in addition to increases in leasehold improvements, furniture and fixtures (associated with our office co-location) and intangible assets. Restructuring Charges, Net
We continued the implementation of the fiscal 2016 restructuring plan in order to integrate the Hay Group entities that were acquired in the prior year by eliminating redundant positions and operational, general and administrative expenses and consolidation of office space. As a result, we recorded $34.6 million of restructuring charges in fiscal 2017, of which $16.0 million related to severance costs and $18.6 million related to the consolidation of office space.
During fiscal 2016, we implemented a restructuring plan in order to rationalize our cost structure in order to eliminate redundant positions and consolidation of office space that were created due to the acquisition of Legacy
Hay. As a result, we recorded $33.0 million of restructuring charges, with $32.1 million of severance and $0.9 million relating to the consolidation/abandonment of premises during fiscal 2016.
Operating Income
Operating income increased $61.7 million, or 117%, to $114.4 million in fiscal 2017 compared to $52.7 million in fiscal 2016. This increase in operating income resulted from $273.4 million in higher fee revenue, offset by an increase of $174.1$112.1 million in compensation and benefits expense. The rest of the change was due to increases of $13.2expense, and $8.0 million more in general and administrative expenses $11.7 million in cost(excluding write-off of services expense, and $11.1 million of depreciation and amortization expenses during fiscal 2017 compared to fiscal 2016. Operating income as a percentage oftradenames), offset by higher fee revenue was 7% in fiscal 2017 compared to 4% in fiscal 2016.of $158.8 million.
Executive Search operating income was $124.3 million, a decrease of $7.4increased by $29.5 million, or 6%20%, in fiscal 2017 compared to $131.7$179.1 million in fiscal 2016.2019 compared to $149.6 million in fiscal 2018. The decreaseincrease in Executive Search operating income was driven by loweran increase in fee revenue of $5.2$65.8 million, and higheroffset by increases in compensation and benefits expense of $8.1 million, offset by a decrease inand general and administrative expenses of $5.6 million.$33.8 million and $4.4 million, respectively. Executive Search operating income, as a percentage of fee revenue, was 20% in fiscal 2017 compared to23% and 21% in fiscal 2016.2019 and 2018, respectively. Hay GroupAdvisory operating income increased by $50.7was $5.6 million, a decrease of $94.9 million, or 94% in fiscal 2019 compared to $47.3$100.5 million in fiscal 2017 compared to operating loss of $3.4 million in fiscal 2016.2018. The change was primarily driven bydue to the Legacy Hay acquisition resulting inwrite-off of tradenames of $106.6 million and an increase of $26.8 million in compensation and benefits expense in fiscal 2019 compared to the year-ago period, offset by higher fee revenue of $253.1$36.0 million and a decrease in depreciation and amortization expense of $2.5 million. Advisory operating income, as a percentage of fee revenue was 1% in fiscal 2019 compared to 13% in the year-ago period. Excluding the tradename write-offs, operating income as a percentage of fee revenue was 14% in fiscal 2019.
RPO & Professional Search operating income was $50.9 million, an increase of $11.5 million, or 29%, in fiscal 2019 compared to $39.4 million in fiscal 2018. The increase in operating income was driven by higher fee revenue of $56.9 million, offset by increases in compensation and benefits expense, general and administrative expenses, depreciation and amortization expenses, cost of services expense and restructuring charges, netgeneral and administrative expenses of $146.9$41.4 million, $31.5 million, $10.4 million, $9.5$2.4 million and $4.0$1.4 million, respectively in fiscal 2017 compared to 2016. Hay Grouprespectively. RPO & Professional Search operating income, as a percentage of fee revenue, was 7%15% in fiscal 20172019 compared to operating loss as a percentage of fee revenue of 1%14% in fiscal 2016.the year-ago period. Futurestep operating income increased by $3.3 million to $30.0 million in fiscal 2017 from $26.7 million in fiscal 2016. The increase in Futurestep operating income was primarily due to higher fee revenues of $25.6 million, partially offset by increases of $18.7 million in compensation and benefits expense and $2.5 million in general and administrative expenses. Futurestep operating income, as a percentage of fee revenue, was 13% in both fiscal 2017 and 2016.
Net Income Attributable to Korn Ferry Net income attributable to Korn Ferry increased $53.3decreased by $31.1 million or 172%, to $84.2$102.7 million in fiscal 20172019 compared to $30.9$133.8 million in fiscal 2016.2018. The increasedecrease was due primarily to higher total revenue of $275.0 million, offsetdriven by higher operating expenses of $213.2$221.9 million mainly due to the tradename write-off of $106.6 million and an increase inhigher compensation and benefits expense of $112.1 million, partially offset by higher total revenue of $154.4 million and a lower income tax provision of $10.1 million.$40.6 million compared to the year-ago period. Net income attributable to Korn Ferry, as a percentage of fee revenue, was 5% duringin fiscal 2017 as2019 compared to 2%8% in the year-ago period. Adjusted EBITDA Adjusted EBITDA increased $44.8by $33.0 million or 24%, to $235.0$311.0 million in fiscal 20172019 compared to $190.2$278.0 million in fiscal 2016.2018. This increase was driven by higher adjusted fee revenue of $266.0$158.8 million, offset by an increases of $114.8 million in compensation and benefits expense (excluding integration costs), $8.0 million in general and administrative expenses (excluding write-off on tradenames), $1.8 million in cost of services and a decrease in other income, net of $1.0 million, primarily due to changes in the fair value of our marketable securities in fiscal 2019 compared to the year-ago period. Adjusted EBITDA, as a percentage of fee revenue, was 16% in both fiscal 2019 and 2018. Executive Search Adjusted EBITDA increased by $34.5 million, or 22%, to $193.8 million in fiscal 2019 compared to $159.3 million in fiscal 2018. The increase was driven by higher fee revenue of $65.8 million and an increase in other income, net of $5.9 million, primarily due to changes in the change in fair value of our marketable securities of $16.0 million in fiscal 20172019 compared to the year-ago period, offset by increases of $177.0 million, $47.2 million and $11.7$33.8 million in compensation and benefits expense, $4.4 million in general and administrative expenses and cost of services expense, respectively. Adjusted EBITDA as a percentage of fee revenue was 15% in both fiscal 2017 and 2016. Executive Search Adjusted EBITDA was $137.4 million, a decrease of $14.8 million, or 10%, in fiscal 2017 compared to $152.2 million in fiscal 2016. This decrease was due to lower fee revenue of $5.2 million and higher compensation and benefits expense and general and administrative expenses of $8.1 million and $1.0 million, respectively.expenses. Executive Search Adjusted EBITDA, as a percentage of fee revenue, was 22%25% in fiscal 20172019 as compared to 24%22% in the year-ago period.
Advisory Adjusted EBITDA was $151.0 million, an increase of $7.5 million, or 5%, in fiscal 2016. Hay Group Adjusted EBITDA increased by $49.3 million2019 compared to $128.2$143.5 million in fiscal 2017 compared to $78.9 million in fiscal 2016. This2018. The increase was due todriven by higher adjusted fee revenue of $245.6$36.0 million, offset by an increaseincreases of $29.4 million in
compensation and benefitbenefits expense general and administrative expenses and cost of services expense of $147.6 million, $40.5 million and $9.5 million, respectively. The higher compensation and benefit expense was driven mainly by increases(excluding integration costs) in salaries and related payroll taxes duefiscal 2019 compared to an increase in average headcount and an increase in performance related bonus expense. Hay Groupthe year-ago period. Advisory Adjusted EBITDA, as a percentage of fee revenue, was 18% in both fiscal 20172019 and 2018. RPO & Professional Search Adjusted EBITDA was $54.4 million, an increase of $11.8 million, or 28%, in fiscal 2019 compared to 16% in fiscal 2016. Futurestep Adjusted EBITDA increased by $3.3 million to $32.8$42.6 million in fiscal 2017 compared to $29.5 million in fiscal 2016.2018. The increase in Futurestep Adjusted EBITDA was primarily due todriven by higher fee revenue of $25.6$56.9 million, offset by an increaseincreases of $41.4 million in compensation and benefits expense, $2.4 million in cost of services and $1.4 million in general and administrative expenses, of $18.7 million and $2.5 million, respectively, duringin fiscal 2017 as2019 compared to fiscal 2016. The increase in compensation and benefits expense was primarily driven by higher salaries and related payroll taxes due to an increase in average headcount. Futurestepthe year-ago period. RPO & Professional Search Adjusted EBITDA, as a percentage of fee revenue, was 15%16% in both fiscal 20172019 and 2016.2018.
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Other Income, (Loss), Net Other income, net was $11.8$10.1 million in the fiscal 2017 as2019 compared to other loss, net of $4.2$11.1 million in fiscal 2016.the year-ago period. The change in other income (loss), net isdecrease was primarily due to the increase in the fair value of our marketable securities, held in trust for settlement of our obligations under certain deferred compensation plans, during fiscal 2017 compared to the decreasesmaller gains in the fair value of our marketable securities in fiscal 2019 compared to the year-ago period. Interest (Expense) Income,Expense, Net Interest (expense) income,expense, net primarily relates to our term loan facility that we entered into in the current fiscal year to provide enhanced financial flexibilitycredit agreement and in recognition of the accelerated pace of the Legacy Hay integration. It also includes interest on our borrowings under our COLI policies, andwhich was partially offset by interest earned on cash and cash equivalent balances. Interest expense, net was $10.3$16.9 million in the fiscal 20172019 compared to interest income, net of $0.3$13.8 million in fiscal 2016.the year-ago period. Equity in Earnings of Unconsolidated Subsidiaries
Equity in earnings of unconsolidated subsidiaries is comprised of our less than 50% interest in IGroup, LLC, which is engaged in organizing, planning and conducting conferences and training programs throughout the world for directors, chief executive officers, other senior level executives and also includes earnings of our Mexico subsidiary for the first nine months in fiscal 2016. In the fourth quarter of fiscal 2016, we obtained control of our Mexico subsidiary and began to consolidate the operations. Equity in earnings was $0.3 million in fiscal 2017 as compared to $1.6 million in fiscal 2016. The decrease is due to the consolidation of our Mexico subsidiary in fiscal 2017, which is now included in operations.
Income Tax Provision The provision for income taxestax was $29.1$29.5 million in the fiscal 20172019 compared to $19.0$70.1 million in fiscal 2016, reflectingthe year-ago period. This reflects a 25%22% and 39%34% effective tax rate for fiscal 2019 and 2018, respectively. The lowerdifference in the effective tax rate in fiscal 2017 was dueis primarily to a higher percentage of taxable income arising in jurisdictions outside of the U.S. with lower statutory tax rates. The effective tax rate in fiscal 2016 was higher largely due to the impact of non-deductible expenses incurred in connection with the acquisition of Legacy Hay and non-deductible charges related to the devaluationenactment of the Venezuelan currency.Tax Act which reduced the U.S. corporate federal statutory income tax rate from 35% to 21%, as well as the excess tax benefit on stock-based awards that vested in fiscal 2019. Net Income Attributable to Non-ControllingNoncontrolling Interest Net income attributable to non-controllingnoncontrolling interest represents the portion of a subsidiary’s net earnings that are attributable to shares of such subsidiary not held by Korn Ferry that are included in the consolidated results of operations. In the fourth quarter of fiscal 2016, we obtained control of our Mexico subsidiary and began to consolidate the operations. Net income attributable to non-controllingnoncontrolling interest was $2.1 million in both fiscal 2019 and 2018. Fiscal 2018 Compared to Fiscal 2017 was $3.1 Fee Revenue Fee Revenue. Fee revenue went up by $201.7 million, comparedor 13%, to $0.5$1,767.2 million in fiscal 2016.
Fiscal 2016 Compared2018 compared to Fiscal 2015
Fee Revenue
Fee Revenue. Fee revenue increased $263.9 million, or 26%, to $1,292.1$1,565.5 million in fiscal 2016 compared to $1,028.2 million in fiscal 2015.2017. Exchange rates unfavorablyfavorably impacted fee revenue by $66.8$35.3 million, or 6%2%, in fiscal 2016. Adjusting for the Legacy Hay acquisition, fee revenue increased $77.1 million, or 7%,2018 compared to fiscal 2015. This increasethe year-ago period. The higher fee revenue was attributable to higher fee revenueorganic growth in Futurestep, North America regionall lines of business.
Executive Search and Legacy LTC. Executive Search. Search. Executive Search reported fee revenue of $622.9$709.0 million, an increase of $25.5$91.3 million, or 4%15%, in fiscal 20162018 compared to $597.4$617.7 million in fiscal 2015.the year-ago period. As detailed below, Executive Search fee revenue was higher in the North America, region,EMEA and Asia Pacific, partially offset by decreases inlower fee revenue in EMEA, Asia Pacific andthe Latin America regionsregion in fiscal 20162018 as compared to fiscal 2015.2017. The higher fee revenue in Executive Search was mainly due to a 6%9% increase in the number of engagements billed and a 3% increase in the weighted-average fees billed per engagement offset by a 1% decrease in engagements billed(calculated using local currency) during fiscal 2016 as2018 compared to fiscal 2015.the year-ago period. Exchange rates unfavorablyfavorably impacted fee revenue by $29.5$12.3 million, or 5%2%, in fiscal 2016.2018, compared to the year-ago period.
North America reported fee revenue of $371.4$408.1 million, an increase of $40.8$51.5 million, or 12%14%, in fiscal 20162018 compared to $330.6$356.6 million in the year-ago period. North America’s fee revenue was higher due to an 11% increase in the number of engagements billed and a 3% increase in the weighted-average fees billed per engagement (calculated using local currency) during fiscal 2018 compared to the year-ago period. All business sectors contributed to the growth in fee revenue in fiscal 2018 as compared to fiscal 2017, with industrial, technology and financial services contributing the most. The effect of exchange rates on fee revenue was minimal in fiscal 2018, compared to the year-ago period. EMEA reported fee revenue of $173.7 million, an increase of $27.2 million, or 19%, in fiscal 2018 compared to $146.5 million in fiscal 2015. North America’s2017. The favorable effect of exchange rates on fee revenue was $8.8 million, or 6%, in fiscal 2018, compared to the year-ago period. The increase in fee revenue is primarilywas due to a 10% increase in the number of engagements billed, partially offset by a 2% decrease in the weighted-average fees billed per engagement (calculated using local currency) during fiscal 2018 compared to the year-ago period. The performance in the United Kingdom, Germany, and France were the primary contributors to the increase in fee revenue in fiscal 2018 compared to the year-ago period. All business sectors contributed to the growth in fee revenue in fiscal 2018 as compared to the year-ago period, with industrial, financial services and consumer goods contributing the most. Asia Pacific reported fee revenue of $96.6 million, an increase of $16.4 million, or 20%, in fiscal 2018 compared to $80.2 million in fiscal 2017. The increase in fee revenue was due to an 8% increase in the number of engagements billed and a 4%an 8% increase in the weighted-average fees billed per engagement during(calculated using local currency) in fiscal 2016 as2018 compared to fiscal 2015.the year-ago period. The overallperformance in China, Australia, Singapore, and Japan were the primary contributors to the increase in fee revenue was primarily driven by growth in the financial services, life sciences/healthcare, technology and education/non-profit sectors asfiscal 2018 compared to fiscal 2015,the year-ago period, partially offset by a decrease in the industrial and consumer goods sectors. Exchange rates unfavorably impacted fee revenue by $2.8in New Zealand. All business sectors contributed to the growth in fee revenue in fiscal 2018 as compared to the year-ago period, with financial services, life sciences/healthcare, and technology contributing the most. The favorable effect of exchange rates on fee revenue was $2.3 million, or 1%3%, in fiscal 2016.compared to the year-ago period. EMEA40
Latin America reported fee revenue of $144.3$30.6 million, a decrease of $9.2$3.8 million, or 6%11%, in fiscal 20162018 compared to $153.5$34.4 million in fiscal 2015. Exchange rates unfavorably impacted fee revenue by $13.8 million, or 9%, in fiscal 2016.2017. The declinedecrease in fee revenue was due to a 4% decrease in the number of engagements billed and a 2% decrease in the weighted-average fees billed per engagement during fiscal 2016 as compared to fiscal 2015. The performance in existing offices in the United Kingdom, France, Switzerland and Germany were the primary contributors to the decrease inlower fee revenue in Mexico in fiscal 20162018, compared to the year-ago period, offset by an increase in fee revenue in United Arab Emirates and Belgium. In terms of business sectors, financial services, industrial and technology experienced the largest decreases in fee revenue in fiscal 2016 as compared to fiscal 2015, partially offset by an increase in the consumer goods sector. Asia Pacific reported fee revenue of $80.5 million, a decrease of $3.6 million, or 4%, in fiscal 2016 compared to $84.1 million in fiscal 2015. Exchange rates unfavorably impacted fee revenue by $6.2 million, or 7%, in fiscal 2016. The decline in fee revenue was due to a 4% decrease in the number of engagements billed in fiscal 2016 compared to fiscal 2015. The performance in Singapore, Hong Kong and Australia were the primary contributors to the decrease in fee revenue in fiscal 2016 compared to fiscal 2015, offset by higher fee revenue in India. Life sciences/healthcare, consumer goods, and industrial were the main sectors contributing to the decrease in fee revenue in fiscal 2016 as compared to fiscal 2015, partially offset by higher fee revenue in the education/non-profit sector.
Latin America reported fee revenue of $26.7 million, a decrease of $2.5 million, or 9%, in fiscal 2016 compared to $29.2 million in fiscal 2015. In the fourth quarter of fiscal 2016, we obtained control of our equity investment in our Mexico subsidiary which is included in our consolidated results. The Mexico subsidiary contributed $3.6 million in fee revenue in fiscal 2016. Excluding fee revenue from our Mexico subsidiary, fee revenue in Latin America decreased $6.1 million, or 21%, compared to fiscal 2015. Exchange rates unfavorably impacted fee revenue for Latin America excluding the Mexico subsidiary by $6.1 million, or 21%, in fiscal 2016. The decline in fee revenue was due to a 41% decrease in the number of engagements billed, offset by a 36% increase in weighted-average fees billed per engagement in fiscal 2016 compared to fiscal 2015. The performance in Brazil, ColombiaArgentina. Financial services and Chileconsumer goods were the primary contributorsmain sectors contributing to the decline in fee revenue in fiscal 20162018, compared to fiscal 2015, partially offset by the growth in Venezuela. Industrial was the main sector contributing to the decrease inyear-ago period. The effect of exchange rates on fee revenue in fiscal 2016 compared to fiscal 2015, partially offset by an increase in fee revenue in the consumer goods sector during the same period.was minimal.
Hay Group. Hay GroupAdvisory. Advisory reported fee revenue of $471.1$785.0 million, an increase of $204.0 million, or 76%, in fiscal 2016 compared to $267.1 million in fiscal 2015. Exchange rates unfavorably impacted fee revenue by $25.3 million, or 9%, in fiscal 2016. Adjusting for the Legacy Hay acquisition, fee revenue increased $17.2 million, or 6%, compared to fiscal 2015. Fee revenue increased due to higher consulting fee revenue of $16.6$60.8 million, or 8%, in fiscal 20162018 compared to $724.2 million in fiscal 20152017. Exchange rates favorably impacted fee revenue by $17.4 million, or 2%, compared to the year-ago period. Fee revenue from consulting services was higher by $42.8 million in fiscal 2018 compared to the year-ago period, with the restremaining increase of the increase due to higher fee revenue from products. The acquisition of Pivot Leadership on March 1, 2015 contributed $22.4$18.0 million and $3.7 million in consulting fee revenue during fiscal 2016 and fiscal 2015, respectively.generated by our products business.
Futurestep. FuturestepRPO & Professional Search. RPO & Professional Search reported fee revenue of $198.1$273.2 million, an increase of $34.4$49.5 million, or 21%22%, in fiscal 20162018 compared to $163.7$223.7 million in fiscal 2015.2017. Higher fee revenues in RPO and professional search of $33.3 million and $18.1 million, respectively, drove the increase in fee revenue. Exchange rates unfavorablyfavorably impacted fee revenue by $12.0$5.6 million, or 7% in fiscal 2016. The increase in fee revenue was primarily driven by higher fee revenues in professional search and RPO of $18.1 million and $17.4 million, respectively. The increase in fee revenue in professional search was due to a 16% increase in the weighted-average fees billed per engagement in fiscal 20163%, compared to fiscal 2015 and 9% increase in the number of engagements billed during the sameyear-ago period.
Compensation and Benefits Compensation and benefits expense increased $205.9$133.4 million, or 30%13%, to $897.4$1,199.1 million in fiscal 20162018 from $691.5$1,065.7 million in fiscal 2015.2017. Exchange rates favorablyunfavorably impacted compensation and benefits expenseexpenses by $42.8$23.0 million, or 6%2%, duringin fiscal 2016. Excluding $128.6 million2018 compared to the year-ago period. The increase in compensation and benefits relatingwas primarily due to a 9% increase in the Legacy Hay acquisition and $22.1average consultant headcount, which contributed $80.4 million in integration/acquisition costs and separation charges, compensation and benefits increased $55.2 million, or 8%, compared to fiscal 2015. This increase was due in large part to an increase of $35.9 million, $4.7 million, $3.6 million and $2.9 million inhigher salaries and related payroll taxes, performance related bonus expense, stock-based$9.4 million more in expenses associated with our deferred compensation and outside contractors, respectively.retirement plans (includes the increases in the fair value of participants’ accounts) and an increase of $5.8 million in employer insurance costs in fiscal 2018 compared to the year-ago period. The higher levelrest of salaries and related payroll expensethe change was due to an$40.8 million increase in average headcount of 11% in fiscal 2016 compared to fiscal 2015, and reflects our continued growth-related investments back into the business. The increase in performance relatedperformance-related bonus expense wasmainly due to anthe increase in fee revenue and profitability. Also, contributing to the$11.3 million increase in compensationamortization of long term incentive awards, offset by a $9.8 million decrease in integration costs and benefits expense was a$2.9 million from the change in the cash surrender value (“CSV”) of company owned life insurance (“COLI”). in fiscal 2018 compared to the year-ago period. The change in the CSV of COLI increaseddecreased compensation and benefits expense by $6.5 million in fiscal 20162018 compared to fiscal 20152017 due to a smaller increaselarger increases in the market value of the underlying investments due to market changes. COLI is held to fund other deferred compensation retirement plans (see(See Note 6 –6—Deferred Compensation and Retirement Plans, included in the Notesnotes to our Consolidated Financial Statements). The changes in the fair value of vested amounts owed under certain deferred compensation plans decreased compensation Compensation and benefits expense, by $1.7 millionas a percentage of fee revenue, was 68% in both fiscal 2016 compared to an increase of $5.9 million in fiscal 2015. Offsetting these changes in compensation2018 and benefits expense was a decrease in the fair value of marketable securities classified as trading (held in trust to satisfy obligations under certain deferred compensation plan liabilities) of $3.3 million in fiscal 2016 compared to an increase of $8.8 million in fiscal 2015, recorded in other (loss) income, net on the consolidated statement of income.2017.
Executive Search compensation and benefits expense increased $7.6by $59.6 million, or 15%, to $400.9$468.6 million in fiscal 20162018 compared to $393.3$409.0 million in fiscal 2015.2017. The changeincrease was driven byprimarily due to higher salariessalary cost and related payroll taxes of $7.7 million.$24.8 million due to a 5% increase in average headcount reflecting our continued growth-related investment back into the business. Also contributing to the increase in compensation and benefits expense was a $17.1 million increase in performance related bonus expense compared to the year-ago period, an $8.4 million increase in amortization of long-term incentive awards, and an increase of $4.6 million in expenses associated with our deferred compensation and retirement plans (includes the increases in the fair value of participants’ accounts). The higher level of salaries andincrease in performance related payrollbonus expense was due to ana 15% increase in average consultant headcount of 6%fee revenue in fiscal 20162018 compared to fiscal 2015, and reflects our continued growth-related investments back into the business.year-ago period. Executive Search compensation and benefits expense, as a percentage of fee revenue, was 64% in fiscal 2016 compared to 66% in both fiscal 2015.2018 and 2017. Hay GroupAdvisory compensation and benefits expense increased $156.3$35.3 million, or 98%8%, to $315.2$497.3 million in fiscal 20162018 from $158.9$462.0 million in fiscal 2015. Excluding $128.6 million in compensation and benefits relating2017. The change was primarily due to the Legacy Hay acquisition and $16.1 million in integration/acquisition costs, compensation and benefits increased $11.6 million, or 7%, compared to fiscal 2015. The increase was driven by an increaseincreases in salaries and related payroll taxes of $8.5$25.3 million and $4.6 million increase in expenses associated with our deferred compensation and retirement plans (includes the increases in the fair value of participants’ accounts). Also contributing to the increase in compensation and benefits expense was an increase of $3.8$10.5 million in performance related bonus expense. The higher levelexpense and $2.8 million more in employer insurance costs, offset by a decrease in integration costs of salaries and related payroll expense was due to an increase in average consultant headcount of 14% in fiscal 2016$6.3 million compared to fiscal 2015. Hay Group compensation and benefits expense as a percentage of fee revenue
increased to 67% in fiscal 2016 from 60% in fiscal 2015. Excluding integration/acquisition costs,year-ago period. Advisory compensation and benefits expense, as a percentage of fee revenue, was 63% in fiscal 2016.2018 compared to 64% in the year-ago period.
FuturestepRPO & Professional Search compensation and benefits expense increased $24.3$38.4 million, or 22%25%, to $136.1$193.2 million in fiscal 20162018 from $111.8$154.8 million in fiscal 2015.2017. The increase was primarily driven by an increase of $19.0 million indue to higher salaries and related payroll taxes $2.9of $26.8 million in outside contractors and $1.2 million in insurance costs for employees. The increase in salaries and related payroll taxes and insurance costs provided for employees was due to a 27%20% increase in the average headcount.headcount in fiscal 2018 compared to the year-ago period. The higher average headcount and the increase in utilization of outside contractors werewas primarily driven by the need to service an increase in fee revenue in both ourthe professional search and RPO businesses. FuturestepAlso contributing to the increase in compensation and benefits expense was an increase of $11.3 million in performance related bonus expense due to a 22% increase in fee revenue in fiscal 2018 compared to the year-ago period. RPO & Professional Search compensation and benefits expense, as a percentage of fee revenue, was 71% in fiscal 2018 compared to 69% in fiscal 2016 compared to 68% in fiscal 2015.the year-ago period.
Corporate compensation and benefits expense increased $17.7 million, or 64%, to $45.2was $40.0 million in fiscal 2016 from $27.52018 as compared to $39.9 million in fiscal 2015. Excluding $6.02017. 41
General and Administrative Expenses General and administrative expenses increased $11.2 million, of integration/acquisition costs and separation charges, compensation and benefits expense increased $11.7or 5%, to $237.4 million in fiscal 2016 as2018 compared to fiscal 2015. This increase was mainly due to the change in the CSV of COLI. The change in CSV of COLI reduced compensation and benefits expense by $4.0 million and $10.5$226.2 million in fiscal 20162017. The increase in general and 2015, respectively. The decrease in CSV of COLIadministrative expenses was due to increases of $6.2 million and $2.2 million in legal and other professional fees and premise and office expenses, respectively, offset by a decreasedecline of $3.8 million in integration costs during fiscal 2018 compared to the market value of investments underlying the COLI. COLI is held to fund other deferred compensation retirement plans (see Note 6 – Deferred Compensation and Retirement Plans, included in the Notes to our Consolidated Financial Statements).year-ago period. The rest of the change was primarily due to increases in stock-based compensationgenerating foreign exchange loss of $2.9 million. General and Administrative Expenses
General and administrative expenses increased $67.1$3.3 million or 46%,during fiscal 2018 compared to $213.0a foreign exchange gain of $0.3 million in fiscal 2016 compared to $145.9 million in fiscal 2015. Exchange rates favorably impacted general and administrative expenses by $10.1 million, or 7%, during fiscal 2016. Excluding $25.5 million in general and administrative expenses relating to the Legacy Hay acquisition, integration/acquisition costs of $23.2 million and $13.7 million foreign currency loss due to the devaluation of the Venezuelan currency, general and administrative expenses increased $4.7 million, or 3%, compared to fiscal 2015. Fiscal 2015 general and administrative expenses benefitted from a one-time insurance reimbursement that reduced legal fees in that year.2017. General and administrative expenses, as a percentage of fee revenue, was 16%13% in fiscal 20162018 compared to 14% in fiscal 2015. Excluding integration/acquisition costs and the Venezuelan foreign currency loss,2017. Exchange rates unfavorably impacted general and administrative expenses as a percentage of fee revenue were 14% inby $3.7 million, or 2%, during fiscal 2016.2018 compared to the year-ago period.
Executive Search general and administrative expenses increased $3.8$8.0 million, or 5%11%, to $75.3$77.7 million in fiscal 20162018 from $71.5$69.7 million in fiscal 2015. Excluding the Venezuelan foreign currency loss of $6.6 million, general2017. General and administrative expenses decreased $2.8increased due to generating foreign exchange losses of $1.2 million or 4%,during fiscal 2018 compared to fiscal 2015. The decrease was due to favorablea foreign exchange rates that reduced generalgain of $1.3 million during the year-ago period and administrative expenses by $1.1 million and loweran increase in legal and other professional fees of $0.9 million. The rest of the change was due to an increase in $0.8 million in marketing and business development expenses to support the higher fee revenues generated in fiscal 2018 compared to the year-ago period, $0.7 million increase in premise and office expenses, and an increase in bad debt expense of $0.6 million. Executive Search general and administrative expenses, as a percentage of fee revenue, were 12%was 11% in both fiscal 20162018 and 2015.2017. Hay GroupAdvisory general and administrative expenses increased $30.3$1.3 million or 86%, to $65.6$98.4 million in fiscal 2016 from $35.32018 compared to $97.1 million in the year-ago period. General and administrative expenses increased due to a foreign exchange loss of $1.1 million during fiscal 2018 compared to a foreign exchange gain of $0.2 million in fiscal 2015. Excluding $25.5 million relating to the Legacy Hay acquisition, $1.5 million in integration/acquisition costs and $7.1 million in foreign currency loss due to the devaluation of the Venezuelan currency, general and administrative expenses decreased $3.8 million, or 11%, compared to fiscal 2015. The decrease was due to favorable exchange rates that reduced general and administrative expenses by $1.5 million. The rest of the change was due to lower legal and other professional fees of $1.3 million and a reduction of bad debt expense of $1.1 million due to better collections. Hay Group2017. Advisory general and administrative expenses, as a percentage of fee revenue, was 14%13% in both fiscal 2018 and 2017.
RPO & Professional Search general and administrative expenses increased $2.8 million, or 12%, to $26.7 million in fiscal 20162018 from $23.9 million in fiscal 2017. The increase was due primarily to increases in premise and office expenses, bad debt expense and legal and other professional fees of $1.2 million, $1.0 million and $0.4 million, respectively, in fiscal 2018 compared to 13% in fiscal 2015. Excluding integration/acquisition costs and the Venezuelan foreign currency loss,year-ago period. RPO & Professional Search general and administrative expenses, as a percentage of fee revenue, were 12%was 10% in fiscal 2016. We do not believe that further weakening of the Venezuelan Bolivar will materially impact our results of operations. Futurestep general and administrative expenses increased $2.1 million, or 11%, to $21.4 million in fiscal 20162018 compared to $19.3 million in fiscal 2015. Higher premise and office expenses of $1.5 million contributed to the
increase in general and administrative expenses. Futurestep general and administrative expenses as a percentage of fee revenue were 11% in fiscal 2016 compared to 12% in fiscal 2015.2017.
Corporate general and administrative expenses increased $30.9decreased $0.9 million, or 3%, to $50.7$34.6 million in fiscal 20162018 compared to $19.8$35.5 million in fiscal 2015. Excluding $21.7 million in integration/acquisition costs, general and administrative expenses increased $9.2 million, or 46%, compared to fiscal 2015, although fiscal 2015 benefitted from a one-time insurance reimbursement that lowered legal and professional fees by that amount.2017. The rest of the increase was due to unfavorable exchange rates that resulted in an increasedecrease in general and administrative expenses was due to a decrease of $2.2$4.2 million in integration costs associated with the Legacy Hay acquisition and $0.8 million in business development expenses, offset by an increase in legal and other professional fees of $4.3 million during fiscal 20162018 compared to fiscal 2015.2017. Cost of Services Expense Cost of services expense consistconsists primarily of non-billable contractor and product costs related to the delivery of various services and products, primarily in FuturestepRPO & Professional Search and Hay Group.Advisory. Cost of services expense increased $20.1 million, or 51%, to $59.8was $73.7 million in fiscal 20162018 compared to $39.7$71.5 million in fiscal 2015. Adjusting for the Legacy Hay acquisition, the cost of services increased $5.1 million, or 13%, compared to fiscal 2015. The increase is mainly due to higher fee revenue in Legacy LTC and Futurestep.2017. Cost of services expense, as a percentage of fee revenue, was 5% in fiscal 2016 compared to 4% in fiscal 2015.2018 as compared to 5% in the year-ago period. Depreciation and Amortization Expenses Depreciation and amortization expenses were $36.2$48.6 million, an increase of $1.3 million, in fiscal 2016, an increase of $8.6 million2018 compared to $27.6$47.3 million in fiscal 2015. Adjusting for the Legacy Hay acquisition, depreciation and amortization expenses increased $0.7 million, or 3%, compared to fiscal 2015.2017. The increase relates primarily to technology investments that were made in the current and prior year in software and intangible assets.computer equipment, in addition to increases in leasehold improvements and furniture and fixtures. Restructuring Charges, Net DuringThe Company continued the implementation of the fiscal 2016 we implemented a restructuring plan in fiscal 2017 in order to rationalize our cost structure, eliminateintegrate the Advisory entities that were acquired in fiscal 2016 by eliminating redundant positions and consolidate office space relating to the acquisition of Legacy Hay. As a result, we recorded $33.0 million of restructuring charges with $32.1 million of severance costs to eliminate redundant positionsoperational, general and $0.9 million relating to the consolidation/abandonment of premises, both of which were due to the integration of Legacy Hay during fiscal 2016. During fiscal 2015, we took actions to rationalize our cost structure as a result of efficiencies obtained from prior year technology investments that enabled further integration of our legacy businessesadministrative expenses and the previous year’s acquisitions of PDI and Global Novations, LLC, as well as other cost saving initiatives. As a result, we recorded $9.5 millionconsolidating premises. This resulted in restructuring charges netof $34.6 million in fiscal 2015,2017, of which $9.2$16.0 million related to severance and $0.3$18.6 million related to consolidation/abandonmentconsolidation of premises. Fiscal 2018 restructuring charges were minimal.
Operating Income Operating income decreased $61.3was $208.4 million, or 54%, to $52.7an increase of $88.1 million, in fiscal 20162018 as compared to $114.0$120.3 million in fiscal 2015. Adjusting for the $32.4 million operating loss of Legacy Hay, operating income decreased $28.9 million, or 25%, compared to the year-ago period.2017. This decreaseincrease in operating income resulted from an increasehigher fee revenue of $65.5$201.7 million and a decrease in restructuring charges, net of $34.5 million, offset by increases of $133.4 million in compensation and benefits expense, (which included $9.4 million in integration/acquisition costs and separation charges), $34.0$11.2 million in general and administrative expenses, (which included $30.2 million in integration/acquisition costs and Venezuelan foreign currency loss due to the devaluation of their currency) and $5.1$2.2 million in cost of services expense. These changes were offset by higher fee revenue of $77.1 million during fiscal 2016 as compared to fiscal 2015. The Legacy Hay operating loss of $32.4 million included integration/acquisition costs of $12.5 million, $6.9expense, and $1.3 million in foreign currency loss as a result of the devaluation of the Venezuelan Bolivardepreciation and restructuring charges of $22.9 million. Operating margin was 4% in fiscal 2016, as compared to 11% in fiscal 2015.amortization expenses. Executive Search operating income was $131.7 million and $119.0 million in fiscal 2016 and 2015, respectively. 42
Executive Search operating income increased $12.7$25.3 million, duringor 20%, to $149.6 million in fiscal 20162018 as compared to $124.3 million in fiscal 2015.2017. The increase in Executive Search operating income is primarily attributable towas driven by increases in higher fee revenue of $25.5$91.3 million and a decrease in restructuring charges, net of $4.3 million, offset by an increase of $7.6 million, $3.8 million and $1.9 millionincreases in compensation and benefits expense, general
and administrative expenses, and restructuring charges, net, respectively. The increase in compensation and benefits expense was driven by higher salaries and related payroll expense due to an increase in average consultant headcount. General and administrative expenses increased due to Venezuelan foreign currency losscost of $6.6 million offset by favorable exchange rates in other currencies and reductions in premise and officeservices expense and legaldepreciation and other professional fees during fiscal 2016 compared to fiscal 2015.amortization expenses of $59.6 million, $8.0 million, $1.6 million and $1.1 million, respectively. Executive Search operating income, as a percentage of fee revenue, was 21% in fiscal 20162018 as compared to 20% in fiscal 2015.the year-ago period. Hay GroupAdvisory operating lossincome was $3.4$100.5 million, an increase of $53.1 million, or 112%, in fiscal 20162018 as compared to operating income of $28.2$47.4 million in fiscal 2015. Adjusting for the $32.4 million operating loss of Legacy Hay, operating income increased $0.8 million, or 3%, compared to fiscal 2015.2017. The increase in Legacy LTC operating income was due to $17.2 millionprimarily driven by an increase in higher fee revenue which was partiallyof $60.8 million and a decrease in restructuring charges, net of $29.9 million, offset by an increase in compensation and benefit expense of $15.9 million. The higher compensation and benefit expense was driven mainly by increases in salaries and related payroll taxes due to an increase in average consultant headcount and performance related bonus expense. Hay Group operating loss as a percentage of fee revenue was 1% in fiscal 2016 compared to operating income as a percentage of fee revenue of 11% in fiscal 2015.
Futurestep operating income increased by $6.8$35.3 million to $26.7 million in fiscal 2016 from $19.9 million in fiscal 2015. The increase in Futurestep operating income was primarily due to higher fee revenues of $34.4 million. These changes were partially offset by an increase in compensation and benefits expense, $1.8 million in cost of $24.3services expense, and $1.3 million and a $2.1 million increase in general and administrative expenses duringin fiscal 2016 as2018 compared to fiscal 2015. Futurestepthe year-ago period. Advisory operating income, as a percentage of fee revenue, was 13% in fiscal 20162018 compared to 7% in the year-ago period.
RPO & Professional Search operating income was $39.4 million, an increase of $9.4 million, in fiscal 2018 as compared to 12%$30.0 million in fiscal 2015.2017. The increase in operating income was driven by higher fee revenue of $49.5 million, offset by an increase in compensation and benefits expense of $38.4 million and general and administrative expenses of $2.8 million. RPO & Professional Search operating income, as a percentage of fee revenue, was 14% in fiscal 2018 compared to 13% in the year-ago period. Net Income Attributable to Korn Ferry Net income attributable to Korn Ferry decreased $57.5increased by $49.6 million or 65%, to $30.9$133.8 million in fiscal 20162018 compared to $88.4$84.2 million in fiscal 2015.2017. The decreaseincrease was due to higher total revenue of $197.8 million, offset by higher operating expenses of $109.6 million and an increase in operating expensesincome tax provision of $341.9$41.0 million and an $11.7 million decline in otherpartially due to the enactment of the Tax Act compared to the year-ago period. Net income offset by an increase inattributable to Korn Ferry, as a percentage of fee revenue, of $263.9 million.was 8% in fiscal 2018 as compared to 5% in the year-ago period. Adjusted EBITDA Adjusted EBITDA increased $28.5by $38.7 million, or 18%,16% to $190.2$278.0 million in fiscal 20162018 as compared to $161.7$239.3 million in fiscal 2015. Adjusting for the Legacy Hay acquisition, Adjusted EBITDA2017. This increase was flatdriven by higher adjusted fee revenue of $198.1 million, offset by increases of $143.2 million in compensation and benefits expense (excluding integration costs), $14.9 million in general and administrative expenses (excluding integration costs) and $2.2 million in cost of services expense compared to the year-ago period. Adjusted EBITDA, as a percentage of adjusted fee revenue, was 15% in fiscal 2016 as compared to 16% in fiscal 2015.2018 compared to 15% in the year-ago period. Executive Search Adjusted EBITDA was $152.2increased $21.8 million, and $132.4or 16%, to $159.3 million in fiscal 2016 and 2015, respectively. Executive Search Adjusted EBITDA increased $19.8 million during fiscal 20162018 as compared to $137.5 million in fiscal 2015 due to $25.5 million2017. The increase inwas driven by higher fee revenue of $91.3 million, offset by an increaseincreases of $7.6$59.6 million in compensation and benefits expense, and $3.8$8.0 million in general and administrative expenses.expenses, and an increase in cost of services expense of $1.6 million during fiscal 2018 compared to the year-ago period. Executive Search Adjusted EBITDA, as a percentage of fee revenue, was 24%22% in both fiscal 2018 and 2017. Advisory Adjusted EBITDA was $143.5 million, an increase of $13.7 million, or 11%, in fiscal 20162018 as compared to 22% in fiscal 2015. Hay Group Adjusted EBITDA increased by $34.5 million to $78.9$129.8 million in fiscal 20162017. The increase was driven by higher adjusted fee revenue of $57.3 million, offset by increases of $41.6 million in compensation and benefits expense (excluding integration costs), $0.9 million in general and administrative expenses (excluding integration costs), and an increase in cost of services expense of $1.8 million during fiscal 2018 compared to the year-ago period. Advisory Adjusted EBITDA, as a percentage of adjusted fee revenue, was 18% in both fiscal 2018 and 2017.
RPO & Professional Search Adjusted EBITDA was $42.6 million in fiscal 2018, an increase of $9.8 million, or 30%, as compared to $44.4$32.8 million in fiscal 2015. Adjusting for the Legacy Hay acquisition, Adjusted EBITDA increased $6.0 million, or 14%, compared to fiscal 2015. This2017. The increase was due todriven by higher fee revenue of $17.2$49.5 million, offset by an increaseincreases of $38.4 million in compensation and benefitbenefits expense of $11.6 million. The higher compensation and benefit expense was driven mainly by increases$2.8 million in salariesgeneral and related payroll taxes dueadministrative expenses during fiscal 2018 compared to an increase in average headcount and an increase in performance related bonus expense. Hay Groupthe year-ago period. RPO & Professional Search Adjusted EBITDA, as a percentage of fee revenue, was 16% in fiscal 20162018 compared to 17%15% in fiscal 2015. Adjusting for the Legacy Hay acquisition, Adjusted EBITDA as of percentage of fee revenueyear-ago period. Other Income (Loss), Net Other income, net was 18% in fiscal 2016. Futurestep Adjusted EBITDA increased by $6.5 million to $29.5$11.1 million in fiscal 20162018 as compared to $23.0$10.3 million in fiscal 2015.2017. The increase in Futurestep Adjusted EBITDA was primarily due to higher fee revenuea smaller amount of $34.4 million,losses associated with our deferred compensation and retirement plans, offset by an increase of $24.3 million in compensation and benefits expense and $2.1 million in general and administrative expenses during fiscal 2016 as compared to fiscal 2015. Futurestep Adjusted EBITDA as a percentage of fee revenue was 15% in fiscal 2016 as compared to 14% in fiscal 2015.
Other (Loss) Income, Net
Other loss, net was $4.2 million in fiscal 2016 as compared to other income, net of $7.5 million in fiscal 2015. Thethe change in other (loss) income, net is primarily due to the decrease in the fair value of our marketable securities, where there was a smaller gain during fiscal 20162018 compared to the increase in the fair value of our marketable securities in fiscal 2015, which resulted in a change in other (loss) income, net of $12.1 million during fiscal 2016 compared to fiscal 2015.year-ago period.
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Interest (Expense) Income, (Expense), Net Interest (expense) income, (expense), net primarily relates to our term loan facility and borrowings under our COLI policies, which was partially offset by interest earned on cash and cash equivalents, offset by interestequivalent balances. Interest expense, related to borrowings under our COLI policies and term loan facility. Interest income, net was $0.3$13.8 million in fiscal 20162018 as compared to interest expense, net of $1.8$14.6 million in fiscal 2015 for a change of $2.1 million. The change was primarily due to better than expected collections of accounts receivable acquired in the acquisition of Legacy Hay that are required to be recorded at fair value on the acquisition date with subsequent collections recorded as interest income (expense), offset by an increase in interest expense associated with the term loan facility.2017. Equity in Earnings of Unconsolidated Subsidiaries
Equity in earnings of unconsolidated subsidiaries is comprised of our less than 50% interest in our Mexico subsidiary and IGroup, LLC, which is engaged in organizing, planning and conducting conferences and training programs throughout the world for directors, chief executive officers, other senior level executives and business leaders. We report our interest in earnings of our Mexico subsidiary for the nine months ended January 31, 2016 and IGroup, LLC for fiscal 2016 on the equity basis as a one-line adjustment to net income. In the fourth quarter of fiscal 2016, we obtained control of our Mexico subsidiary and began to consolidate the operations. Equity in earnings was $1.6 million in fiscal 2016 as compared to $2.2 million in fiscal 2015.
Income Tax Provision The provision for income taxestax was $19.0$70.1 million in fiscal 20162018 compared to $33.5$29.1 million in fiscal 2015, reflectingthe year-ago period. This reflects a 39%34% and 28% effective tax rate, respectively. The25% effective tax rate for fiscal 2016 is higher due to2018 and 2017, respectively. In fiscal 2018 the impact of non-deductible expenses incurred in connection witheffective tax rate was significantly impacted by the acquisition of Legacy Hay, the non-deductible charges related to the devaluationDecember 22, 2017 enactment of the Venezuelan Bolivar and the post-acquisition allocationTax Act as a result of income and losses in jurisdictions with different statutorywhich, Korn Ferry recorded a provisional tax rates. This was offset partially by the benefit recorded in connection with the conclusioncharge of the IRS audit of the Company’s consolidated federal income$18.4 million as a one-time tax return for the fiscal year ended April 30, 2013on accumulated foreign earnings (the “Transition Tax”), and a reversalprovisional tax benefit of valuation allowances previously recorded against$5.9 million from the remeasurement of our U.S. federal deferred tax assets of subsidiaries that have returned to profitability in recent years.and liabilities. Net Income Attributable to Non-ControllingNoncontrolling Interest Net income attributable to non-controllingnoncontrolling interest represents the portion of a subsidiary’s net earnings that are attributable to shares of such subsidiary not held by Korn Ferry that are included in the consolidated results of operations. In the fourth quarter of fiscal 2016, we obtained control of our Mexico subsidiary and began to consolidate the operations. Net income attributable to non-controllingnoncontrolling interest for fiscal 20162018 and 2017 was $0.5 million.$2.1 million compared to $3.1 million, respectively. Liquidity and Capital Resources The Company and its Board of Directors endorse a balanced approach to capital allocation. The Company’s priority is to invest in growth initiatives, such as the hiring of consultants, the continued development of intellectual propertyIP and derivative products and services, and the investment in synergistic, accretive M&Amerger and acquisition transactions that earn a return that is superior to the Company’sCompany's cost of capital. Next, the Company’s capital allocation approach contemplates the return of a portion of excess capital to stockholders, in the form of a regular quarterly dividend, subject to the factors discussed below and in the “Risk Factors” sectionssection of this Annual Report on Form 10-K. Additionally, the Company considers share repurchases on an opportunistic basis and subject to the terms of our credit agreement.Credit Agreement (defined below). On June 15, 2016,December 19, 2018, we entered into a new senior secured $400$650.0 million Amended and Restated Credit Agreement (the “Credit Agreement”) with a syndicate of banks and Wells Fargo Bank, National Association as administrative agent to among other things, provide for enhanced financial flexibility and in recognition of the accelerated pace of the Legacy Hay integration.flexibility. See Note 10 —10—Long-Term Debtfor a
description of the credit facility.Credit Agreement. We drew down $275$226.9 million on the new term loanRevolver (defined below) and used $140 million of the proceeds to pay-off the term loan that was outstanding as of December 19, 2018. We have $420.2 million available under the Revolver after the draw down and after $2.9 million of standby letters of credit were issued as of April 30, 2016. The remaining funds are available for working capital and general corporate purposes.2019. We had $3.0$2.9 million and $2.8 millionin standby letters of credit issued under our long-term debt arrangements as of April 30, 20172019 and 2016,2018, respectively. We had a total of $8.1$8.5 million and $6.4$7.4 million of standby letters of credits with other financial institutions as of April 30, 20172019 and 2016,2018, respectively. The standby letters of credits were generally issued as a result of entering into office premise leases. As part of the Legacy Haya previous acquisition, the Company has committed to a $40 million retention pool (of which $9 million was paid in fiscal 2017) for certain employees of Legacy Haythe previous acquired company subject to certain circumstances. Of the remainingThe balance 50% will be payable within 45 days after November 30, 2017 and the remaining 50% will be payable within 45 days after November 30, 2018.was paid in full as of January 31, 2019. On December 8, 2014, theThe Board of Directors has adopted a dividend policy to distribute, to our stockholders, a regular quarterly cash dividend of $0.10 per share. Every quarter since the adoption of the dividend policy, the Company has declared a quarterly dividend. The declaration and payment of future dividends under the quarterly dividend program will be at the discretion of the Board of Directors and will depend upon many factors, including our earnings, capital requirements, financial conditions, the terms of our indebtedness and other factors our Board of Directors may deem to be relevant. Our Board of Directors may, however, amend, revoke or suspend our dividend policy at any time and for any reason.
On December 8, 2014, theMarch 6, 2019, our Board of Directors also approved an increase into the Company’s stockshare repurchase program of approximately $200 million, which brings our available capacity to an aggregate of $150.0 million. Common stock may be repurchased from time to timerepurchase shares in the open market or privately negotiated transactions at the Company’s discretion subject to market conditions and other factors. During the second quarter of fiscal 2017, we resumed repurchasing shares through this program. Weapproximately $250 million. The Company repurchased approximately $28.8$37.4 million and $33.1 million of the Company’s common stock during fiscal 2017.2019 and 2018, respectively. Any decision to continue to execute share repurchases under our currently outstanding share repurchase program will depend on our earnings, capital requirements, financial condition and other factors considered relevant by our Board of Directors. Our senior secured credit agreement requires thatThe Credit Agreement permits us to pay dividends to our stockholders and make share repurchases so long as our pro forma net leverage ratio, defined as the ratio of consolidated funded indebtedness minus up to $50 million of unrestricted cash and cash equivalents of the Company and domestic subsidiaries to consolidated adjustedAdjusted EBITDA, is no greater than 2.503.25 to 1.00, and our pro forma domestic liquidity is at least $50.0$50 million, as a condition to consummating permitted acquisitions, paying dividends to our stockholdersincluding the revolving credit commitment minus amounts outstanding on the Revolver, issued letters of credit and share repurchases of our common stock.swing loans. 44
Our performance is subject to the general level of economic activity in the geographic regions and the industries which we service. We believe, based on current economic conditions, that our cash on hand and funds from operations and the credit agreement we entered into on June 15, 2016Credit Agreement will be sufficient to meet anticipated working capital, capital expenditures, general corporate requirements, repayment of the debt, incurred in connection with the Legacy Hay acquisition, the retention pool obligations in connection with the Legacy Hay acquisitionshare repurchases and dividend payments under our dividend policy during the next twelve months. However, if the national or global economy, credit market conditions and/or labor markets were to deteriorate in the future, such changes wouldcould put negative pressure on demand for our services and affect our operating cash flows. If these conditions were to persist over an extended period of time, we may incur negative cash flows and it might require us to access our existing credit facility to meet our capital needs and/or discontinue our share repurchases and dividend policy. Cash and cash equivalents and marketable securities were $530.8$767.1 million and $414.7$657.9 million as of April 30, 20172019 and 2016,2018, respectively. Net of amounts held in trust for deferred compensation plans and to pay fiscal 2017accrued bonuses, cash and marketable securities were $245.1$382.1 million and $88.9$312.4 million at April 30, 20172019 and 2016,2018, respectively. As of April 30, 20172019 and 2016,2018, we held $165.8$267.0 million and $129.0$207.6 million, respectively of cash and cash equivalents in foreign locations, net of amounts held in trust for deferred compensation plans and to pay fiscal 2017 and fiscal 20162019 annual bonuses. If these amounts were distributed to the United States, in the form of dividends, we would be subject to additional U.S. income taxes. The Company has a plan to distribute a small portion of the cash held in foreign locations to the United States. No deferred tax liability has been recorded because no additional taxes would arise in connection with such distributions. Cash and cash equivalents consist of cash and highly liquid investments purchased with original maturities of three months or less. Marketable securities consist of mutual funds in fiscal 2017 and 2016.funds. The primary objectivesobjective of our investment in mutual funds areis to meet the obligations under certain of our deferred compensation plans.
As of April 30, 20172019 and 2016,2018, marketable securities of $119.9$140.8 million (net of gross unrealized gains of $6.7$6.3 million and gross unrealized losses of $0.6$1.0 million) and $141.4$137.1 million (net of gross unrealized gains of $1.4$11.0 million and gross unrealized losses of $2.6$1.0 million), respectively, were held in trust for settlement of our obligations under certain deferred compensation plans. Asplans, of April 30, 2017 and 2016, $115.6which $132.5 million and $130.1$122.8 million, respectively, are classified as non-current. These marketable securities were held to satisfy vested obligations totaling $99.5$122.3 million and $94.9$118.2 million as of April 30, 20172019 and 2016,2018, respectively. Unvested obligations under the deferred compensation plans totaled $37.6$24.6 million and $43.9$29.5 million as of April 30, 20172019 and 2016,2018, respectively. The net increase in our working capital of $197.1$130.1 million as of April 30, 20172019 compared to April 30, 20162018 is primarily attributable to the increaseincreases in cash and cash equivalents and accounts receivable.receivable and a decrease in the current portion of our long-term debt, partially offset by an increase in compensation and benefits payable. The increase in cash and cash equivalents is due to cash provided by operationsoperations. Accounts receivable and proceeds received from the term loan entered into this year offset by payments made on the currentcompensation and previous term loan. Accounts receivablebenefits payable increased due to ana $158.8 million increase in daysfee revenue and higher average headcount. The decrease in the current portion of sales outstanding which went from 55 daysour long-term debt is a result of the amount withdrawn on the Revolver to 61 days from April 30, 2016 to April 30, 2017.pay off the prior term loan. Cash provided by operating activities was $106.1$258.8 million in fiscal 2017,2019, an increase of $42.0$39.7 million, compared to $64.1$219.1 million in fiscal 2016 due to an increase in profitability.2018. Cash used in investing activities was $20.6$69.5 million in fiscal 2017, a decrease of $254.0 million,2019 compared to $274.6$44.8 million in fiscal 2016. Cash2018. An increase in cash used in investing activities was lower primarily due to an increase in premiums paid under our COLI contracts and higher cash used for the purchases of property and equipment, offset by an increase in the proceeds from sales/maturities of marketable securities, net of cash used to purchase marketable securities in fiscal 20162019 compared to pay for the acquisitionyear-ago period. Cash used in financing activities was $64.6 million in fiscal 2019 compared to $77.3 million in fiscal 2018. The decrease was primarily due to $226.9 million in proceeds received from the Credit Agreement and borrowings of Legacy Hay$31.9 million from our COLI contracts, partially offset by an increase in payments made on the term loan of $253.2$218.3 million and increases in cash used to repurchase shares of common stock to satisfy tax withholding requirements upon the vesting of restricted stock of $16.9 million, $4.3 million in shares repurchased under the stock repurchase program and an increase in sales/maturitiespayments on life insurance policy loans of marketable securities of $32.6 million, offset by $23.9 million more in cash used to purchase property and equipment in connection with our co-location activities. Cash provided by financing activities was $64.4$4.8 million in fiscal 2017 compared to cash used in financing activities of $118.5 million in fiscal 2016. Cash provided by financing activities decreased primarily due to $145.5 million more in term loan payments made during fiscal 20172019 compared to the year-ago period and $28.8 million of Company’s common stock purchased under our stock repurchase program, offset by an increase of $125.0 million in proceeds from term loan facility.
As of April 30, 2017, $121.2 million remained available for common stock repurchases under our stock repurchase program.period.
Off-Balance Sheet Arrangements We have no off-balance sheet arrangements and have not entered into any transactions involving unconsolidated, special purpose entities. 45
Contractual Obligations Contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude contingent liabilities for which we cannot reasonably predict future payment. The following table represents our contractual obligations as of April 30, 2017:2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Payments Due in: | | | | | Note (1) | | | Total | | | Less Than
1 Year | | | 1-3 Years | | | 3-5 Years | | | More Than
5 Years | | | | | | | | (in thousands) | | Operating lease commitments | | | 14 | | | $ | 414,815 | | | $ | 62,384 | | | $ | 112,629 | | | $ | 94,518 | | | $ | 145,284 | | Accrued restructuring charges (2) | | | 7 | | | | 14,195 | | | | 7,803 | | | | 4,993 | | | | 1,399 | | | | — | | Interest payments on COLI loans (3) | | | 10 | | | | 39,245 | | | | 3,817 | | | | 7,634 | | | | 7,579 | | | | 20,215 | | Retention awards | | | 12 | | | | 31,000 | | | | 15,500 | | | | 15,500 | | | | — | | | | — | | Term loan | | | 10 | | | | 259,531 | | | | 20,625 | | | | 53,281 | | | | 185,625 | | | | — | | Estimated interest on term loan (4) | | | — | | | | 19,829 | | | | 5,687 | | | | 9,753 | | | | 4,389 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | $ | 778,615 | | | $ | 115,816 | | | $ | 203,790 | | | $ | 293,510 | | | $ | 165,499 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Payments Due in: | | | | Note (1) | | | Total | | | Less Than 1 Year | | | 1-3 Years | | | 3-5 Years | | | More Than 5 Years | | | | | | | | (in thousands) | | Operating lease commitments | | | 14 | | | $ | 300,737 | | | $ | 55,351 | | | $ | 98,032 | | | $ | 72,590 | | | $ | 74,764 | | Interest payments on COLI loans (2) | | | 10 | | | | 49,265 | | | | 5,237 | | | | 10,469 | | | | 10,435 | | | | 23,124 | | Long-term debt | | | 10 | | | | 226,875 | | | | — | | | | — | | | | 226,875 | | | | — | | Estimated interest on long-term debt (3) | | | — | | | | 39,854 | | | | 8,611 | | | | 17,174 | | | | 14,069 | | | | — | | Total | | | | | | $ | 616,731 | | | $ | 69,199 | | | $ | 125,675 | | | $ | 323,969 | | | $ | 97,888 | |
(1) | See the corresponding Note in the accompanying consolidated financial statements in Item 15. |
(2) | Represents rent payments, net of sublease income on an undiscounted basis and severance costs. |
(3) | Assumes COLI loans remain outstanding until receipt of death benefits on COLI policies and applies current interest rates on COLI loans ranging from 4.76% to 8.00% with total death benefits payable, net of loans under COLI contracts of $220.6$223.6 million at April 30, 2017.2019. |
(4)(3) | Interest rate used is the variable rate per the credit agreement as of April 30, 20172019 for outstanding balancebalances on the term loan.long-term debt. |
In addition to the contractual obligations above, we have liabilities related to certain employee benefit plans. These liabilities are recorded in our Consolidated Balance Sheets.consolidated balance sheets. The obligations related to these employee benefit plans are described in Note 6 –6—Deferred Compensation and Retirement Plans, in the Notes to our Consolidated Financial Statements in this Annual Report on Form 10-K. Lastly, we have contingent commitments under certain employment agreements that are payable upon involuntary termination without cause, as described in Note 14 –14—Commitments and Contingencies, in the Notes to our Consolidated Financial Statements in this Annual Report on Form 10-K. Cash Surrender Value of Company Owned Life Insurance Policies, Net of Loans The CompanyWe purchased COLI policies or contracts insuring the lives of certain employees eligible to participate in the deferred compensation and pension plans as a means of funding benefits under such plans. As of April 30, 20172019 and 2016,2018, we held contracts with gross CSV of $180.3$219.2 million and $175.7$186.8 million, respectively. Since fiscal 2012, we paid our premiums under ourTotal outstanding borrowings against the CSV of COLI contracts from operating cash,were $93.2 million and in prior years, we generally borrowed under our COLI contracts to pay related premiums.$66.7 million as of April 30, 2019 and 2018, respectively. Such borrowings do not require annual principal repayments, bear interest primarily at variable rates and are secured by the CSV of COLI contracts. Total outstanding borrowings against the CSV of COLI contracts were $67.2 million and $68.4 million as of April 30, 2017 and 2016, respectively. At April 30, 20172019 and 2016,2018, the net cash value of these policies was $113.1$126.0 million and $107.3$120.1 million, respectively. Total death benefits payable, net of loans under COLI contracts, were $220.6$223.6 million and $216.7$226.0 million at April 30, 20172019 and 2016,2018, respectively.
Long-Term Debt On June 15, 2016,December 19, 2018, we entered into a senior secured $400 millionthe Credit Agreement (the “Credit Agreement”) with a syndicate of banks and Wells Fargo Bank, National Association as administrative agent (toto among other things, provide for enhanced financial flexibility and in recognition of the accelerated pace of the Hay Group integration).flexibility. The Credit Agreement provides for, among other things: (a) a senior secured term loan facility in an aggregate principal amount of $275$650.0 million (the “Term Facility”), (b) afive-year senior secured revolving credit facility (the “Revolver”) and together with the Term Facility, the “Credit Facilities”) in an aggregate principal amount of $125 million, (c) annual term loan amortization of 7.5%, 7.5%, 10.0%, 10.0%, and 10.0%, with the remaining principal due at maturity, (d)(b) certain customary affirmative and negative covenants, including a maximum consolidated total leverage ratio (as defined below) and a minimum interest coverage ratio. Our Credit Agreement permits payment of dividends to stockholders and share repurchases so long as the pro forma net leverage ratio is no greater than 3.25 to 1.00, and (e) an expanded definition of permitted add-backs to Adjusted EBITDA in recognition of the accelerated integration actions.pro forma domestic liquidity is at least $50.0 million. We drew down $275$226.9 million on the new term loanRevolver and used $140 million of the proceeds to pay-off the term loan that was outstanding as of April 30, 2016.December 19, 2018. The remaining fundspay-off of the old credit facility and drawn-down on the new Revolver is considered a debt modification and therefore the previously incurred unamortized and current debt issuance costs will be used for working capital and general corporate purposes. Asamortized over the life of April 30, 2017, we were in compliance with our debt covenants.the new issuance. At our 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 FacilitiesAgreement may fluctuate between LIBOR plus 1.25% per annum to LIBOR plus 2.00% per annum, in the case of LIBOR borrowings (or between the alternate base rate plus 0.25% per annum and the alternate base rate plus 1.00% per annum, in the alternative), based upon the Company’s total funded debt to adjustedAdjusted EBITDA ratio (as set forth in the Credit Agreement, the “consolidated leverage ratio”) at such time. In addition, wethe Company will be required to pay to the lenders a quarterly commitment fee ranging from 0.20% to 0.35% per annum on the average daily unused amount of the Term Facility,Revolver, based upon ourthe Company’s consolidated leverage ratio at such time, and fees relating to the issuance of letters of credit. During fiscal 2019 and 2018, the average rate on our long-term debt arrangements was 3.50% and 2.60%, respectively. Both the46
The Revolver matures on December 19, 2023 and the Term Facility matureany unpaid principal balance is payable on June 15, 2021, andthis date. The Revolver may also be prepaid and terminated early by us at any time without premium or penalty (subject to customary LIBOR breakage fees). The Term Facility is payable in quarterly installments with the final installment consisting of all remaining unpaid principal due on the Term Facility Maturity date of June 15, 2021. The Company made $15.5 million in principal payments during fiscal 2017. As of April 30, 2017, $259.52019, $226.9 million was outstanding under the Term FacilityRevolver compared to $140.0$238.9 million as of April 30, 2016,2018, under the previous Facility. During fiscal 2017,term loan. The unamortized debt issuance costs associated with the averagelong-term debt, were $4.0 million and $2.7 million as of April 30, 2019 and 2018, respectively. The fair value of our Revolver is based on borrowing rates currently required of loans with similar terms, maturity and credit risk. The carrying amount of the Revolver approximates fair value because the base interest rate oncharged varies with market conditions and the Term Facility was 2.23%.
credit spread is commensurate with current market spreadsfor issuers of similar risk. The fair value of the Revolver is classified as a Level 2 liability in the fair value hierarchy. As of April 30, 20172019, we were in compliance with our debt covenants. We had a total of $420.2 million available under the Revolver after we drew down $226.9 million and 2016,after $2.9 million of standby letters of credit were issued as of April 30, 2019. As of April 30, 2018, we had no borrowings under the Revolver.previous revolver. We had $3.0a total of $122.1 million and $2.8available under the previous revolver after $2.9 million respectively, of standby letters of credit were issued under our long-term debt arrangements as of April 30, 2017 and 2016, respectively.2018. We had a total of $8.1$8.5 million and $6.4$7.4 million of standby letters of credits with other financial institutions as of April 30, 20172019 and 2016,2018, respectively. The standby letters of credits were generally issued as a result of entering into office premise leases. We are not aware of any other trends, demands or commitments that would materially affect liquidity or those that relate to our resources. Accounting Developments Recently Adopted Accounting Standards In April 2015, May 2014, the Financial Accounting Standards Board (the “FASB”(“FASB”) issued guidance simplifying the presentation of debt issuance costs. The guidance requires debt issuance costs related to a debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, rather than being classified as an asset. We adopted this guidance during the first quarter of fiscal 2017 and as a result, $4.2 million of unamortized debt issuance costs associated with our senior secured Credit Agreement were classified as a direct deduction to the term loan as of July 31, 2016, ofAccounting Standards Codification (“ASC”) 606, which $0.9 million was recorded to term loan, current, and $3.3 million was recorded to term loan, non-current. The adoption did not have a material impact on the consolidated financial statements as of April 30, 2016. In September 2015, the FASB issued guidance requiring an acquirer to recognize adjustments to provisional amounts recorded in an acquisition that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer is required to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The acquirer is also required to present separately on the face of the income statement, or disclose in the footnotes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustments had been recognized as of the acquisition date. We adopted this guidance during the first quarter of fiscal 2017 and the adoption did not have an impact on our consolidated financial statements.
Recently Proposed Accounting Standards
In May 2014, the FASB issued guidance that supersedessuperseded revenue recognition requirements regarding contracts with customers to transfer goods or services or for the transfer of nonfinancial assets. Under the newthis guidance, entities are required to recognize revenue that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The transfer is considered to occur when the customer obtains control of the goods or services delivered. The guidance provides a five-step analysis to be performed on transactions to determine when and how revenue is recognized. The guidance permits two transition methods of adoption 1) the full retrospective method, in which case the standard would be applied to all reporting periods presented, or 2) the modified retrospective method, with a cumulative-effect adjustment as of the date of adoption. In July 2015, the FASB decided to approve a one-year deferral of the effective date as well as providing an option to early adopt the standard on the original effective date. This new guidance isbecame effective for fiscal years and interim periods within those annual years beginning after December 15, 2017. We will adopt this guidance in our fiscal year beginning May 1, 2018. We have organized a team and developed a project plan to guide the implementation. The project plan includes working sessions to review, evaluate and document the arrangements with customers under our various reporting units to identify potential differences that would result from applying the requirements of the new standard. We are currently in the process of developing an updated accounting policy utilizing a bottoms-up approach by reviewing our current contracts with customers by various revenue streams, evaluating new disclosure requirements and identifying and implementing appropriate changes to business processes, systems and controls to support revenue recognition and disclosure under the new standard. We are still evaluating the impact of ASUNo. 2014-09 on our financial statements. Based on our evaluation to date, revenue on the majority of our contracts will continue to be recognized over time as services are rendered under the new standard. In addition, capitalization of costs associated with obtaining contracts will have an impact upon adoption of the new standard. We expect to finalize the evaluation in upcoming quarters and will provide updates on our progress in future filings.
In February 2016, the FASB issued guidance on accounting for leases that generally requires all leases to be recognized in the consolidated balance sheet. The provisions of the guidance are effective for fiscal years beginning after December 15, 2018; early adoption is permitted. We plan to adopt this guidanceadopted ASC 606 in fiscal year beginning May 1, 2019.2018 using the modified retrospective transition method with respect to those contracts still outstanding and not completed as of May 1, 2018.
We recognized the cumulative effect of initially applying the new guidance as an adjustment to the opening balance of retained earnings. The provisionscomparative periods have not been restated and continue to be reported under the revenue accounting standards in effect for those periods. As a result of the guidance areadoption, we recorded an increase to be applied using a modified retrospective approach. We are currently evaluatingretained earnings of $6.7 million, net of tax as of May 1, 2018 due to the cumulative impact of adopting ASC 606. The change in total assets was recorded to unbilled receivables which is included in receivables due from clients; the changes in total liabilities was recorded to income taxes payable, deferred tax liabilities and deferred revenue, which is included in other accrued liabilities. The following table summarizes the effect this guidance will have onof changes made to our consolidated financial statements. In March 2016, the FASB issued guidance on accounting for certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled. Furthermore, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows. The guidance also allows companies to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting, clarifying that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity in the consolidated statements of cash flows and provides an accounting policy election to account for forfeitures as they occur. The provisions of the guidance are effective for fiscal years beginning after December 15, 2016; early adoption is permitted. We will adopt this guidance in fiscal 2018, beginningbalance sheet at May 1, 2017. 2018:
| | | | | | Adjustments | | | | | | | | April 30, 2018 | | | due to ASC 606 | | | May 1, 2018 | | | | (in thousands) | | Total assets | | $ | 2,287,914 | | | $ | 3,496 | | | $ | 2,291,410 | | Total liabilities | | $ | 1,068,299 | | | $ | (3,160 | ) | | $ | 1,065,139 | | Total stockholders’ equity | | $ | 1,219,615 | | | $ | 6,656 | | | $ | 1,226,271 | |
The adoptionadjustments primarily relate to uptick revenue (uptick revenue occurs when a placement’s actual compensation is higher than the original estimated compensation) and certain Korn Ferry products that are now considered Functional IP. Under the new standard, uptick revenue is considered variable consideration and estimated at contract inception using the expected value method and recognized over the service period. Previously, we recognized uptick revenue as the amount became fixed or determinable. Under the new standard, certain products are now considered Functional IP as delivery of this standardIP content fulfills the performance obligation, and revenue is not anticipatedrecognized upon delivery and when an enforceable right to have a material impact on our consolidated financial statements.payment exists. Previously these products were considered term licenses and revenue was recognized ratably over the contract term. 47
In August 2016, the FASB issued guidance on the classification of certain cash receipts and cash payments in the statement of cash flows. The new guidance provides clarification on specific cash flow issues regarding presentation and classification in the statement of cash flows with the objective of reducing the existing diversity in practice. The amendments in this update are effective for reporting periods beginning after December 15, 2017 with early adoption permitted. We plan to adopt this guidance in our fiscal year beginningand were adopted by us effective May 1, 2018. The provisions of the guidance are to be applied using a retrospective transition method. The adoption of this standard isguidance did not anticipated to have a materialan impact on our consolidated financial statements. In January 2017, the FASB issued guidance that clarifies the definition of a business. The new guidance assists a company when evaluating whether transactions should be accounted for as acquisitions (disposals) of assets or businesses. The provisions of the guidance require that if the fair value of the gross assets acquired (or disposed of) is substantially concentrated in a single identifiable asset or a group of similar identifiable assets, then it is not a business. The provisions of the guidance are to be applied prospectively. The provisions of the guidance are effective for annual years beginning after December 15, 2017 and were adopted by us effective May 1, 2018. The adoption of this guidance did not have an impact on our consolidated financial statements. In March 2017, the FASB issued guidance that changes the presentation of net periodic pension cost and net periodic postretirement benefit cost. The new guidance will change the presentation of net periodic benefit cost related to employer-sponsored defined benefit plans and other postretirement benefits. Service cost will be included within the same income statement line item as other compensation costs arising from services rendered during the period, while other components of net periodic benefit pension cost will be presented separately outside of operating income. Additionally, only service costs may be capitalized in assets. This pronouncement is effective for annual reporting periods beginning after December 15, 2017 and was adopted by us effective May 1, 2018. The change to the consolidated statements of income has been reflected on a retrospective basis and had no effect on net income. Prior period amounts were revised, which resulted in a decrease in compensation expense and other income of $4.6 million and $0.4 million, respectively, and an increase in interest expense of $4.2 million, in fiscal 2018. For fiscal 2017, this resulted in a decrease in compensation expense and other income of $5.8 million and $1.5 million, respectively, and an increase in interest expense of $4.4 million. In May 2017, the FASB issued guidance clarifying the scope of modification accounting for stock compensation. The new standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This pronouncement is effective for annual reporting periods beginning after December 15, 2017 and was adopted by us effective May 1, 2018. The adoption of this guidance did not have an impact on our consolidated financial statements. Any future impact of this guidance will be dependent on future modification including interimthe number of awards modified. In February 2018, the FASB issued guidance that provides companies the option to reclassify stranded tax effects from accumulated other comprehensive (loss) income to retained earnings. The new guidance requires companies to disclose whether they decided to reclassify the income tax effects of the Tax Act from accumulated other comprehensive income (loss) to retained earnings. The guidance is effective for annual reporting periods beginning after December 15, 2018, but early adoption is permitted. We early adopted effective May 1, 2018, upon the adoption of this guidance we recorded an increase of $2.2 million to retained earnings due to the reclassification from accumulated other comprehensive (loss) income to retained earnings in the period of adoption. In August 2018, the FASB issued guidance amending and modifying the disclosure requirements for employers that sponsor defined benefit pension or other postretirement pension plans. The amendment removes disclosures to pension plans and other postretirement benefit plans that are no longer considered beneficial and adds disclosure requirements deemed relevant. The amendments of this standard are effective for fiscal years ending after December 15, 2020 with early adoption permitted. We early adopted this standard in the fourth quarter of fiscal 2019. The adoption of this guidance did not have an impact on our consolidated financial statements. Recently Proposed Accounting Standards - Not Yet Adopted In February 2016, the FASB issued guidance on accounting for leases that generally requires all leases to be recognized on the consolidated balance sheet. The provisions of the guidance are effective for fiscal years beginning after December 15, 2018 and early adoption is permitted. We plan to adopt this guidance in our fiscal year beginning May 1, 2018.2019. The provisions of the guidance are to be applied prospectively.using a modified retrospective approach. 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 FASB has also issued subsequent related ASUs, which detail amendments to the ASU, implementation considerations, narrow-scope improvements and practical expedients. We have elected to apply the group of practical expedients which allows us to carry forward its identification of contracts that are or contain leases, its historical lease classification and its initial direct costs for existing leases. We also elected to combine lease and non-lease components for all asset classes and to recognize leases with an initial term of 12 months on a straight-line basis without recognizing a right-to-use asset or operating lease liability. We are in the process of finalizing the data validation and associated internal controls for our selected global lease management system. We currently 48
estimate that the adoption of this standard will result in the recording of a material right-of-use asset and a material operating lease liability, as well as enhanced disclosures. We do not expect the adoption of this standard to have an impact on our consolidated statements of income, consolidated statements of stockholders’ equity, or consolidated statements of cash flows. 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. We will adopt this guidance in fiscal year beginning May 1, 2020. The adoption of this standardguidance is not anticipated to have a material impact on ourthe 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. We are evaluating the adoption timeline and the effects that the standard will have on ourthe consolidated financial statements. In MarchAugust 2017, the FASB issued guidance that improves the presentation of net periodic pension costamending and net periodic postretirement benefit cost.simplifying accounting for hedging activities. The new guidance will changerefine and expand strategies that qualify for hedge accounting and simplify the presentationapplication of net periodic benefit cost related to employer sponsored defined benefit plans and other postretirement benefits. Service cost will be included within the same income statement line item as other compensation costs arising from services rendered during the period, while other components of net periodic benefit pension cost will be presented separately outside of operating income. Additionally, only service costs may be capitalizedhedge accounting in assets.certain situations. The amendments of this standard are effective for fiscal years beginning after December 15, 2017, including interim periods within those years.2018. We will adopt this guidance in ourits fiscal year beginning May 1, 2018. The adoption of this standard is not anticipated to have a material impact on our consolidated financial statements.
In May 2017, the FASB issued guidance clarifying the scope of modification accounting for stock compensation. The new standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This pronouncement is effective for annual reporting periods beginning after December 15, 2017 but early adoption is permitted. We will adopt this guidance in our fiscal year beginning May 1, 2018.2019. We are currently evaluating the impact of adopting this guidance.
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. We will adopt this guidance in its fiscal year beginning May 1, 2020. We are currently evaluating the impact of adopting this guidance. 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. We will adopt this guidance in its fiscal year beginning May 1, 2020. We are currently evaluating the impact of adopting this guidance. Item 7A.Quantitative and Qualitative Disclosures About Market Risk As a result of our global operating activities, we are exposed to certain market risks, including foreign currency exchange fluctuations and fluctuations in interest rates. We manage our exposure to these risks in the normal course of our business as described below. Foreign Currency Risk Substantially all our foreign subsidiaries’ operations are measured in their local currencies. Assets and liabilities are translated into U.S. dollars at the rates of exchange in effect at the end of each reporting period and revenue and expenses are translated at average rates of exchange during the reporting period. Resulting translation adjustments are reported as a component of accumulated other comprehensive incomeloss, net on our consolidated balance sheets. Transactions denominated in a currency other than the reporting entity’s functional currency may give rise to transactionforeign currency gains andor losses that impact our results of operations. Historically, we have not realized significant foreign currency gains or losses on such transactions. ForeignDuring fiscal 2019 and 2018, we recorded foreign currency losses of $1.7 million and $3.3 million, respectively, in general and administrative expenses in the consolidated statements of income. During fiscal 2017, we recorded foreign currency gains on an after tax basis, includedof $0.3 million in net income were $0.2 million during fiscal 2017. Foreign currency losses, on an after tax basis, includedgeneral and administrative expenses in net income were $8.7 million during fiscal 2016 and $1.6 million during fiscal 2015.the consolidated statements of income. Our exposure to foreign currency exchange rates is primarily driven by fluctuations involving the following currencies – currencies—U.S. Dollar, Canadian Dollar, Euro, Pound Sterling, Swiss Franc, Brazilian Real, Russian Ruble, Singapore Dollar and Korean Won.Mexican Peso. Based on balances exposed to fluctuation in exchange rates between these currencies as of April 30, 2017,2019, a 10% increase or decrease equally in the value of each of these currencies could result in a total foreign exchange gain or loss of $10.5$11.3 million. Beginning in the third quarter of fiscal 2016, we establishedWe have a program that primarily utilizes foreign currency forward contracts to offset the risks associated with the effects of certain foreign currency exposures which increased as a result of the Legacy Hay acquisition.exposures. These foreign currency forward contracts are neither used for trading purposes nor are they designated as hedging instruments pursuant to Accounting Standards CodificationASC 815, Derivatives and Hedging.Hedging. 49
Interest Rate Risk OurOur exposure to interest rate risk is limited to our Term FacilityRevolver and borrowings against the CSV of COLI contracts. As of April 30, 2017,2019, there was $259.5$226.9 million outstanding under the Term Facility.Revolver. At our option, loans issued under the Credit FacilitiesAgreement bear interest at either adjusted 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 FacilitiesAgreement may fluctuate between adjusted LIBOR plus 1.25% per annum to adjusted LIBOR plus 2.00% per annum, in the case of LIBOR borrowings (or between the alternate base rate plus 0.25% per annum and the alternate base rate plus 1.00% per annum, in the alternative), based upon our total funded debt to adjustedAdjusted EBITDA ratio (as set forth in the Credit Agreement, the “consolidated net leverage ratio”) at such time. In addition, we are required to pay the lenders a quarterly commitment fee ranging from 0.20% to 0.35% per annum on the average daily unused amount of the Term Facility,Revolver, based upon our consolidated net leverage ratio at such time, and fees relating to the issuance of letters of credit. A 100 basis100-basis point increase in LIBOR rates would have increased our interest expense by approximately $2.6$2.3 million for fiscal 2017.2019. During fiscal 2017, 2019, the average interest rate on the termrevolver loan was 2.23%3.50%.
To mitigate this interest rate risk, on our Term Facility, we have entered into an interest rate swap contract with aan initial notional amount of $129.8 million designated as a cash flow hedge, to hedge the variability to changes in cash flows attributable to interest rate risks caused by changes in interest rates related to our variable rate debt. TheWe have designated the swap as a cash flow hedge. As of April 30, 2019 the notional amount will be amortized so that the amount is always 50% of the principal balance of the debt outstanding.was $106.6 million. The interest rate swap agreement matures on June 15, 2021 and locks the interest rates on 50%a portion of our outstanding debt at 1.919%, exclusive of the credit spread on the debt.
We had $67.2$93.2 million and $68.4$66.7 million of borrowings against the CSV of COLI contracts as of April 30, 20172019 and 2016,2018, respectively, bearing interest primarily at variable rates. The risk of fluctuations in these variable rates is minimized by the fact that we receive a corresponding adjustment to our borrowed funds crediting rate which has the effect of increasing the CSV on our COLI contracts. Item 8.Financial Statements and Supplementary Data See Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K. Supplemental Financial Information regarding quarterly results is contained in Note 15 – 15—Quarterly Results, in the Notes to our Consolidated Financial Statements in this Annual Report on Form 10-K. Item 9.Changes in and Disagreements withWith Accountants on Accounting and Financial Disclosure Not applicable. Item 9A.Controls and Procedures a) | Evaluation of Disclosure Controls and Procedures. |
As of the end of the period covered by this Annual Report on Form 10-K, management, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures and internal controls over financial reporting. Based on their evaluation of our disclosure controls and procedures conducted as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934 (the “Exchange Act”)) are effective. b) | Changes in Internal Control over Financial Reporting. |
There were no changes in our internal control over financial reporting during the fourth fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. See Management’s Report on Internal Control Over Financial Reporting and Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting on pages F-2 and F-3, respectively. Item 9B.Other Information Not applicable. 50
PART III. Item 10.Directors, Executive Officers and Corporate Governance The information required by this Item will be included under the captions “The Board of Directors” and “Sectionif applicable
“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance”Reports” and elsewhere in our 20172019 Proxy Statement, and is incorporated herein by reference. The information under the heading “Executive Officers of the Registrant”“Information about our Executive Officers” in Part I of this Annual Report on Form 10-K is also incorporated by reference in this section. We have adopted a “Code of Business Conduct and Ethics,”Ethics” that applies to all of our directors, officers and employees, including our principal executive officer (who is our Chief Executive Officer), principal financial officer, and principal accounting officer (who is our Chief Financial Officer) and senior financial officers, or persons performing similar functions. The Code of Business Conduct and Ethics is available on the Investor Relations portion of our website atwww.kornferry.comhttp://ir.kornferry.com. We intend to disclose future amendments to certain provisions of the Code of Business Conduct and Ethics and waivers of the Code of Business Conduct and Ethics granted to executive officers and directors on our website within four business days following the date of the amendment or waiver. Item 11.Executive Compensation The information required by this Item will be included under the captions “Compensation Discussion and Analysis” and “Compensation of Executive Officers and Directors” and elsewhere in our 20172019 Proxy Statement, and is incorporated herein by reference. Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item will be included under the caption “Security Ownership of Certain Beneficial Owners and Management” and elsewhere in our 20172019 Proxy Statement, and is incorporated herein by reference. Item 13.13. Certain Relationships and Related Transactions, and Director Independence The information required by this Item will be included under the caption “Certain Relationships and Related Transactions” and elsewhere in our 20172019 Proxy Statement, and is incorporated herein by reference. Item 14.Principal AccountingAccountant Fees and Services The information required by this Item will be included under the captions “Fees Paid to Ernst & Young LLP,” and “Audit Committee Pre-Approval Policies and Procedures,” and elsewhere in our 20172019 Proxy Statement, and is incorporated herein by reference. 51
PART IV. Item 15.Exhibits and Financial Statement Schedules Financial Statements. (a)a) | The following documents are filed as part of this report: |
| | | | | | | 1. | | Index to Financial Statements:Statements: | | Page | | | | See Consolidated Financial Statements included as part of this Annual Report on Form 10-K and Schedule II –— Valuation and Qualifying Accounts. Pursuant to Rule 7-05 of Regulation S-X, the other schedules have been omitted as the information to be set forth therein is included in the notes of the audited consolidated financial statementsstatements. | | | F-1 | |
Exhibits: | | | Exhibit
Number | | Description | 2.1**+2.1+ | | Agreement and Plan of Merger, dated as of December 5, 2012, by and among Korn/Ferry International, Personnel Decisions International Corporation, Unity Sub, Inc., Personnel Decisions International Corporation, all of the stockholders of Personnel Decisions International Corporation, and PDI Stockholder Representative, LLC, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on December 6, 2012. | 2.2+ | | 2.2**+ | | Stock Purchase Agreement by and between HG (Bermuda) Limited and Korn/Ferry International, dated as of September 23, 2015, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed September 24, 2015. | 2.3+ | | 2.3+ | | Letter Agreement dated November 30, 2015, by and between Korn/Ferry International and HG (Bermuda) Limited, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed December 2, 2015. | 2.4+ | | Letter Agreement dated April 19, 2018, by and between Korn/Ferry International and HG (Bermuda) Limited. | 3.1+ | | Restated Certificate of Incorporation of the Company, dated January 7, 2019, filed as Exhibit 3.13.3 to the Company’s Quarterly Report on Form 10-Q, filed December 9, 2013.March 11, 2019. | 3.2+ | | 3.2+ | | FourthSeventh Amended and Restated Bylaws, of the Company,effective January 1, 2019, filed as Exhibit 3.13.2 to the Company’s Current Report on Form 8-K, filed October 7, 2014.December 13, 2018. | 4.1 | | 4.1+ | | Form of Common Stock Certificate of the Company, filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-3 (No. 333-49286), filed November 3, 2000.Company. | 4.2 | | Description of Securities. | 10.1*+ | | Form of Indemnification Agreement between the Company and some of its executive officers and directors, filed as Exhibit 10.1 to the Company’s Registration Statement on Form S-1/A (No. 333-61697), filed December 24, 1998. | 10.2*+ | | 10.2*+ | | Form of U.S. and International Worldwide Executive Benefit Retirement Plan, filed as Exhibit 10.3 to the Company’s Registration Statement on Form S-1/A (No. 333-61697), filed September 4, 1998. | 10.3*+ | | 10.3*+ | | Form of U.S. and International Worldwide Executive Benefit Life Insurance Plan, filed as Exhibit 10.4 to the Company’s Registration Statement on Form S-1 (No. 333-61697), effective February 10, 1999.filed September 4, 1998. | 10.4*+ | | 10.4*+ | | Worldwide Executive Benefit Disability Plan (in the form of Long-Term Disability Insurance Policy), filed as Exhibit 10.5 to the Company’s Registration Statement on Form S-1 (No. 333-61697), effective February 10, 1999.filed September 4, 1998. | 10.5*+ | | 10.5*+ | | Form of U.S. and International Enhanced Executive Benefit and Wealth Accumulation Plan, filed as Exhibit 10.6 to the Company’s Registration Statement on Form S-1 (No. 333-61697), effective February 10, 1999.filed September 4, 1998. | 10.6*+ | | 10.6*+ | | Form of U.S. and International Senior Executive Incentive Plan, filed as Exhibit 10.7 to the Company’s Registration Statement on Form S-1 (No. 333-61697), effective February 10, 1999.filed September 4, 1998. | 10.7*+ | | 10.7*+ | | Executive Salary Continuation Plan, filed as Exhibit 10.8 to the Company’s Registration Statement on Form S-1 (No. 333-61697), effective February 10, 1999.filed September 4, 1998. | 10.8*+ | | 10.8*+ | | Form of Amended and Restated Stock Repurchase Agreement, filed as Exhibit 10.10 to the Company’s Registration Statement on Form S-1 (No. 333-61697), effective February 10, 1999.filed September 4, 1998. | 10.9*+ | | 10.9*+ | | Form of Standard Employment Agreement, filed as Exhibit 10.11 to the Company’s Registration Statement on Form S-1 (No. 333-61697), effective February 10, 1999.filed September 4, 1998. |
52
Exhibit Number | | | | Exhibit
Number
| | Description | 10.10*+ | | Form of U.S. and Foreign Executive Participation Program, filed as Exhibit 10.27 to the Company’s Registration Statement on Form S-1 (No. 333-61697), effective February 10, 1999.filed September 4, 1998. | 10.11*+ | | 10.11*+ | | Korn/Ferry International Second Amended and Restated Performance Award Plan, filed as Appendix A to the Company’s Definitive Proxy Statement, filed August 12, 2004. | 10.12*+ | | 10.12*+ | | Form of Indemnification Agreement between the Company and some of its executive officers and directors, filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, filed March 12, 2004. | 10.13*+ | | 10.13+ | | Summary of Non-Employee Director Compensation, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed September 10, 2012. | | | 10.14*+ | | Stock and Asset Purchase Agreement dated as of August 8, 2006, by and among Lominger Limited, Inc., Lominger Consulting, Inc., Michael M. Lombardo, Robert W. Eichinger, and the Company filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed September 8, 2006. | 10.14*+ | | 10.15*+ | | Letter from the Company to Gary Burnison, dated March 30, 2007, filed as Exhibit 10.38 to the Company’s Annual Report on Form 10-K, filed June 29, 2007. | | | 10.16*+ | | Employment Agreement between the Company and Gary Burnison, dated April 24, 2007, filed as Exhibit 10.41 to the Company’s Annual Report on Form 10-K, filed June 29, 2007. | | | 10.17*+ | | Form of Restricted Stock Unit Award Agreement to Directors Under the Performance Award Plan, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed December 10, 2007. | 10.15*+ | | 10.18*+ | | Form of Stock Option Agreement to Employees and Non-Employee Directors Under the Korn/Ferry International 2008 Stock Incentive Plan, filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed June 12, 2009. | 10.16*+ | | 10.19*+ | | Korn/Ferry International Executive Capital Accumulation Plan, filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (No. 333-111038), filed December 10, 2003. | 10.17* | | 10.20*+ | | Letter Agreement between the Company and Gary D. Burnison dated June 25, 2009, filed as Exhibit 10.51 to the Company’s Annual Report on Form 10-K, filed June 29, 2009. | | | 10.21*+ | | Employment Agreement between the Company and Byrne Mulrooney dated March 5, 2010, filed as Exhibit 10.40 to the Company’s Annual Report on Form 10-K, filed June 29, 2010. | | | 10.22*+ | | Korn/Korn Ferry International Amended and Restated Employee Stock Purchase Plan, filed as Exhibit 99.1 to the Company’s Registration Statement on Form S-8, filed December 10, 2014.Plan. | 10.18*+ | | 10.23*+ | | Employment Agreement between the Company and Robert Rozek, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed February 21, 2012. | 10.19*+ | | 10.24*+ | | Second Amended and Restated Korn/Ferry International 2008 Stock Incentive Plan, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed October 2, 2012. | 10.20*+ | | 10.25*+ | | Form of Restricted Stock Unit Award Agreement to Non-Employee Directors Under the 2008 Stock Incentive Plan, filed as Exhibit 10.38 to the Company’s Annual Report on Form 10-K, filed June 25, 2013. | 10.21*+ | | 10.26*+ | | Form of Restricted Stock Unit Award Agreement to Employees Under the 2008 Stock Incentive Plan, filed as Exhibit 10.39 to the Company’s Annual Report on Form 10-K, filed June 25, 2013. | 10.22*+ | | 10.27*+ | | Letter Agreement between the Company and R.J. Heckman, Ph.D., dated December 4, 2012, filed as Exhibit 10.40 to the Company’s Annual Report on Form 10-K, filed June 25, 2013. | | | 10.28*+ | | Letter Agreement between the Company and Byrne Mulrooney dated June 26, 2014, filed as Exhibit 10.33 to the Company’s Annual Report on Form 10-K, filed June 27, 2014. | 10.23* | | 10.29*+ | | Amended and Restated Employment Agreement dated July 25, 2014 between Korn/Korn Ferry International and Gary Burnison, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed August 1, 2014. | | | 10.30*+ | | Amended and Restated Korn/Ferry International Executive Capital Accumulation Plan, as of August 13, 2014, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed December 10, 2014. |
| | | | | Exhibit
Number10.24*+
| | | Description
| | 10.31 | *+ | | Summary of Non-Employee Director Compensation Program, effective October 1, 2014, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed December 10, 2014. | | | | 10.32 | *+ | | Form of Indemnification Agreement between the Company and some of its directors and executive officers, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed June 15, 2015. | 10.25*+ | | | 10.33 | *+ | | Letter Agreement between the Company and Matthew P. Reilly, dated May 4, 2015, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed September 9, 2015. | | | | 10.34 | + | | Credit Agreement with Wells Fargo Bank, National Association, as lender, dated January 18, 2013, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed September 9, 2015. | | | | 10.35 | + | | Amendment No. 1 to Credit Agreement with Wells Fargo Bank, National Association, as lender, dated December 12, 2014, filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, filed September 9, 2015. | | | | 10.36 | ^+ | | Amendment No. 2 to Credit Agreement with Wells Fargo Bank, National Association, as lender, dated June 3, 2015, filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, filed September 9, 2015. | | | | 10.37 | + | | Form of Indemnification Agreement between the Company and some of its directors and executive officers, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed June 15, 2015. | | | | 10.38 | + | | Amendment No. 3 to Credit Agreement with Wells Fargo Bank, National Association, as lender, dated September 23, 2015, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed September 24, 2015. | | | | 10.39 | *+ | | Separation and General Release Agreement, between Matthew P. Reilly and Korn/Ferry International, dated September 27, 2015, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed December 10, 2015. | | | | 10.40 | + | | Amendment No. 4 to Credit Agreement with Wells Fargo Bank, National Association, as lender, dated November 20, 2015, filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, filed December 10, 2015. | | | | 10.41 | + | | Letter Agreement between the Company and Stephen Kaye, filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, filed December 10, 2015. | | | | 10.42 | *+ | | Amendment to Employment Agreement dated December 28, 2015 between the Company and Robert Rozek, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed March 10, 2016. | 10.26* | | | 10.43 | + | | Credit Agreement, dated June 15, 2016, with Wells Fargo Bank, National Association, as administrative agent and other lender parties, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed June 17, 2016. | | | | 10.44 | + | | Korn/Korn Ferry International Long Term Performance Unit Plan, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed July 14, 2016.Plan. | 10.27* | | | 10.45 | *+ | | Korn/Korn Ferry International Long Term Performance Unit Plan Form of Unit Award Agreement, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed July 14, 2016.Agreement. | 10.28* | | | 10.46 | *+ | | Third AmendedAmendment and Restated Korn/Korn Ferry International 2008 Stock Incentive Plan, filed as Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on October 12, 2016.Plan. | 10.29*+ | | | 10.47 | *+ | | Summary of Non-Employee Director Compensation Program Effective December 7, 2016, filed as Exhibit 10.1 to the Company’s 10-Q, filed on March 10, 2017. | 10.30*+ | | | 10.48 | * | | Letter Agreement between the Company and Mark Arian, dated March 17, 2017, filed as Exhibit 10.48 to the Company’s Annual Report on Form 10-K, filed June 28, 2017. | 10.31* | | | 10.49 | * | | Separation and General Release Agreement, between Stephen D. Kaye and Korn/Ferry International, dated March 17, 2017. | | | | 10.50 | * | | Form of Restricted Stock Unit Award Agreement to Non-Employee Directors Underunder the 2008 Stock Incentive Plan. | 10.32* | | | 10.51 | * | | Form of Performance Restricted Stock Unit Award Agreement Under the 2008 Stock Incentive Plan. |
| | | Exhibit
Number10.33*
| | Description
| 10.52* | | Form of Restricted Stock Unit Award Agreement to Employees Under the 2008 Stock Incentive Plan. | 10.34* | | 10.53* | | Form of Restricted Stock Award Agreement to Employees Under the 2008 Stock Incentive Plan. | 10.35+ | | Amended and Restated Employment Agreement dated March 30, 2018 between the Company and Gary Burnison, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed April 4, 2018. | 21.110.36+ | | Amended and Restated Credit Agreement, dated December 19, 2018, by and among the Company and Wells Fargo, National Association, as administrative agent and other lender parties thereto, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed December 20, 2018. | 21.1 | | Subsidiaries of Korn/Ferry International.Korn Ferry. | 23.1 | | 23.1 | | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. | 24.1 | | 24.1 | | Power of Attorney (contained on signature page). |
53
* | Management contract, compensatory plan or arrangement. |
**+ | Schedules omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request. |
^ | Confidential treatment was granted for portions of this exhibit which have been filed separately with the Securities and Exchange Commission. |
+ | Incorporated herein by reference. |
Item 16. Form 10-K SummaryNone 54
SIGNATURESSIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Korn/
Korn Ferry International By:/s/ Robert P. Rozek Robert P. Rozek Executive Vice President, Chief Financial Officer and Chief Corporate Officer Date: June 28, 20172019 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and directors of the registrant hereby constitutes and appoints Jonathan M. Kuai and Gary D. Burnison, and each of them, as lawful attorney-in-fact and agent for each of the undersigned (with full power of substitution and resubstitution, for and in the name, place and stead of each of the undersigned officers and directors), to sign and file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, any and all amendments, supplements and exhibits to this report and any and all other documents in connection therewith, hereby granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in order to effectuate the same as fully and to all intents and purposes as each of the undersigned might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or any of their substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. | | | | | Signature | | Title | | Date | | | | | | /s/ GEORGE T. SHAHEENCHRISTINA A. GOLD George T. ShaheenChristina A. Gold
| | Chairman of the Board and Director | | June 28, 20172019 | /s/ GARY D. BURNISON Gary D. Burnison | | President & Chief Executive Officer (Principal Executive Officer) and Director | | June 28, 20172019 | /s/ ROBERT P. ROZEK Robert P. Rozek | | Executive Vice President, Chief Financial Officer and Chief Corporate Officer (Principal Financial Officer and Principal Accounting Officer) | | June 28, 20172019 | /s/ GEORGE T. SHAHEEN George T. Shaheen | | Director | | June 28, 2019 | /s/ DOYLE N. BENEBY Doyle N. Beneby | | Director | | June 28, 20172019 | /s/ WILLIAM R. FLOYD William R. Floyd | | Director | | June 28, 20172019 | /s/ CHRISTINA A. GOLD
Christina A. Gold
| | Director | | June 28, 2017 | /s/ JERRY LEAMON Jerry Leamon | | Director | | June 28, 20172019 | /s/ ANGEL MARTINEZ Angel Martinez | | Director | | June 28, 2019 | /s/ DEBRA J. PERRY Debra J. Perry | | Director | | June 28, 20172019 |
KORN/
55
KORN FERRY INTERNATIONAL AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 20172019 Page | | | | | | | Page | | Management’s Report on Internal Control over Financial Reporting | | | F-2 | | | | Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting | | | F-3 | | | | Report of Independent Registered Public Accounting Firm | | | F-4 | | | | Consolidated Balance Sheets as of April 30, 20172019 and 20162018 | | | F-5 | | | | Consolidated Statements of Income for the years ended April 30, 2017, 20162019, 2018, and 20152017 | | | F-6 | | | | Consolidated Statements of Comprehensive Income for the years ended April 30, 2017, 20162019, 2018, and 20152017 | | | F-7 | | | | Consolidated Statements of Stockholders’ Equity for the years ended April 30, 2017, 2016,2019, 2018, and 20152017 | | | F-8 | | | | Consolidated Statements of Cash Flows for the years ended April 30, 2017, 20162019, 2018, and 20152017 | | | F-9 | | | | Notes to Consolidated Financial Statements | | | F-10 | | | | Financial Statements Schedule II – Valuation and Qualifying Accounts | | | F-47 | F-42 |
F-1
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management of Korn/Korn Ferry International (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or supervised by, the issuer’s principal executive and principal financial officers, and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting is supported by written policies and procedures, that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In connection with the preparation of the Company’s annual financial statements, management of the Company has undertaken an assessment of the effectiveness of the Company’s internal control over financial reporting as of April 30, 20172019 based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of the Company’s internal control over financial reporting. Based on this assessment, management did not identify any material weakness in the Company’s internal control over financial reporting, and management has concluded that the Company’s internal control over financial reporting was effective as of April 30, 2017.2019. Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s financial statements for the year ended April 30, 20172019 included in this Annual Report on Form 10-K, has issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of April 30, 2017,2019, a copy of which is included in this Annual Report on Form 10-K. June 28, 20172019 F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING TheTo the Stockholders and Board of Directors and Stockholders of Korn Ferry:
Korn/Ferry InternationalOpinion on Internal Control over Financial Reporting
We have audited Korn/Korn Ferry International and subsidiaries’ (the “Company”) internal control over financial reporting as of April 30, 2017,2019, based on criteria established in Internal Control –Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Korn Ferry and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of April 30, 2019, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Companyas of April 30, 2019 and 2018, the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended April 30, 2019 and the related notes and the financial statement schedule listed in the index at Item 15(a) and our report dated June 28, 2019 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Los Angeles, California June 28, 2019 F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Korn Ferry: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Korn Ferry and subsidiaries (the “Company”) as of April 30, 2019 and 2018, the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended April 30, 2019 and the related notes and the financial statement schedule listed in the index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, Korn/Ferry International and subsidiaries maintained,the consolidated financial statements present fairly, in all material respects, effective internal control overthe financial reporting asposition of the Company at April 30, 2017, based on2019 and 2018, and the COSO criteria.results of their operations and their cash flows for each of the three years in the period ended April 30, 2019, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Korn/Ferry International and subsidiariesCompany's internal control over financial reporting as of April 30, 2017 and 2016, and2019, based on criteria established in Internal Control-Integrated Framework issued by the related consolidated statementsCommittee of income, comprehensive income, stockholders’ equity, and cash flows for eachSponsoring Organizations of the three years in the period ended April 30, 2017Treadway Commission (2013 framework), and our report dated June 28, 2017,2019 expressed an unqualified opinion thereon. /s/ Ernst & Young LLPBasis for Opinion
Los Angeles, California
June 28, 2017
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Korn/Ferry International
We have audited the accompanying consolidated balance sheets of Korn/Ferry International and subsidiaries (the “Company”) as of April 30, 2017 and 2016, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended April 30, 2017. Our audits also included the financial statement schedule listed in the index at Item 15(a). These financial statements and schedule are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on thesethe Company’s financial statements and schedule based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Korn/Ferry International and subsidiaries at April 30, 2017 and 2016, and the consolidated results of their operations and their cash flows for each of the three years in the period ended April 30, 2017, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of April 30, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated June 28, 2017, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP We have served as the Company’s auditor since 2002 Los Angeles, California June 28, 20172019
KORN/KORN FERRY INTERNATIONALAND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS | | April 30, | | | | 2019 | | | 2018 | | | | (in thousands, except per share data) | | ASSETS | | | | | | | | | Cash and cash equivalents | | $ | 626,360 | | | $ | 520,848 | | Marketable securities | | | 8,288 | | | | 14,293 | | Receivables due from clients, net of allowance for doubtful accounts of $21,582 and $17,845 at April 30, 2019 and 2018, respectively | | | 404,857 | | | | 384,996 | | Income taxes and other receivables | | | 26,767 | | | | 29,089 | | Unearned compensation | | | 42,003 | | | | 37,333 | | Prepaid expenses and other assets | | | 28,535 | | | | 27,700 | | Total current assets | | | 1,136,810 | | | | 1,014,259 | | | | | | | | | | | Marketable securities, non-current | | | 132,463 | | | | 122,792 | | Property and equipment, net | | | 131,505 | | | | 119,901 | | Cash surrender value of company owned life insurance policies, net of loans | | | 126,000 | | | | 120,087 | | Deferred income taxes | | | 43,220 | | | | 25,520 | | Goodwill | | | 578,298 | | | | 584,222 | | Intangible assets, net | | | 82,948 | | | | 203,216 | | Unearned compensation, non-current | | | 80,924 | | | | 78,295 | | Investments and other assets | | | 22,684 | | | | 19,622 | | Total assets | | $ | 2,334,852 | | | $ | 2,287,914 | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | Accounts payable | | $ | 39,156 | | | $ | 35,196 | | Income taxes payable | | | 21,145 | | | | 23,034 | | Compensation and benefits payable | | | 328,610 | | | | 304,980 | | Current portion of long-term debt | | | — | | | | 24,911 | | Other accrued liabilities | | | 162,047 | | | | 170,339 | | Total current liabilities | | | 550,958 | | | | 558,460 | | | | | | | | | | | Deferred compensation and other retirement plans | | | 257,635 | | | | 227,729 | | Long-term debt | | | 222,878 | | | | 211,311 | | Deferred tax liabilities | | | 1,103 | | | | 9,105 | | Other liabilities | | | 58,891 | | | | 61,694 | | Total liabilities | | | 1,091,465 | | | | 1,068,299 | | | | | | | | | | | Commitments and contingencies | | | | | | | | | | | | | | | | | | Stockholders' equity | | | | | | | | | Common stock: $0.01 par value, 150,000 shares authorized, 72,442 and 71,631 shares issued and 56,431 and 56,517 shares outstanding at April 30, 2019 and 2018, respectively | | | 656,463 | | | | 683,942 | | Retained earnings | | | 660,845 | | | | 572,800 | | Accumulated other comprehensive loss, net | | | (76,652 | ) | | | (40,135 | ) | Total Korn Ferry stockholders' equity | | | 1,240,656 | | | | 1,216,607 | | Noncontrolling interest | | | 2,731 | | | | 3,008 | | Total stockholders' equity | | | 1,243,387 | | | | 1,219,615 | | Total liabilities and stockholders' equity | | $ | 2,334,852 | | | $ | 2,287,914 | |
The accompanying notes are an integral part of these consolidated financial statements. F-5
KORN FERRY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETSSTATEMENTS OF INCOME | | | | | | | | | | | | April 30, | | | | | 2017 | | | 2016 | | | | | (in thousands, except per share
data) | | ASSETS | | | | | | | | | Cash and cash equivalents | | $ | 410,882 | | | $ | 273,252 | | Marketable securities | | | 4,363 | | | | 11,338 | | Receivables due from clients, net of allowance for doubtful accounts of $15,455 and $11,292, respectively | | | 345,314 | | | | 315,975 | | Income taxes and other receivables | | | 31,573 | | | | 20,579 | | Prepaid expenses and other assets | | | 51,542 | | | | 43,130 | | | | | | | | | | | Total current assets | | | 843,674 | | | | 664,274 | | Marketable securities, non-current | | | 115,574 | | | | 130,092 | | Property and equipment, net | | | 109,567 | | | | 95,436 | | Cash surrender value of company owned life insurance policies, net of loans | | | 113,067 | | | | 107,296 | | Deferred income taxes, net | | | 20,175 | | | | 27,163 | | Goodwill | | | 576,865 | | | | 590,072 | | Intangible assets, net | | | 217,319 | | | | 233,027 | | Investments and other assets | | | 66,657 | | | | 51,240 | | | | | | | | | | | Total assets | | $ | 2,062,898 | | | $ | 1,898,600 | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | Accounts payable | | $ | 37,481 | | | $ | 26,634 | | Income taxes payable | | | 4,526 | | | | 8,396 | | Compensation and benefits payable | | | 248,354 | | | | 266,211 | | Term loan | | | 19,754 | | | | 30,000 | | Other accrued liabilities | | | 148,464 | | | | 145,023 | | | | | | | | | | | Total current liabilities | | | 458,579 | | | | 476,264 | | Deferred compensation and other retirement plans | | | 219,905 | | | | 216,113 | | Term loan, non-current | | | 236,222 | | | | 110,000 | | Deferred tax liabilities | | | 7,014 | | | | 5,088 | | Other liabilities | | | 54,130 | | | | 43,834 | | | | | | | | | | | Total liabilities | | | 975,850 | | | | 851,299 | | | | | | | | | | | | | | Commitments and contingencies | | | | | | | | | | | | Stockholders’ equity: | | | | | | | | | Common stock: $0.01 par value, 150,000 shares authorized, 70,811 and 69,723 shares issued at April 30, 2017 and 2016, respectively, and 56,938 and 57,272 shares outstanding at April 30, 2017 and 2016, respectively | | | 692,527 | | | | 702,098 | | Retained earnings | | | 461,976 | | | | 401,113 | | Accumulated other comprehensive loss, net | | | (71,064 | ) | | | (57,911 | ) | | | | | | | | | | Total Korn/Ferry International stockholders’ equity | | | 1,083,439 | | | | 1,045,300 | | Noncontrolling interest | | | 3,609 | | | | 2,001 | | | | | | | | | | | Total stockholders’ equity | | | 1,087,048 | | | | 1,047,301 | | | | | | | | | | | Total liabilities and stockholders’ equity | | $ | 2,062,898 | | | $ | 1,898,600 | | | | | | | | | | |
| | Year Ended April 30, | | | | 2019 | | | 2018 | | | 2017 | | | | (in thousands, except per share data) | | Fee revenue | | $ | 1,926,033 | | | $ | 1,767,217 | | | $ | 1,565,521 | | Reimbursed out-of-pocket engagement expenses | | | 47,829 | | | | 52,302 | | | | 56,148 | | Total revenue | | | 1,973,862 | | | | 1,819,519 | | | | 1,621,669 | | | | | | | | | | | | | | | Compensation and benefits | | | 1,311,240 | | | | 1,199,057 | | | | 1,065,659 | | General and administrative expenses | | | 351,991 | | | | 237,390 | | | | 226,232 | | Reimbursed expenses | | | 47,829 | | | | 52,302 | | | | 56,148 | | Cost of services | | | 75,487 | | | | 73,658 | | | | 71,482 | | Depreciation and amortization | | | 46,489 | | | | 48,588 | | | | 47,260 | | Restructuring charges, net | | | — | | | | 78 | | | | 34,600 | | Total operating expenses | | | 1,833,036 | | | | 1,611,073 | | | | 1,501,381 | | | | | | | | | | | | | | | Operating income | | | 140,826 | | | | 208,446 | | | | 120,288 | | Other income, net | | | 10,094 | | | | 11,119 | | | | 10,328 | | Interest expense, net | | | (16,891 | ) | | | (13,832 | ) | | | (14,607 | ) | Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries | | | 134,029 | | | | 205,733 | | | | 116,009 | | Equity in earnings of unconsolidated subsidiaries, net | | | 311 | | | | 297 | | | | 333 | | Income tax provision | | | 29,544 | | | | 70,133 | | | | 29,104 | | Net income | | | 104,796 | | | | 135,897 | | | | 87,238 | | Net income attributable to noncontrolling interest | | | (2,145 | ) | | | (2,118 | ) | | | (3,057 | ) | Net income attributable to Korn Ferry | | $ | 102,651 | | | $ | 133,779 | | | $ | 84,181 | | | | | | | | | | | | | | | Earnings per common share attributable to Korn Ferry: | | | | | | | | | | | | | Basic | | $ | 1.84 | | | $ | 2.39 | | | $ | 1.48 | | Diluted | | $ | 1.81 | | | $ | 2.35 | | | $ | 1.47 | | | | | | | | | | | | | | | Weighted-average common shares outstanding: | | | | | | | | | | | | | Basic | | | 55,311 | | | | 55,426 | | | | 56,205 | | Diluted | | | 56,096 | | | | 56,254 | | | | 56,900 | | | | | | | | | | | | | | | Cash dividends declared per share: | | $ | 0.40 | | | $ | 0.40 | | | $ | 0.40 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
KORN FERRY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | | Year Ended April 30, | | | | 2019 | | | 2018 | | | 2017 | | | | (in thousands) | | | | | | | | | | | | | | | Net income | | $ | 104,796 | | | $ | 135,897 | | | $ | 87,238 | | | | | | | | | | | | | | | Other comprehensive (loss) income: | | | | | | | | | | | | | Foreign currency translation adjustments | | | (28,038 | ) | | | 22,900 | | | | (19,266 | ) | Deferred compensation and pension plan adjustments, net of tax | | | (5,369 | ) | | | 6,054 | | | | 6,445 | | Net unrealized (loss) gain on interest rate swap, net of tax | | | (1,080 | ) | | | 1,915 | | | | (578 | ) | Comprehensive income | | | 70,309 | | | | 166,766 | | | | 73,839 | | Less: comprehensive income attributable to noncontrolling interest | | | (1,978 | ) | | | (2,058 | ) | | | (2,811 | ) | Comprehensive income attributable to Korn Ferry | | $ | 68,331 | | | $ | 164,708 | | | $ | 71,028 | |
The accompanying notes are an integral part of these consolidated financial statements. F-7
KORN FERRY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | 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 at May 1, 2016 | | 57,272 | | | $ | 702,098 | | | $ | 401,113 | | | $ | (57,911 | ) | | $ | 1,045,300 | | | $ | 2,001 | | | $ | 1,047,301 | | Net income | | — | | | | — | | | | 84,181 | | | | — | | | | 84,181 | | | | 3,057 | | | | 87,238 | | Other comprehensive loss | | — | | | | — | | | | — | | | | (13,153 | ) | | | (13,153 | ) | | | (246 | ) | | | (13,399 | ) | Dividends paid to shareholders | | — | | | | — | | | | (23,318 | ) | | | — | | | | (23,318 | ) | | | — | | | | (23,318 | ) | Dividends paid to noncontrolling interest | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,203 | ) | | | (1,203 | ) | Purchase of stock | | (1,346 | ) | | | (33,579 | ) | | | — | | | | — | | | | (33,579 | ) | | | — | | | | (33,579 | ) | Issuance of stock | | 1,012 | | | | 5,886 | | | | — | | | | — | | | | 5,886 | | | | — | | | | 5,886 | | Stock-based compensation | | — | | | | 18,045 | | | | — | | | | — | | | | 18,045 | | | | — | | | | 18,045 | | Tax benefit from exercise of stock options and vesting of restricted stock | | — | | | | 77 | | | | — | | | | — | | | | 77 | | | | — | | | | 77 | | Balance at April 30, 2017 | | 56,938 | | | | 692,527 | | | | 461,976 | | | | (71,064 | ) | | | 1,083,439 | | | | 3,609 | | | | 1,087,048 | | Net income | | — | | | | — | | | | 133,779 | | | | — | | | | 133,779 | | | | 2,118 | | | | 135,897 | | Other comprehensive income (loss) | | — | | | | — | | | | — | | | | 30,929 | | | | 30,929 | | | | (60 | ) | | | 30,869 | | Dividends paid to shareholders | | — | | | | — | | | | (22,955 | ) | | | — | | | | (22,955 | ) | | | — | | | | (22,955 | ) | Dividends paid to noncontrolling interest | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,659 | ) | | | (2,659 | ) | Purchase of stock | | (1,092 | ) | | | (36,865 | ) | | | — | | | | — | | | | (36,865 | ) | | | — | | | | (36,865 | ) | Issuance of stock | | 671 | | | | 7,998 | | | | — | | | | — | | | | 7,998 | | | | — | | | | 7,998 | | Stock-based compensation | | — | | | | 20,282 | | | | — | | | | — | | | | 20,282 | | | | — | | | | 20,282 | | Balance at April 30, 2018 | | 56,517 | | | | 683,942 | | | | 572,800 | | | | (40,135 | ) | | | 1,216,607 | | | | 3,008 | | | | 1,219,615 | | Net income | | — | | | | — | | | | 102,651 | | | | — | | | | 102,651 | | | | 2,145 | | | | 104,796 | | Other comprehensive loss | | — | | | | — | | | | — | | | | (34,320 | ) | | | (34,320 | ) | | | (167 | ) | | | (34,487 | ) | Effect of adoption of accounting standards | | — | | | | — | | | | 8,853 | | | | (2,197 | ) | | | 6,656 | | | | — | | | | 6,656 | | Dividends paid to shareholders | | — | | | | — | | | | (23,459 | ) | | | — | | | | (23,459 | ) | | | — | | | | (23,459 | ) | Dividends paid to noncontrolling interest | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,255 | ) | | | (2,255 | ) | Purchase of stock | | (1,166 | ) | | | (58,070 | ) | | | — | | | | — | | | | (58,070 | ) | | | — | | | | (58,070 | ) | Issuance of stock | | 1,080 | | | | 8,528 | | | | — | | | | — | | | | 8,528 | | | | — | | | | 8,528 | | Stock-based compensation | | — | | | | 22,063 | | | | — | | | | — | | | | 22,063 | | | | — | | | | 22,063 | | Balance at April 30, 2019 | | 56,431 | | | $ | 656,463 | | | $ | 660,845 | | | $ | (76,652 | ) | | $ | 1,240,656 | | | $ | 2,731 | | | $ | 1,243,387 | |
The accompanying notes are an integral part of these consolidated financial statements. F-8
KORN FERRY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS | | Year Ended April 30, | | | | 2019 | | | 2018 | | | 2017 | | | | (in thousands) | | Cash flows from operating activities: | | | | | | | | | | | | | Net income | | $ | 104,796 | | | $ | 135,897 | | | $ | 87,238 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | Depreciation and amortization | | | 46,489 | | | | 48,588 | | | | 47,260 | | Stock-based compensation expense | | | 23,385 | | | | 21,469 | | | | 18,958 | | Impairment of tradenames | | | 106,555 | | | | — | | | | — | | Provision for doubtful accounts | | | 14,260 | | | | 13,675 | | | | 12,987 | | Gain on cash surrender value of life insurance policies | | | (6,160 | ) | | | (7,776 | ) | | | (4,918 | ) | Gain on marketable securities | | | (8,134 | ) | | | (10,278 | ) | | | (10,842 | ) | Deferred income taxes | | | (27,796 | ) | | | (6,564 | ) | | | 6,589 | | Change in other assets and liabilities: | | | | | | | | | | | | | Deferred compensation | | | 18,478 | | | | 27,660 | | | | 6,868 | | Receivables due from clients | | | (30,625 | ) | | | (53,357 | ) | | | (42,326 | ) | Income taxes and other receivables | | | 1,409 | | | | 2,093 | | | | (10,177 | ) | Prepaid expenses and other assets | | | (148 | ) | | | (2,118 | ) | | | (1,796 | ) | Unearned compensation | | | (7,299 | ) | | | (42,742 | ) | | | (17,465 | ) | Investment in unconsolidated subsidiaries | | | (311 | ) | | | (297 | ) | | | (333 | ) | Income taxes payable | | | 213 | | | | 32,439 | | | | 205 | | Accounts payable and accrued liabilities | | | 28,398 | | | | 66,081 | | | | 5,420 | | Other | | | (4,705 | ) | | | (5,645 | ) | | | 8,473 | | Net cash provided by operating activities | | | 258,805 | | | | 219,125 | | | | 106,141 | | Cash flows from investing activities: | | | | | | | | | | | | | Purchase of property and equipment | | | (46,682 | ) | | | (42,000 | ) | | | (50,088 | ) | Purchase of marketable securities | | | (9,476 | ) | | | (9,462 | ) | | | (10,536 | ) | Proceeds from sales/maturities of marketable securities | | | 13,781 | | | | 2,642 | | | | 42,815 | | Cash paid for acquisitions, net of cash acquired | | | — | | | | — | | | | (2,880 | ) | Premium on company-owned life insurance policies | | | (34,862 | ) | | | (1,614 | ) | | | (1,597 | ) | Proceeds from life insurance policies | | | 7,632 | | | | 5,355 | | | | 1,117 | | Dividends received from unconsolidated subsidiaries | | | 140 | | | | 240 | | | | 564 | | Net cash used in investing activities | | | (69,467 | ) | | | (44,839 | ) | | | (20,605 | ) | Cash flows from financing activities: | | | | | | | | | | | | | Proceeds from long term debt | | | 226,875 | | | | — | | | | 275,000 | | Principal payments on term loan | | | (238,906 | ) | | | (20,625 | ) | | | (155,469 | ) | Payment of debt issuance costs | | | (2,181 | ) | | | — | | | | — | | Repurchases of common stock | | | (37,372 | ) | | | (33,071 | ) | | | (28,821 | ) | Payments of tax withholdings on restricted stock | | | (20,698 | ) | | | (3,794 | ) | | | (4,758 | ) | Payment of contingent consideration from acquisitions | | | (455 | ) | | | (485 | ) | | | (1,070 | ) | Proceeds from issuance of common stock upon exercise of employee stock options and in connection with an employee stock purchase plan | | | 7,272 | | | | 6,885 | | | | 5,121 | | Dividends paid to shareholders | | | (23,459 | ) | | | (22,955 | ) | | | (23,318 | ) | Dividends - noncontrolling interest | | | (2,255 | ) | | | (2,659 | ) | | | (1,203 | ) | Borrowings under life insurance policies | | | 31,870 | | | | — | | | | — | | Payments on life insurance policy loans | | | (5,316 | ) | | | (554 | ) | | | (1,117 | ) | Net cash (used in) provided by financing activities | | | (64,625 | ) | | | (77,258 | ) | | | 64,365 | | Effect of exchange rate changes on cash and cash equivalents | | | (19,201 | ) | | | 12,938 | | | | (12,271 | ) | Net increase in cash and cash equivalents | | | 105,512 | | | | 109,966 | | | | 137,630 | | Cash and cash equivalents at beginning of year | | | 520,848 | | | | 410,882 | | | | 273,252 | | Cash and cash equivalents at end of the period | | $ | 626,360 | | | $ | 520,848 | | | $ | 410,882 | | Supplemental cash flow information: | | | | | | | | | | | | | Cash used to pay interest | | $ | 14,188 | | | $ | 11,946 | | | $ | 10,882 | | Cash used to pay income taxes, net of refunds | | $ | 58,408 | | | $ | 37,486 | | | $ | 32,458 | |
The accompanying notes are an integral part of these consolidated financial statements. F-9
KORN/KORN FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
| | | | | | | | | | | | | | | | Year Ended April 30, | | | | | 2017 | | | 2016 | | | 2015 | | | | | (in thousands, except per share data) | | | | | | Fee revenue | | $ | 1,565,521 | | | $ | 1,292,112 | | | $ | 1,028,152 | | Reimbursed out-of-pocket engagement expenses | | | 56,148 | | | | 54,602 | | | | 37,914 | | | | | | | | | | | | | | | Total revenue | | | 1,621,669 | | | | 1,346,714 | | | | 1,066,066 | | | | | | | | | | | | | | | | | | | Compensation and benefits | | | 1,071,507 | | | | 897,345 | | | | 691,450 | | General and administrative expenses | | | 226,232 | | | | 213,018 | | | | 145,917 | | Reimbursed expenses | | | 56,148 | | | | 54,602 | | | | 37,914 | | Cost of services | | | 71,482 | | | | 59,824 | | | | 39,692 | | Depreciation and amortization | | | 47,260 | | | | 36,220 | | | | 27,597 | | Restructuring charges, net | | | 34,600 | | | | 33,013 | | | | 9,468 | | | | | | | | | | | | | | | Total operating expenses | | | 1,507,229 | | | | 1,294,022 | | | | 952,038 | | | | | | | | | | | | | | | | | | | Operating income | | | 114,440 | | | | 52,692 | | | | 114,028 | | Other income (loss), net | | | 11,820 | | | | (4,167 | ) | | | 7,458 | | Interest (expense) income, net | | | (10,251 | ) | | | 237 | | | | (1,784 | ) | | | | | | | | | | | | | | Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries | | | 116,009 | | | | 48,762 | | | | 119,702 | | Equity in earnings of unconsolidated subsidiaries, net | | | 333 | | | | 1,631 | | | | 2,181 | | Income tax provision | | | 29,104 | | | | 18,960 | | | | 33,526 | | | | | | | | | | | | | | | Net income | | | 87,238 | | | | 31,433 | | | | 88,357 | | Net income attributable to noncontrolling interest | | | (3,057 | ) | | | (520 | ) | | | — | | | | | | | | | | | | | | | Net income attributable to Korn/Ferry International | | $ | 84,181 | | | $ | 30,913 | | | $ | 88,357 | | | | | | | | | | | | | | | | | | | Earnings per common share attributable to Korn/Ferry International: | | | | | | | | | | | | | Basic | | $ | 1.48 | | | $ | 0.58 | | | $ | 1.78 | | | | | | | | | | | | | | | Diluted | | $ | 1.47 | | | $ | 0.58 | | | $ | 1.76 | | | | | | | | | | | | | | | | | | | Weighted-average common shares outstanding: | | | | | | | | | | | | | Basic | | | 56,205 | | | | 52,372 | | | | 49,052 | | | | | | | | | | | | | | | Diluted | | | 56,900 | | | | 52,929 | | | | 49,766 | | | | | | | | | | | | | | | | | | | Cash dividends declared per share | | $ | 0.40 | | | $ | 0.40 | | | $ | 0.10 | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | Year Ended April 30, | | | | | 2017 | | | 2016 | | | 2015 | | | | | (in thousands) | | | | | | Net income | | $ | 87,238 | | | $ | 31,433 | | | $ | 88,357 | | | | | | Other comprehensive income: | | | | | | | | | | | | | Foreign currency translation adjustments | | | (19,266 | ) | | | (15,428 | ) | | | (36,523 | ) | Deferred compensation and pension plan adjustments, net of tax | | | 6,445 | | | | (1,864 | ) | | | (1,702 | ) | Unrealized losses on marketable securities, net of tax | | | — | | | | (4 | ) | | | (10 | ) | Net unrealized loss on interest rate swap, net of tax | | | (578 | ) | | | — | | | | — | | | | | | | | | | | | | | | Comprehensive income | | | 73,839 | | | | 14,137 | | | | 50,122 | | Less: comprehensive income attributable to noncontrolling interest | | | (2,811 | ) | | | (512 | ) | | | — | | | | | | | | | | | | | | | Comprehensive income attributable to Korn/Ferry International | | $ | 71,028 | | | $ | 13,625 | | | $ | 50,122 | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common Stock | | | Retained
Earnings | | | Accumulated
Other
Comprehensive
(Loss)
Income, Net | | | Total
Korn/Ferry
International
Stockholders’
Equity | | | Noncontrolling
Interest | | | Total | | | | | Shares | | | Amount | | | | | | | | | | (in thousands) | | Balance at May 1, 2014 | | | 49,811 | | | $ | 449,631 | | | $ | 308,781 | | | $ | (2,388 | ) | | $ | 756,024 | | | $ | — | | | $ | 756,024 | | Comprehensive income | | | — | | | | — | | | | 88,357 | | | | (38,235 | ) | | | 50,122 | | | | — | | | | 50,122 | | Dividends paid to shareholders | | | — | | | | — | | | | (5,105 | ) | | | — | | | | (5,105 | ) | | | — | | | | (5,105 | ) | Purchase of stock | | | (122 | ) | | | (4,038 | ) | | | — | | | | — | | | | (4,038 | ) | | | — | | | | (4,038 | ) | Issuance of stock | | | 884 | | | | 2,993 | | | | — | | | | — | | | | 2,993 | | | | — | | | | 2,993 | | Stock-based compensation | | | — | | | | 13,737 | | | | — | | | | — | | | | 13,737 | | | | — | | | | 13,737 | | Tax benefit from exercise of stock options and vesting of restricted stock | | | — | | | | 1,516 | | | | — | | | | — | | | | 1,516 | | | | — | | | | 1,516 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at April 30, 2015 | | | 50,573 | | | | 463,839 | | | | 392,033 | | | | (40,623 | ) | | | 815,249 | | | | — | | | | 815,249 | | Acquisition of noncontrolling interest in Mexico | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,489 | | | | 1,489 | | Comprehensive income | | | — | | | | — | | | | 30,913 | | | | (17,288 | ) | | | 13,625 | | | | 512 | | | | 14,137 | | Dividends paid to shareholders | | | — | | | | — | | | | (21,833 | ) | | | — | | | | (21,833 | ) | | | — | | | | (21,833 | ) | Purchase of stock | | | (215 | ) | | | (7,410 | ) | | | — | | | | — | | | | (7,410 | ) | | | — | | | | (7,410 | ) | Issuance of stock | | | 6,914 | | | | 222,456 | | | | — | | | | — | | | | 222,456 | | | | — | | | | 222,456 | | Stock-based compensation | | | — | | | | 18,305 | | | | — | | | | — | | | | 18,305 | | | | — | | | | 18,305 | | Tax benefit from exercise of stock options and vesting of restricted stock | | | — | | | | 4,908 | | | | — | | | | — | | | | 4,908 | | | | — | | | | 4,908 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at April 30, 2016 | | | 57,272 | | | | 702,098 | | | | 401,113 | | | | (57,911 | ) | | | 1,045,300 | | | | 2,001 | | | | 1,047,301 | | Comprehensive income | | | — | | | | — | | | | 84,181 | | | | (13,153 | ) | | | 71,028 | | | | 2,811 | | | | 73,839 | | Dividends paid to shareholders | | | — | | | | — | | | | (23,318 | ) | | | — | | | | (23,318 | ) | | | — | | | | (23,318 | ) | Dividends paid to noncontrolling interest | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,203 | ) | | | (1,203 | ) | Purchase of stock | | | (1,346 | ) | | | (33,579 | ) | | | — | | | | — | | | | (33,579 | ) | | | — | | | | (33,579 | ) | Issuance of stock | | | 1,012 | | | | 5,886 | | | | — | | | | — | | | | 5,886 | | | | — | | | | 5,886 | | Stock-based compensation | | | — | | | | 18,045 | | | | — | | | | — | | | | 18,045 | | | | — | | | | 18,045 | | Tax benefit from exercise of stock options and vesting of restricted stock | | | — | | | | 77 | | | | — | | | | — | | | | 77 | | | | — | | | | 77 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at April 30, 2017 | | | 56,938 | | | $ | 692,527 | | | $ | 461,976 | | | $ | (71,064 | ) | | $ | 1,083,439 | | | $ | 3,609 | | | $ | 1,087,048 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | Year Ended April 30, | | | | | 2017 | | | 2016 | | | 2015 | | Cash flows from operating activities: | | | (in thousands) | | Net income | | $ | 87,238 | | | $ | 31,433 | | | $ | 88,357 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | Depreciation and amortization | | | 47,260 | | | | 36,220 | | | | 27,597 | | Stock-based compensation expense | | | 18,958 | | | | 18,895 | | | | 13,899 | | Provision for doubtful accounts | | | 12,987 | | | | 8,570 | | | | 7,741 | | Gain on cash surrender value of life insurance policies | | | (4,918 | ) | | | (3,984 | ) | | | (10,509 | ) | (Gain) loss on marketable securities | | | (10,842 | ) | | | 3,333 | | | | (8,829 | ) | Deferred income taxes | | | 6,589 | | | | (13,792 | ) | | | 895 | | Change in other assets and liabilities, net of effect of acquisitions: | | | | | | | | | | | | | Deferred compensation | | | 6,868 | | | | (4,605 | ) | | | 10,130 | | Receivables due from clients | | | (42,326 | ) | | | (16,622 | ) | | | (17,213 | ) | Income taxes and other receivables | | | (10,177 | ) | | | (191 | ) | | | 115 | | Prepaid expenses and other assets | | | (8,485 | ) | | | (6,310 | ) | | | (1,145 | ) | Investment in unconsolidated subsidiaries | | | (333 | ) | | | (1,631 | ) | | | (2,181 | ) | Income taxes payable | | | 128 | | | | (4,222 | ) | | | (10,405 | ) | Accounts payable and accrued liabilities | | | 5,420 | | | | 18,862 | | | | 17,790 | | Other | | | (2,303 | ) | | | (1,875 | ) | | | (8,966 | ) | | | | | | | | | | | | | | Net cash provided by operating activities | | | 106,064 | | | | 64,081 | | | | 107,276 | | | | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | | | | Cash paid for acquisitions, net of cash acquired and earnout | | | (2,880 | ) | | | (256,082 | ) | | | (15,296 | ) | Acquisition of Mexico subsidiary, cash acquired | | | — | | | | 3,973 | | | | — | | Purchase of property and equipment | | | (50,088 | ) | | | (26,144 | ) | | | (21,860 | ) | Purchase of marketable securities | | | (10,536 | ) | | | (30,397 | ) | | | (22,843 | ) | Proceeds from sales/maturities of marketable securities | | | 42,815 | | | | 30,066 | | | | 21,362 | | Premiums on company-owned life insurance policies | | | (1,597 | ) | | | (1,623 | ) | | | (1,676 | ) | Proceeds from life insurance policies | | | 1,117 | | | | 3,256 | | | | 8,087 | | Dividends received from unconsolidated subsidiaries | | | 564 | | | | 2,373 | | | | 1,656 | | | | | | | | | | | | | | | Net cash used in investing activities | | | (20,605 | ) | | | (274,578 | ) | | | (30,570 | ) | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | | | | Proceeds from term loan facility | | | 275,000 | | | | 150,000 | | | | — | | Principal payment on term loan facility | | | (155,469 | ) | | | (10,000 | ) | | | — | | Payment of contingent consideration from acquisition | | | (1,070 | ) | | | — | | | | — | | Repurchases of common stock | | | (28,821 | ) | | | — | | | | — | | Payment of tax withholdings on restricted stock | | | (4,758 | ) | | | (7,410 | ) | | | (4,038 | ) | Proceeds from issuance of common stock upon exercise of employee stock options and in connection with an employee stock purchase plan | | | 5,121 | | | | 4,038 | | | | 2,993 | | Tax benefit related to stock-based compensation | | | 77 | | | | 4,908 | | | | 1,516 | | Dividends – noncontrolling interest | | | (1,203 | ) | | | — | | | | — | | Dividends paid to shareholders | | | (23,318 | ) | | | (21,833 | ) | | | (5,105 | ) | Payments on life insurance policy loans | | | (1,117 | ) | | | (1,251 | ) | | | (3,301 | ) | | | | | | | | | | | | | | Net cash provided by (used in) financing activities | | | 64,442 | | | | 118,452 | | | | (7,935 | ) | | | | | | | | | | | | | | Effect of exchange rate changes on cash and cash equivalents | | | (12,271 | ) | | | (15,541 | ) | | | (21,650 | ) | | | | | | | | | | | | | | Net increase (decrease) in cash and cash equivalents | | | 137,630 | | | | (107,586 | ) | | | 47,121 | | Cash and cash equivalents at beginning of year | | | 273,252 | | | | 380,838 | | | | 333,717 | | | | | | | | | | | | | | | Cash and cash equivalents at end of year | | $ | 410,882 | | | $ | 273,252 | | | $ | 380,838 | | | | | | | | | | | | | | | | | | | Supplemental cash flow information: | | | | | | | | | | | | | Cash used to pay interest | | $ | 10,882 | | | $ | 5,154 | | | $ | 4,230 | | | | | | | | | | | | | | | Cash used to pay income taxes, net of refunds | | $ | 32,458 | | | $ | 33,189 | | | $ | 40,899 | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 20172019 1. Organization and Summary of Significant Accounting Policies Nature of Business Korn/On June 12, 2018, the Board of Directors of Korn Ferry, International, a Delaware corporation (the “Company”), and its subsidiaries are engagedapproved a plan (the “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. In connection with the Plan, (i) the Company has sunset all sub-brands, including Futurestep, Hay Group and Lominger, among others, and (ii) effective as of January 1, 2019, the Company has been renamed “Korn Ferry.” The Company is harmonizing under one brand to help accelerate the firm’s positioning as the preeminent organizational consultancy and bring more client awareness to its broad range of talent management solutions. While the rebranding did not impact the Company’s segment financial reporting, the Company renamed its Hay Group segment as Korn Ferry Advisory (“Advisory”) and its Futurestep segment as Korn Ferry RPO and Professional Search (“RPO & Professional Search”). The Company’s Executive Search segment name remains unchanged.
The Company currently operates in three global businesses: Executive Search, Advisory and RPO & Professional Search. The Executive Search segment focuses on recruiting board level, chief executive and other senior executive and general management positions, in addition to research-based interviewing and onboarding solutions, for clients predominantly in the businessconsumer goods, financial services, industrial, life sciences/healthcare and technology industries. Advisory assists clients to synchronize strategy and talent by addressing four fundamental needs: Organizational Strategy, Assessment and Succession, Leadership Development, and Rewards and Benefits, all underpinned by a comprehensive array of providingworld-leading intellectual property, products and tools. RPO & Professional Search is a global industry leader in high-impact talent management solutions, including executiveacquisition solutions. Its portfolio of services includes global and regional Recruitment Process Outsourcing (“RPO”), project recruitment, individual professional search on a retained basis, recruitment for non-executive professionals, recruitment process outsourcing and leadership & talent consulting services.consulting. Basis of Consolidation and Presentation The consolidated financial statements include the accounts of 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. Investments in affiliated companies, which are 50% or less owned and where the Company exercises significant influence over operations, are accounted for using the equity method. Dividends received from our unconsolidated subsidiaries were approximately $0.6$0.1 million, $2.4$0.2 million and $1.7$0.6 million during fiscal 2017, 20162019, 2018 and 2015,2017, respectively. In the fourth quarter of fiscal 2016, we obtainedThe Company has control of oura Mexico subsidiary and began to consolidateconsolidates the operations.operations of this subsidiary. Noncontrolling interest, which represents the Mexico Partners 51% interest in ourthe Mexico subsidiary, is reflected on the Company’s consolidated financial statements for fiscal 2017 and 2016.statements.
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. 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 andor determinable. The most significant areas that require managementmanagement’s judgment are revenue recognition, restructuring, deferred compensation, annual performance relatedperformance-related bonuses, evaluation of the carrying value of receivables, goodwill and other intangible assets, fair value of contingent consideration, share-based payments and the recoverability of deferred income taxes. F-10
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) Revenue Recognition Substantially all fee revenue is derived from fees for professional services related to executive searchand professional recruitment performed on a retained basis, recruitment for non-executive professionals, recruitment process outsourcing, peopletalent and organizational advisory services and the sale of productproducts, 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. Fee revenue from executive and professional search activities and recruitment for non-executive professionals is generally one-third of the estimated first yearfirst-year compensation of the placed executive or non-executive professional, as applicable,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, related expenses.there is one performance obligation, which is the promise to undertake a search. The Company generally recognizes such revenue onover the course of a straight-line basis over a three-month period, commencing upon client acceptance,search and when it is legally entitled to payment as this isoutlined in the period over which the recruitment services are performed. Fees earned in excessbilling terms of the initial contract amount are recognized upon completion of the engagement, which reflect the difference between the final actual compensation of the placed executive and the | | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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estimate used for purposes of the previous billings. Since the initial contract fees are typically not contingent upon placement of a candidate, our assumptions primarily relate to establishing the period over which such service is performed. These assumptions determine the timing of revenue recognition and profitability for the reported period.contract. Any revenues associated with services that are provided on a contingent basis are recognized once the contingency is resolved. In additionresolved, as this is when control is transferred to recruitmentthe customer. These assumptions determine the timing of revenue recognition for non-executive professionals, Futurestep provides recruitment process outsourcing (“RPO”) services andthe 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. Consulting fee revenue, primarily generated from Advisory, is recognized as services are rendered, and/or as milestones are achieved. Fee revenue from Hay Group (formerly known as Leadership & Talent Consulting (“Legacy LTC”) which was combined with HG (Luxembourg) S.à.r.l (“Legacy Hay”) in December 2015) is recognized as services are rendered for consulting engagements and other time based services, measured by total hours incurred to the total estimated hours at completion. It is possible that updated estimates for the consulting engagementengagements 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. Hay Group Product revenue is also derivedgenerated from a range of online tools designed to support human resource processes for pay, talent and engagement, and assessments, as well as licenses to proprietary intellectual property (“IP”) and tangible/digital products. IP subscriptions grant access to proprietary compensation and job evaluation databases. IP subscriptions are considered symbolic IP due to the saledynamic nature of product services, which includesthe content and, as a result, revenue from licenses and from the sale of products. Revenue from licenses is recognized using a straight-line method over the term of the contract (generally 12 months). Undercontract. Functional IP licenses grant customers the fixed term licenses, the Company is obligated to provide the licensee with access to any updates to the underlying intellectual property that are made by the Company during the term of the license. Once the term of the agreement expires, the client’s right to access or use IP content via delivery of a flat file. Because the intellectual property expiresIP content license has significant stand-alone functionality, revenue is recognized upon delivery and when an enforceable right to payment exists. Online assessments are delivered in the form of online questionnaires.A bundle of assessments represents one performance obligation, and revenue is recognized as assessment services are delivered and the Company has no further obligationsa legally enforceable right to the client under the license agreement. Revenue from perpetual licenses is recognized when the license is sold since the Company’s only obligation is to provide the client access to the intellectual property but is not obligated to provide maintenance, support, updates or upgrades. Productspayment. Tangible/digital products sold by the Company mainly consist of books and automated servicesdigital files covering a variety of topics, including performance management, team effectiveness, and coaching and development. The Company recognizes revenue for its products when the product has been sold or shipped, inas is the case offor books. As of April 30, 2017 and 2016, the Company included deferred revenue of $95.8 million and $95.9 million, respectively, in other accrued liabilities. Reimbursements The Company incurs certain out-of-pocket expenses that are reimbursed by its clients, which are accounted for as revenue in itsthe consolidated statements of income. 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. F-11
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) 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 April 30, 20172019 and 2016,2018, the Company’s investments in cash equivalents consistconsisted of money market funds for which market prices are readily available. Marketable Securities The Company currently has investments in mutual funds that are classified as trading securities based upon management’s intent and ability to hold, sell or trade such securities. The classification of the investments in mutual funds is assessed upon purchase and reassessed at each reporting period. The investments 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 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 | | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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elections. These investments are recorded at fair value, with the change in value in the period being reflected in the consolidated statements of income 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. Realized gains (losses) on marketable securities are determined by specific identification. Interest is recognized on an accrual basis,basis; dividends are recorded as earned on the ex-dividend date. Interest, dividend income and the changes in fair value in tradingmarketable securities are recorded in the accompanying consolidated statements of income in other income, (loss), net. 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. |
As of April 30, 20172019 and 2016,2018, 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, and foreign currency forward contracts and at April 30, 2017 also included an interest rate swap. The carrying amount of cash, cash equivalents and accounts receivable approximates fair value due to the shortshort-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 foreign currency forward contracts orand the 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 The Company is exposed to interest rate risk due to the outstanding senior secured credit agreement entered on June 15, 2016. The Company has entered into an interest rate swap agreement to effectively convert its variable debt to a fixed-rate basis. The principal objective of these contracts is 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 has determined that the interest rate swap qualifies 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 are recorded as a component of accumulated other comprehensive (loss) income (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 Beginning in the third quarter of fiscal 2016, theThe 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 an increasecross border work performed in exposure to such risks as a resultthe ordinary course of the Legacy Hay acquisition.business. These foreign currency forward contracts are
F-12
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) neither used for trading purposes nor are they designated as hedging instruments pursuant to Accounting Standards Codification 815, Derivatives and Hedging.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 statementstatements of income. | | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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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 non-controllingnoncontrolling 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. Property and Equipment, Net Property and equipment is carried at cost less accumulated depreciation. Leasehold improvements are amortized on a straight-line basis over the estimated useful life of the asset, or the lease term, whichever is shorter. Software development costs incurred for internal use projects are capitalized and, once placed in service, amortized using the straight-line method over the estimated useful life, generally three to seven years. All other property and equipment is depreciated or amortized on a straight-line basis over the estimated useful lives of three to ten years. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In fiscal 2017, 20162019, 2018 and 2015,2017, there were no such impairment charges recorded. 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, 2017,2019, 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, no impairment charge was recognized. There was also no indication of potential impairment during the fourth quarter of fiscal 20172019 that would have required further testing. Intangible assets primarily consist of customer lists, non-compete agreements, proprietary databases intellectual property and trademarks andIP. 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 one to 24 years. For intangible assets subject to amortization, an impairment loss is recognized if the carrying amount of the intangible assets is not recoverable and exceeds fair value. The carrying amount of the intangible assets is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from use of the asset. IntangibleDuring fiscal 2018, intangible assets with indefinite lives arewere not amortized, but arewere reviewed annually for impairment or more frequently whenever events or changes | | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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in circumstances indicateindicated that the fair value of the asset may be less than its carrying amount. As of April 30, 20172019 and 2016,2018, there were no further indicators of impairment with respect to the Company’s intangible assets.assets, with the exception of the intangible asset impairment charge discussed below. F-13
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) As described above, on June 12, 2018, the Company’s Board of Directors voted to approve the Plan. This integrated go-to-market approach was a key driver in our fee revenue growth in fiscal 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. Two of the Company’s 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 non-cash intangible asset impairment charge of $106.6 million during fiscal 2019, recorded in general and administrative expenses. 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 relatedperformance-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 relatedperformance-related bonuses refers to the Company’s annual employee performance relatedperformance-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. Each quarter, management makes its best estimate of its annual performance relatedperformance-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 Hay GroupAdvisory and FuturestepRPO & 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, and 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 relatedperformance-related bonus expense was $179.6$257.3 million, $186.5$220.4 million and $166.4$179.6 million for the years ended April 30, 2017, 20162019, 2018 and 2015,2017, respectively, included in compensation and benefits expense in the consolidated statements of income. 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’(“CSV”) of company ownedcompany-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-five years. Deferred Compensation and Pension Plans For financial accounting purposes, the Company estimates the present value of the future benefits payable under the deferred compensation and pension plans as of the estimated payment commencement date. The Company also estimates the remaining number of years a participant will be employed by the Company. Then, each year during the period of estimated employment, the Company accrues a liability and recognizes expense for a portion of the future benefit using the unit credit cost method for the Senior Executive Incentive Plan (“SEIP”), Wealth Accumulation Plan (“WAP”), Enhanced Wealth Accumulation Plan (“EWAP”) and the Worldwide Executive Benefit Plan (“WEB”) and the pension plan acquired under Legacy Hay, while the medical and life insurance plan and Long Term Performance Unit Plan (“LTPU Plan”) uses the projected unit credit cost method. The amounts charged to operations are made up of service and interest costs and the expected return on plan assets. Actuarial gains and losses are initially recorded in accumulated other comprehensive income (loss). The actuarial gains/losses included in accumulated other F-14
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) comprehensive income are amortized to the consolidated statements of income, if at the beginning of the year, the amount exceeds 10% of the greater of the projected benefit obligation and market-related plan assets. The amortization included in periodic benefit cost is divided by the average remaining service of inactive plan participants, or the period for which benefits will be paid, if shorter. The expected return on plan assets takes into account the current fair value | | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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of plan assets and reflects the Company’s estimate for trust asset returns given the current asset allocation and any expected changes to the asset allocation and current and future market conditions. In calculating the accrual for future benefit payments, management has made assumptions regarding employee turnover, participant vesting, violation of non-competition provisions and the discount rate. Management periodically reevaluates all assumptions. If assumptions change in future reporting periods, the changes may impact the measurement and recognition of benefit liabilities and related compensation expense. Executive Capital Accumulation Plan The Company, under its deferred compensation plans,the ECAP, makes discretionary contributions and such contributions may be granted to key employees annually based on the employee’s performance. Certain key management may also receive Company contributions upon commencement of employment. The Company amortizes these contributions on a straight-line basis as they vest, generally over a four to five yearfive-year period. The amounts that are expected to be paid to employees over the next 12 months are classified as a current liability included in compensation and benefits payable in the accompanying consolidated balance sheet.sheets. 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. Cash Surrender Value of Life Insurance The Company purchased COLI policies or contracts insuring the lives of certain employees eligible to participate in certain of the deferred compensation and pension plans as a means of funding benefits under such plans. The Company purchased both fixed and variable life insurance contracts and does not purchase “split-dollar” life insurance policy contracts. The Company historically has had both contracts or policies that provide for a fixed or guaranteed rate of return and a variable rate of return depending on the return of the policies’ investment in their underlying portfolio in equities and bonds. Beginning in fiscal 2017 the Company currently only holds contracts or policies that provide for a fixed or guaranteed rate of return. The CSV of these COLI contracts are carried at the amounts that would be realized if the contract were surrendered at the balance sheet date, net of the outstanding loans from the insurer. The Company has the intention and ability to continue to hold these COLI policies and contracts. Additionally, the loans secured by the policies do not have any scheduled payment terms and the Company also does not intend to repay the loans outstanding on these policies until death benefits under the policy have been realized. Accordingly, the investment in COLI is classified as long-term in the accompanying consolidated balance sheet.sheets. The change in the CSV of COLI contracts, net of insurance premiums paid and gains realized, is reported net in compensation and benefits expense. As of April 30, 20172019 and 2016,2018, the Company held contracts with grossnet CSV of $180.3$126.0 million and $175.7 million, offset by outstanding policy loans of $67.2 million and $68.4$120.1 million, respectively. If the issuing insurance companies were to become insolvent, the Company would be considered a general creditor for $61.3 million and $55.9 million of net CSV as of April 30, 2017 and 2016, respectively;creditor; therefore, these assets are subject to credit risk. Management, together with its outside advisors, routinely monitors the claims paying abilities of these insurance companies. 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. Such charges include one-time employee termination benefits and the cost to terminate leases,an office lease, including remaining lease payments. 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 stock options and an Employee Stock Purchase Plan (“ESPP”). The Company recognizes compensation expense related to restricted | | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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stock units, restricted stock and the estimated fair value of stock options and stock purchases under the ESPP on a straight-line basis over the service period for the entire award. F-15
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) Translation of Foreign Currencies Generally, financial results of the Company’s foreign subsidiaries are measured in their local currencies. Assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance sheet date, while revenue and expenses are translated at weighted-average exchange rates during the fiscal year. Resulting translation adjustments are recorded as a component of accumulated comprehensive income. Gains and losses from foreign currency transactions of the Company’s foreign subsidiaries and the translation of the financial results of subsidiaries operating in highly inflationary economies are included in general and administrative expense in the period incurred. ForeignDuring fiscal 2019 and 2018, the Company recorded foreign currency losses of $1.7 million and $3.3 million, respectively, in general and administrative expenses in the consolidated statements of income. During fiscal 2017, we recorded foreign currency gains on an after tax basis, includedof $0.3 million in net income were $0.2 million during fiscal 2017. Foreign currency losses, on an after tax basis, includedgeneral and administrative expenses in net income were $8.7 million and $1.6 million during fiscal 2016 and 2015, respectively.the consolidated statements of income. On February 17, 2016, the Venezuelan government announced a devaluation of the Bolivar, from the official exchange rate of 6.3 Bolivars per USD to 10.0 Bolivars per USD, and streamlined the previous three-tiered currency exchange mechanism into a dual currency exchange mechanism. The weaker of the two rates is a free-floating exchange rate that at the time of its introduction, sold dollars at approximately 200 Bolivars per USD. The economic and political environment in Venezuela has continued to deteriorate and the currency exchange restrictions have become more onerous. The Company had used the previously prevailing official exchange rate of 6.3 Bolivars per USD to re-measure our Venezuelan subsidiary’s financial statements in previous periods, but after careful consideration, at the time of the devaluation, the Company decided to adopt the free-floating exchange rate during the fourth quarter of fiscal 2016 as it more appropriately reflects the ability to convert Bolivars to U.S. dollars given the deteriorating environment in Venezuela. The devaluation of the Bolivar to approximately 260 Bolivars per USD resulted in a pre-tax charge of $13.7 million, or diluted loss per share of $0.26 during fiscal 2016. In fiscal 2017, the Bolivar continued to weaken but did not materially impact our results of operations.
Income Taxes There are two components of income tax expense: current and deferred. Current income tax expense (benefit) approximates taxes to be paid or refunded for the current period. Deferred income tax expense (benefit) results from changes in deferred tax assets and liabilities between periods. These gross deferred tax assets and liabilities represent decreases or increases in taxes expected to be paid in the future because of future reversals of temporary differences in the basis of assets and liabilities as measured by tax laws and their basis as reported in the consolidated financial statements. Deferred tax assets are also recognized for tax attributes such as net operating loss carryforwards and tax credit carryforwards. Deferred tax assets and deferred tax liabilities are presented net on the consolidated balance sheets by tax jurisdiction. Valuation allowances are then recorded to reduce deferred tax assets to the amounts management concludes are more likely than not to be realized. Income tax benefits are recognized and measured based upon a two-step model: (1) a tax position must be more-likely-than-not to be sustained based solely on its technical merits in order to be recognized and (2) the benefit is measured as the largest dollar amount of that position that is more-likely-than-not to be sustained upon settlement. The difference between the benefit recognized for a position and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit. The Company records income tax relatedtax-related interest and penalties within income tax expense. Concentration of Credit Risk Financial instruments whichthat potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, investments, foreign currency forward contracts, interest rate swap, receivables due from clients and net CSV due from insurance companies, which are discussed above. Cash equivalents include investments in money market securities while investments include mutual funds and corporate bonds.funds. Investments are diversified throughout many industries and geographic regions. The Company conducts periodic reviews of its | | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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customers’ financial condition and customer payment practices to minimize collection risk on accounts receivable. At April 30, 20172019 and 2016,2018, the Company had no other significant credit concentrations. 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 April 2015, May 2014, the Financial Accounting Standards Board (the “FASB”(“FASB”) issued guidance simplifying the presentation of debt issuance costs. The guidance requires debt issuance costs related to a debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, rather than being classified as an asset. The Company adopted this guidance during the first quarter of fiscal 2017 and as a result, $4.2 million of unamortized debt issuance costs associated with its senior secured Credit Agreement were classified as a direct deduction to the term loan as of July 31, 2016, ofASC 606, which $0.9 million was recorded to term loan, current, and $3.3 million was recorded to term loan, non-current. The adoption did not have a material impact on the consolidated financial statements as of April 30, 2016. In September 2015, the FASB issued guidance requiring an acquirer to recognize adjustments to provisional amounts recorded in an acquisition that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer is required to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The acquirer is also required to present separately on the face of the income statement, or disclose in the footnotes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustments had been recognized as of the acquisition date. The Company adopted this guidance during the first quarter of fiscal 2017 and the adoption did not have an impact on the consolidated financial statements of the Company.
Recently Proposed Accounting Standards
In May 2014, the FASB issued guidance that supersedessuperseded revenue recognition requirements regarding contracts with customers to transfer goods or services or for the transfer of nonfinancial assets. Under the newthis guidance, entities are required to recognize revenue in order to depictthat depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The transfer is considered to occur when the customer obtains control of the goods or services delivered. The guidance provides a five-step analysis to be performed on transactions to determine when and how revenue is recognized. The guidance permits two transition methods of adoption 1) the full retrospective method, in which case the standard would be applied to all reporting periods presented, or 2) the modified retrospective method, with a cumulative-effect adjustment as of the date of adoption. In July 2015, the FASB decided to approve a one-year deferral of the effective date as well as providing an option to early adopt the standard on the original effective date. This new guidance isbecame effective for fiscal years and interim periods within those annual years beginning after December 15, 2017. The Company will adopt this guidanceadopted ASC 606 in its fiscal year beginning May 1, 2018 using the modified retrospective transition method with respect to those contracts still outstanding and not completed as of May 1, 2018.
F-16
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) The Company has organized a team and developed a project plan to guiderecognized the implementation. The project plan includes working sessions to review, evaluate and document the arrangements with customers under our various reporting units to identify potential differences that would result fromcumulative effect of initially applying the requirementsnew guidance as an adjustment to the opening balance of the new standard.retained earnings. The Company is currently in the process of developing an updated accounting policy, utilizing a bottoms-up approach by reviewing our current contracts with customers by various revenue streams, evaluating new disclosure requirementscomparative periods have not been restated and identifying and implementing appropriate changes to business processes, systems and controls to support revenue recognition and disclosure under the new standard. The Company is still evaluating the impact of ASU No. 2014-09 on our financial statements. Based on our evaluation to date, revenue on the majority of our contracts will continue to be reported under the revenue accounting standards in effect for those periods. As a result of the adoption, the Company recorded an increase to retained earnings of $6.7 million, net of tax as of May 1, 2018 due to the cumulative impact of adopting ASC 606. The change in total assets was recorded to unbilled receivables which is included in receivables due from clients; the changes in total liabilities was recorded to income taxes payable, deferred tax liabilities and deferred revenue, which is included in other accrued liabilities. The following table summarizes the effect of changes made to our consolidated balance sheet at May 1, 2018: | | | | | | Adjustments | | | | | | | | April 30, 2018 | | | due to ASC 606 | | | May 1, 2018 | | | | (in thousands) | | Total assets | | $ | 2,287,914 | | | $ | 3,496 | | | $ | 2,291,410 | | Total liabilities | | $ | 1,068,299 | | | $ | (3,160 | ) | | $ | 1,065,139 | | Total stockholders’ equity | | $ | 1,219,615 | | | $ | 6,656 | | | $ | 1,226,271 | |
The adjustments primarily relate to uptick revenue (uptick revenue occurs when a placement’s actual compensation is higher than the original estimated compensation) and certain Korn Ferry products that are now considered Functional IP. Under the new standard, uptick revenue is considered variable consideration and estimated at contract inception using the expected value method and recognized over timethe service period. Previously, the Company recognized uptick revenue as services are rendered underthe amount became fixed or determinable. Under the new standard. In addition, capitalizationstandard, certain products are now considered Functional IP as delivery of costs associated with obtaining contracts will haveIP content fulfills the performance obligation, and revenue is recognized upon delivery and when an impact upon adoption ofenforceable right to payment exists. Previously these products were considered term licenses and revenue was recognized ratably over the new standard. The Company expects to finalize the evaluation in upcoming quarters and will provide updates on our progress in future filings. In February 2016, the FASB issued guidance on accounting for leases that generally requires all leases to be recognized in the consolidated balance sheet. The provisions of the guidance are effective for fiscal years beginning
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| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIEScontract term.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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after December 15, 2018; early adoption is permitted. The Company plans to adopt this guidance in its fiscal year beginning May 1, 2019. The provisions of the guidance are to be applied using a modified retrospective approach. The Company is currently evaluating the effect that this guidance will have on the consolidated financial statements.
In March 2016, the FASB issued guidance on accounting for certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled. Furthermore, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows. The guidance also allows companies to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting, clarifying that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity in the consolidated statements of cash flows and provides an accounting policy election to account for forfeitures as they occur. The provisions of the guidance are effective for fiscal years beginning after December 15, 2016; early adoption is permitted. The Company will adopt this guidance in its fiscal year beginning May 1, 2017. The adoption of this standard is not anticipated to have a material impact on the consolidated financial statements.
In August 2016, the FASB issued guidance on the classification of certain cash receipts and cash payments in the statement of cash flows. The new guidance provides clarification on specific cash flow issues regarding presentation and classification in the statement of cash flows with the objective of reducing the existing diversity in practice. The amendments in this update are effective for reporting periods beginning after December 15, 2017 with early adoption permitted. Theand were adopted by the Company plans to adopt this guidance in its fiscal year beginningeffective May 1, 2018. The provisions of the guidance are to be applied using a retrospective transition method. The adoption of this standard isguidance did not anticipated to have a materialan impact on the Company’s consolidated financial statements. In January 2017, the FASB issued guidance that clarifies the definition of a business. The new guidance assists a company when evaluating whether transactions should be accounted for as acquisitions (disposals) of assets or businesses. The provisions of the guidance require that if the fair value of the gross assets acquired (or disposed of) is substantially concentrated in a single identifiable asset or a group of similar identifiable assets, then it is not a business. The provisions of the guidance are to be applied prospectively. The provisions of the guidance are effective for annual years beginning after December 15, 2017 and were adopted by the Company effective May 1, 2018. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements. In March 2017, the FASB issued guidance that changes the presentation of net periodic pension cost and net periodic postretirement benefit cost. The new guidance will change the presentation of net periodic benefit cost related to employer-sponsored defined benefit plans and other postretirement benefits. Service cost will be included within the same income statement line item as other compensation costs arising from services rendered during the period, while other components of net periodic benefit pension cost will be presented separately outside of operating income. Additionally, only service costs may be capitalized in assets. This pronouncement is effective for annual reporting periods beginning after December 15, 2017 and was adopted by the Company effective May 1, 2018. The change to the consolidated statements of income has been reflected on a retrospective basis and had no effect on net income. Prior period amounts were revised, which resulted in a decrease in compensation expense and other income of $4.6 million and $0.4 million, respectively, and an increase in interest expense of $4.2 million, in fiscal 2018. For fiscal 2017, this resulted in a decrease in compensation expense and other income of $5.8 million and $1.5 million, respectively, and an increase in interest expense of $4.4 million (see Note 6—Deferred Compensation and Retirement Plans). F-17
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) In May 2017, the FASB issued guidance clarifying the scope of modification accounting for stock compensation. The new standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This pronouncement is effective for annual reporting periods beginning after December 15, 2017 and was adopted by the Company effective May 1, 2018. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements. Any future impact of this guidance will be dependent on future modification including interimthe number of awards modified. In February 2018, the FASB issued guidance that provides companies the option to reclassify stranded tax effects from accumulated other comprehensive (loss) income to retained earnings. The new guidance requires companies to disclose whether they decided to reclassify the income tax effects of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) from accumulated other comprehensive income (loss) to retained earnings. The guidance is effective for annual reporting periods beginning after December 15, 2018, but early adoption is permitted. The Company early adopted effective May 1, 2018, upon the adoption of this guidance we recorded an increase of $2.2 million to retained earnings due to the reclassification from accumulated other comprehensive (loss) income to retained earnings in the period of adoption. In August 2018, the FASB issued guidance amending and modifying the disclosure requirements for employers that sponsor defined benefit pension or other postretirement pension plans. The amendment removes disclosures to pension plans and other postretirement benefit plans that are no longer considered beneficial and adds disclosure requirements deemed relevant. The amendments of this standard are effective for fiscal years ending after December 15, 2020 with early adoption permitted. The Company early adopted the standard in the fourth quarter of fiscal 2019. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements (see Note 6—Deferred Compensation and Retirement Plans). Recently Proposed Accounting Standards - Not Yet Adopted In February 2016, the FASB issued guidance on accounting for leases that generally requires all leases to be recognized on the consolidated balance sheet. The provisions of the guidance are effective for fiscal years beginning after December 15, 2018 and early adoption is permitted. The Company plans to adopt this guidance in fiscal year beginning May 1, 2019. The provisions of the guidance are to be applied using a modified retrospective approach. 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 FASB has also issued subsequent related 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 on a straight-line basis without recognizing a right-to-use asset or operating lease liability. The Company is in the process of finalizing the data validation and associated internal controls for its selected global lease management system. We currently estimate that the adoption of this standard will result in the recording of a material right-of-use asset and a material operating lease liability, as well as enhanced disclosures. We do not expect the adoption of this standard to have an impact on the Company’s consolidated statements of income, consolidated statements of stockholders’ equity, or consolidated statements of cash flows. 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, 2018. These provisions of the guidance are to be applied prospectively.2020. The adoption of this standardguidance is not anticipated to have a material impact on the consolidated financial statements. F-18
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) 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 is evaluating the adoption timeline and the effects that the standard will have on the consolidated financial statements. In MarchAugust 2017, the FASB issued guidance that improves the presentation of net periodic pension costamending and net periodic postretirement benefit cost.simplifying accounting for hedging activities. The new guidance will changerefine and expand strategies that qualify for hedge accounting and simplify the presentationapplication of net periodic benefit cost related to employer sponsored defined benefit plans and other postretirement benefits. Service cost will be included within the same income statement line item as other compensation costs arising from services rendered during the period, while other components of net periodic benefit pension cost will be presented separately outside of operating income. Additionally, only service costs may be capitalizedhedge accounting in assets.certain situations. The amendments of this standard are effective for fiscal years beginning after December 15, 2017, including interim period within those years.2018. The Company plans towill adopt this guidance in its fiscal year beginning May 1, 2018.2019. The adoptionCompany is currently evaluating the impact of adopting this standard will not have a material impact on the consolidated financial statements. | | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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guidance. In May 2017,August 2018, the FASB issued guidance clarifyingamending the scopedisclosure 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 modification accounting for stock compensation. The newthis standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This pronouncement isare effective for annual reporting periodsfiscal years beginning after December 15, 2017 but early adoption is permitted.2019. The Company plans towill adopt this guidance in its fiscal year beginning May 1, 2018.2020. The Company is currently evaluating the impact of adopting this guidance. 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. 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. We haveThe Company has granted and expectexpects to continue to grant to certain employees under ourits restricted stock agreements, grants that contain non-forfeitable rights to dividends. Such grants are considered participating securities. Therefore, we arethe 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. During fiscal 2017, 20162019, 2018 and 2015,2017, restricted stock awards of 0.50.6 million shares, 0.6 million shares and 0.5 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive. | | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017F-19
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) |
The following table summarizes basic and diluted earnings per common share attributable to common stockholders: | | | | | | | | | Year Ended April 30, | | | | | Year Ended April 30, | | | 2019 | | | 2018 | | | 2017 | | | | | 2017 | | | 2016 | | | 2015 | | | (in thousands, except per share data) | | | | | (in thousands, except per share data) | | | Net income attributable to Korn/Ferry International | | $ | 84,181 | | | $ | 30,913 | | | $ | 88,357 | | | Net income attributable to Korn Ferry | | | $ | 102,651 | | | $ | 133,779 | | | $ | 84,181 | | Less: distributed and undistributed earnings to nonvested restricted stockholders | | | 765 | | | | 280 | | | | 860 | | | | 1,066 | | | | 1,426 | | | | 765 | | | | | | | | | | | | | Basic net earnings attributable to common stockholders | | | 83,416 | | | | 30,633 | | | | 87,497 | | | | 101,585 | | | | 132,353 | | | | 83,416 | | Add: undistributed earnings to nonvested restricted stockholders | | | 560 | | | | 82 | | | | 815 | | | | 831 | | | | 1,187 | | | | 560 | | Less: reallocation of undistributed earnings to nonvested restricted stockholders | | | 553 | | | | 81 | | | | 804 | | | | 820 | | | | 1,169 | | | | 553 | | | | | | | | | | | | | Diluted net earnings attributable to common stockholders | | $ | 83,423 | | | $ | 30,634 | | | $ | 87,508 | | | $ | 101,596 | | | $ | 132,371 | | | $ | 83,423 | | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted-average common shares outstanding: | | | | | | | | | | | | | | | | | | | Basic weighted-average number of common shares outstanding | | | 56,205 | | | | 52,372 | | | | 49,052 | | | | 55,311 | | | | 55,426 | | | | 56,205 | | Effect of dilutive securities: | | | | | | | | | | | | | | | | | | | Restricted stock | | | 646 | | | | 487 | | | | 605 | | | | 750 | | | | 822 | | | | 646 | | ESPP | | | | 34 | | | | 5 | | | | 24 | | Stock options | | | 24 | | | | 50 | | | | 105 | | | | 1 | | | | 1 | | | | 25 | | ESPP | | | 25 | | | | 20 | | | | 4 | | | | | | | | | | | | | | Diluted weighted-average number of common shares outstanding | | | 56,900 | | | | 52,929 | | | | 49,766 | | | | 56,096 | | | | 56,254 | | | | 56,900 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net earnings per common share: | | | | | | | | | | | | | | | | | | | Basic earnings per share | | $ | 1.48 | | | $ | 0.58 | | | $ | 1.78 | | | $ | 1.84 | | | $ | 2.39 | | | $ | 1.48 | | | | | | | | | | | | | Diluted earnings per share | | $ | 1.47 | | | $ | 0.58 | | | $ | 1.76 | | | $ | 1.81 | | | $ | 2.35 | | | $ | 1.47 | | | | | | | | | | | | |
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. Accumulated other comprehensive loss,income (loss), net of taxes, is recorded as a component of stockholders’ equity. The components of accumulated other comprehensive loss(loss) income were as follows: | | | | April 30, | | | April 30, | | | | | 2017 | | 2016 | | | 2019 | | | 2018 | | | | | (in thousands) | | | (in thousands) | | Foreign currency translation adjustments | | $ | (55,359 | ) | | $ | (36,339 | ) | | $ | (60,270 | ) | | $ | (32,399 | ) | Deferred compensation and pension plan adjustments, net of taxes | | | (15,127 | ) | | (21,572 | ) | | | (16,838 | ) | | | (9,073 | ) | Interest rate swap unrealized loss, net of taxes | | | (578 | ) | | | — | | | | | | | | | | | Interest rate swap unrealized gain, net of taxes | | | | 456 | | | | 1,337 | | Accumulated other comprehensive loss, net | | $ | (71,064 | ) | | $ | (57,911 | ) | | $ | (76,652 | ) | | $ | (40,135 | ) | | | | | | | | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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F-20
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) The following table summarizes the changes in each component of accumulated other comprehensive (loss) income: | | | | | | | | | | | | | Foreign Currency Translation | | | Deferred Compensation and Pension Plan (1) | | | Unrealized (Losses) Gains on Interest Rate Swap (2) | | | Accumulated Other Comprehensive Income (Loss) | | | | | Foreign
Currency
Translation | | Deferred
Compensation
and Pension
Plan (1) | | Unrealized
Gains
(Losses) on
Marketable
Securities | | Unrealized
losses on
interest rate
swap (2) | | Accumulated
Other
Comprehensive
Income (Loss) | | | | | | | (in thousands) | | | | | | | | | (in thousands) | | | Balance as of May 1, 2014 | | $ | 15,604 | | | $ | (18,006 | ) | | $ | 14 | | | $ | — | | | $ | (2,388 | ) | | Unrealized losses arising during the period | | (36,523 | ) | | (3,589 | ) | | (10 | ) | | | — | | | (40,122 | ) | | Reclassification of realized net losses to net income | | | — | | | 1,887 | | | | — | | | | — | | | 1,887 | | | | | | | | | | | | | | | | | | | | Balance as of April 30, 2015 | | (20,919 | ) | | (19,708 | ) | | 4 | | | | — | | | (40,623 | ) | | Unrealized losses arising during the period | | (15,420 | ) | | (3,653 | ) | | (4 | ) | | | — | | | (19,077 | ) | | Reclassification of realized net losses to net income | | | — | | | 1,789 | | | | — | | | | — | | | 1,789 | | | | | | | | | | | | | | | | | | | | Balance as of April 30, 2016 | | (36,339 | ) | | (21,572 | ) | | | — | | | | — | | | (57,911 | ) | | Balance as of May 1, 2016 | | | $ | (36,339 | ) | | $ | (21,572 | ) | | $ | — | | | $ | (57,911 | ) | Unrealized (losses) gains arising during the period | | (19,020 | ) | | 4,584 | | | | — | | | (635 | ) | | (15,071 | ) | | | (19,020 | ) | | | 4,584 | | | | (635 | ) | | | (15,071 | ) | Reclassification of realized net losses to net income | | | — | | | 1,861 | | | | — | | | 57 | | | 1,918 | | | | — | | | | 1,861 | | | | 57 | | | | 1,918 | | | | | | | | | | | | | | | | | | | Balance as of April 30, 2017 | | $ | (55,359 | ) | | $ | (15,127 | ) | | $ | — | | | $ | (578 | ) | | $ | (71,064 | ) | | | (55,359 | ) | | | (15,127 | ) | | | (578 | ) | | | (71,064 | ) | | | | | | | | | | | | | | | | | | Unrealized gains arising during the period | | | | 22,960 | | | | 4,813 | | | | 1,465 | | | | 29,238 | | Reclassification of realized net losses to net income | | | | — | | | | 1,241 | | | | 450 | | | | 1,691 | | Balance as of April 30, 2018 | | | | (32,399 | ) | | | (9,073 | ) | | | 1,337 | | | | (40,135 | ) | Unrealized losses arising during the period | | | | (27,871 | ) | | | (6,461 | ) | | | (800 | ) | | | (35,132 | ) | Reclassification of realized losses (gains) to net income | | | | — | | | | 1,092 | | | | (280 | ) | | | 812 | | Effect of adoption of accounting standard | | | | — | | | | (2,396 | ) | | | 199 | | | | (2,197 | ) | Balance as of April 30, 2019 | | | $ | (60,270 | ) | | $ | (16,838 | ) | | $ | 456 | | | $ | (76,652 | ) |
(1) | The tax effects on unrealized (losses) gains (losses) were $1.9 million, $(2.3) million, $2.5 million and $(2.3)$1.9 million as of April 30, 2017, 20162019, 2018 and 2015,2017, respectively. The tax effects on reclassifications of realized net losses were $1.2$0.4 million, $1.1$0.8 million and $1.2 million as of April 30, 2019, 2018 and 2017, 2016 and 2015, respectively. |
(2) | The tax effects on unrealized (losses) gains were $(0.3) million, $0.8 million and $(0.4) million as of April 30, 2017.2019, 2018 and 2017, respectively. The tax effect on the reclassification of realized net gains (losses) to net income was $0.1 million and $(0.3) million as of April 30, 2019 and 2018, respectively. |
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: | | | | Year Ended April 30, | | | Year Ended April 30, | | | | | 2017 | | 2016 | | 2015 | | | 2019 | | | 2018 | | | 2017 | | | | | (in thousands) | | | (in thousands) | | Restricted stock | | $ | 18,045 | | | $ | 18,288 | | | $ | 13,602 | | | $ | 22,063 | | | $ | 20,282 | | | $ | 18,045 | | ESPP | | | 913 | | | 590 | | | 162 | | | | 1,322 | | | | 1,187 | | | | 913 | | Stock options | | | — | | | 17 | | | 135 | | | | | | | | | | | | | | Total stock-based compensation expense, pre-tax | | | 18,958 | | | 18,895 | | | 13,899 | | | | 23,385 | | | | 21,469 | | | | 18,958 | | Tax benefit from stock-based compensation expense | | | (4,756 | ) | | (7,347 | ) | | (3,893 | ) | | | (5,155 | ) | | | (7,319 | ) | | | (4,756 | ) | | | | | | | | | | | | Total stock-based compensation expense, net of tax | | $ | 14,202 | | | $ | 11,548 | | | $ | 10,006 | | | $ | 18,230 | | | $ | 14,150 | | | $ | 14,202 | | | | | | | | | | | | |
Stock Incentive Plan At the Company’s 2016 Annual Meeting of Stockholders, held on October 6, 2016, the Company’s stockholders approved an amendment and restatement to the Korn/Korn Ferry International Amended and Restated 2008 Stock Incentive Plan (the 2016 amendment and restatement being “The Third A&R 2008 Plan”), which among other things, increased the number of shares under the plan by 5,500,000, increasing the current maximum number of shares that may be issued under the plan to 11,200,000 shares, subject to certain changes in the Company’s capital structure and other extraordinary events. The Third A&R 2008 Plan provides for the grant of awards to eligible participants, designated as either nonqualified or incentive stock options, restricted stock and restricted | | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
|
stock units, any of which may be performance-based or market-based, and incentive bonuses, which may be paid in cash or stock or a combination thereof. Under the Third A&R 2008 Plan, the ability to issue full-value awards is limited by requiring full-value stock awards to count 2.3 times as much as stock options. F-21
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) Restricted Stock The Company grants time-based restricted stock awards to executive officers and other senior employees generally vesting over a four-year period. In addition, certain key management members typically receive time-based restricted stock awards upon commencement of employment and may receive them annually in 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. The Company also grants market-based and performance-based restricted stock units to executive officers and other senior employees. The market-based units vest after three years depending upon the Company’s total stockholder return over the three-year performance period relative to other companies in its selected peer group. The fair value of these market-based restricted stock units are determined by using extensive market data that is based on historical Company and peer group information. The Company recognizes compensation expense for market-based restricted stock units on a straight-line basis over the vesting period. Performance-based restricted stock units vest after three years, depending upon the Company meeting certain objectives that are set at the time the restricted stock unit is issued. Performance-based restricted stock units 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. At the end of each reporting period, the Company estimates the number of restricted stock units expected to vest, based on the probability that certain performance objectives will be met, exceeded, or fall below target levels, and the Company takes into account these estimates when calculating the expense for the period. As of April 30, 2019, no performance-based shares were outstanding. Restricted stock activity is summarized below: | | | | April 30, | | | April 30, | | | | | 2017 | | | 2016 | | | 2015 | | | 2019 | | | 2018 | | | 2017 | | | | | | | | | Shares | | Weighted-
Average
Grant Date
Fair Value | | | Shares | | Weighted-
Average
Grant Date
Fair Value | | | Shares | | Weighted-
Average
Grant Date
Fair Value | | | Shares | | | Weighted- Average Grant Date Fair Value | | | Shares | | | Weighted- Average Grant Date Fair Value | | | Shares | | | Weighted- Average Grant Date Fair Value | | | | | (in thousands, except per share data) | | | (in thousands, except per share data) | | Non-vested, beginning of year | | | 1,506 | | | $ | 34.12 | | | | 1,560 | | | $ | 22.15 | | | | 1,880 | | | $ | 18.95 | | | | 1,730 | | | $ | 33.45 | | | | 1,581 | | | $ | 29.74 | | | | 1,506 | | | $ | 34.12 | | Granted | | | 852 | | | $ | 17.43 | | | | 784 | | | $ | 39.19 | | | | 438 | | | $ | 29.93 | | | | 671 | | | $ | 40.93 | | | | 650 | | | $ | 37.60 | | | | 852 | | | $ | 17.43 | | Vested | | | (751 | ) | | $ | 24.15 | | | | (809 | ) | | $ | 16.35 | | | | (705 | ) | | $ | 18.52 | | | | (904 | ) | | $ | 36.41 | | | | (431 | ) | | $ | 26.13 | | | | (751 | ) | | $ | 24.15 | | Forfeited/expired | | | (26 | ) | | $ | 26.80 | | | | (29 | ) | | $ | 23.38 | | | | (53 | ) | | $ | 21.13 | | | | | | | | | | | | | | | | | | | | Forfeited | | | | (37 | ) | | $ | 32.26 | | | | (70 | ) | | $ | 33.26 | | | | (26 | ) | | $ | 26.80 | | Non-vested, end of year | | | 1,581 | | | $ | 29.74 | | | | 1,506 | | | $ | 34.12 | | | | 1,560 | | | $ | 22.15 | | | | 1,460 | | | $ | 38.42 | | | | 1,730 | | | $ | 33.45 | | | | 1,581 | | | $ | 29.74 | | | | | | | | | | | | | | | | | | |
As of April 30, 2017,2019, there were 0.6 million shares and 0.1 million shares outstanding relating to market-based and performance-based restricted stock units respectively, with total unrecognized compensation totaling $5.3 million and $5.4 million, respectively.$11.0 million. As of April 30, 2017,2019, there was $27.1$35.0 million of total unrecognized compensation cost related to all non-vested awards of restricted stock, which is expected to be recognized over a weighted-average period of 2.4 years. During fiscal 20172019 and fiscal 2016, 205,4402018, 356,879 shares and 215,453108,089 shares of restricted stock totaling $4.8$20.7 million and $7.4$3.8 million, respectively, were repurchased by the Company, at the option of the employee, to pay for taxes related to the vesting of restricted stock. | | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
|
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 15% of their salary to purchase shares of the Company’s common stock at 85% of the fair market price of the common stock on the last day of the enrollment period. Employees may not purchase more than $25,000 in stock during any calendar year. The maximum number of shares that may be issued under the ESPP is 3.0 million shares. The ESPP was suspended during the second half of fiscal 2012 until January 1, 2015. As a result, no shares were purchased during fiscal 2015. On January 1, 2015, the Company resumed the ESPP program with the first purchase of shares made in the first quarter of fiscal 2016. During fiscal 20172019, 2018, and 2016,2017, employees purchased 169,299 shares at $42.05 per share, 198,749 shares at $31.77 per share and 207,141 shares at $20.93 per share and 95,135 shares at $28.83 per share, respectively. As of April 30, 2017,2019, the ESPP had approximately 1.31.0 million shares remaining available for future issuance. F-22
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) Common Stock During fiscal 2017, 20162019, 2018 and 2015,2017, the Company issued 53,9556,720 shares, 87,64841,075 shares and 178,95053,955 shares of common stock, respectively, as a resultbecause of the exercise of stock options, with cash proceeds from the exercise of $0.8$0.2 million, $1.3$0.6 million and $3.0$0.8 million, respectively. During fiscal 2019, 2018 and 2017, the Company repurchased (on the open market or privately negotiated transactions) 809,074 shares, 984,079 shares and 1,140,576 shares, respectively, of the Company’s common stock for $37.4 million $33.1 million and $28.8 million. No shares were repurchased during fiscal 2016 and 2015, other than to satisfy minimum tax withholding requirements upon the vesting of restricted stock as described above.million, respectively. 5. Financial Instruments The following tables show the Company’s financial instruments and balance sheet classification as of April 30, 20172019 and 2016:2018: | | | | April 30, 2017 | | | April 30, 2019 | | | | | Fair Value Measurement | | Balance Sheet Classification | | | Fair Value Measurement | | | Balance Sheet Classification | | | | | Cost | | Unrealized
Gains | | Unrealized
Losses | | Fair Value | | Cash and
Cash
Equivalents | | Marketable
Securities,
Current | | Marketable
Securities,
Non-current | | Other
Accrued
Liabilities | | | Cost | | | Unrealized Gains | | | Unrealized Losses | | | Fair Value | | | Cash and Cash Equivalents | | | Marketable Securities, Current | | | Marketable Securities, Non- current | | | Income Taxes & Other Receivables | | | | | (in thousands) | | | (in thousands) | | Level 1: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash | | $ | 409,824 | | | $ | — | | | $ | — | | | $ | 409,824 | | | $ | 409,824 | | | $ | — | | | $ | — | | | $ | — | | | $ | 579,998 | | | $ | — | | | $ | — | | | $ | 579,998 | | | $ | 579,998 | | | $ | — | | | $ | — | | | $ | — | | Money market funds | | 1,058 | | | | — | | | | — | | | 1,058 | | �� | | 1,058 | | | | — | | | | — | | | | — | | | | 46,362 | | | | — | | | | — | | | | 46,362 | | | | 46,362 | | | | — | | | | — | | | | — | | Mutual funds (1) | | 113,818 | | | 6,697 | | | (578 | ) | | 119,937 | | | | — | | | 4,363 | | | 115,574 | | | | — | | | | 135,439 | | | | 6,301 | | | | (989 | ) | | | 140,751 | | | | — | | | | 8,288 | | | | 132,463 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 524,700 | | | $ | 6,697 | | | $ | (578 | ) | | $ | 530,819 | | | $ | 410,882 | | | $ | 4,363 | | | $ | 115,574 | | | $ | — | | | $ | 761,799 | | | $ | 6,301 | | | $ | (989 | ) | | $ | 767,111 | | | $ | 626,360 | | | $ | 8,288 | | | $ | 132,463 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Level 2: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency forward contracts | | $ | — | | | $ | 129 | | | $ | (846 | ) | | $ | (717 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | (717 | ) | | $ | — | | | $ | 821 | | | $ | (722 | ) | | $ | 99 | | | $ | — | | | $ | — | | | $ | — | | | $ | 99 | | Interest rate swap | | $ | — | | | $ | — | | | $ | (947 | ) | | $ | (947 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | (947 | ) | | $ | — | | | $ | 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 | |
| | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | April 30, 2016 | | | | | Fair Value Measurement | | | Balance Sheet Classification | | | | | Cost | | | Unrealized
Gains | | | Unrealized
Losses | | | Fair Value | | | Cash and
Cash
Equivalents | | | Marketable
Securities,
Current | | | Marketable
Securities,
Non-current | | | Other
Accrued
Liabilities | | | | | (in thousands) | | Level 1: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash | | $ | 269,558 | | | $ | — | | | $ | — | | | $ | 269,558 | | | $ | 269,558 | | | $ | — | | | $ | — | | | $ | — | | Money market funds | | | 3,694 | | | | — | | | | — | | | | 3,694 | | | | 3,694 | | | | — | | | | — | | | | — | | Mutual funds (1) | | | 142,588 | | | | 1,395 | | | | (2,553 | ) | | | 141,430 | | | | — | | | | 11,338 | | | | 130,092 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 415,840 | | | $ | 1,395 | | | $ | (2,553 | ) | | $ | 414,682 | | | $ | 273,252 | | | $ | 11,338 | | | $ | 130,092 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Level 2: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency forward contracts | | $ | — | | | $ | 324 | | | $ | (1,041 | ) | | $ | (717 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | (717 | ) | Interest rate swap | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
(1) | These investments are held in trust for settlement of the Company’s vested and unvested obligations of $137.1$122.3 million and $138.8$118.2 million as of April 30, 20172019 and 2016,2018, 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 20172019, 2018, and 2015,2017, the fair value of the investments increased; therefore, the Company recognized income of $10.8$8.1 million, $10.3 million, and $8.8$10.8 million, respectively, which was recorded in other income, (loss), net. During fiscal 2016, the fair value of the investments decreased; therefore, the Company recognized a loss of $3.3 million, which was recorded in other income (loss), net. |
F-23
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) Investments in marketable securities classified as trading 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, 20172019 and 2016,2018, the Company’s investments in marketable securities classified as trading consist of mutual funds for which market prices are readily available. 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 April 30, 2017 and April 30, 2016, the Company does not hold marketable securities classified as available-for-sale. During fiscal 2016 and 2015, the Company received $13.1 million and $5.0 million, respectively, in proceeds from maturities of available-for-sale marketable securities. 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 designated as a cash flow hedge, 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 will be amortized so that the amount is always half of the principal balance of the debt outstanding.was $106.6 million. The interest rate swap agreement matures on June 15, 2021 and locks the interest rates on halfa 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,
2017 | | | | | (in thousands) | | Derivative liability: | | | | | Interest rate swap contract | | $ | 947 | |
| | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
|
| | 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: | | | | | | | | April 30,
2017 | | | | | (in thousands) | | Losses recognized in OCI (net of tax effects of $406) | | $ | 635 | | Losses reclassified from AOCI into interest income (expense), net | | | (94 | ) |
| | 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 $0.8$0.4 million of derivative lossesgains included in AOCIaccumulated other comprehensive income as of April 30, 20172019 will be reclassified into otherinterest 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. Non-Designated DerivativesForeign Currency Forward Contracts Not Designated as Hedges
The fair value of derivatives not designated as hedge instruments are as follows: | | | | April 30, | | | April 30, | | | | | 2017 | | | 2016 | | | 2019 | | | 2018 | �� | | | | (in thousands) | | | (in thousands) | | Derivative assets: | | | | | | | | | | | | | Foreign currency forward contracts | | $ | 129 | | | $ | 324 | | | $ | 821 | | | $ | 1,778 | | Derivative liabilities: | | | | | | | | | | | | | Foreign currency forward contracts | | | 846 | | | | 1,041 | | | $ | 722 | | | $ | 1,025 | |
F-24
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) As of April 30, 2017,2019, the total notional amounts of the forward contracts purchased and sold were $19.4$51.4 million and $70.0$40.0 million, respectively. As of April 30, 2016,2018, the total notional amounts of the forward contracts purchased and sold were $14.5$80.8 million and $44.3$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 while in fiscal 2016 it incurred losses of $1.8 million 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 in the accompanying statements of cash flow.activities. 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. The total benefit obligations for these plans were as follows: | | | | | | | | | | | | Year Ended April 30, | | | | | 2017 | | | 2016 | | | | | (in thousands) | | Deferred compensation and pension plans | | $ | 95,596 | | | $ | 99,699 | | Medical and Life Insurance plan | | | 12,147 | | | | 13,006 | | International retirement plans | | | 12,021 | | | | 15,678 | | Executive Capital Accumulation Plan | | | 111,584 | | | | 105,676 | | | | | | | | | | | Total benefit obligation | | | 231,348 | | | | 234,059 | | Less: current portion of benefit obligation | | | (11,443 | ) | | | (17,946 | ) | | | | | | | | | | Non-current benefit obligation | | $ | 219,905 | | | $ | 216,113 | | | | | | | | | | |
| | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
|
| | Year Ended April 30, | | | | 2019 | | | 2018 | | | | (in thousands) | | Deferred compensation and pension plans | | $ | 123,238 | | | $ | 100,404 | | Medical and Life Insurance plan | | | 7,310 | | | | 7,157 | | International retirement plans | | | 14,744 | | | | 13,729 | | Executive Capital Accumulation Plan | | | 130,161 | | | | 128,430 | | Total benefit obligation | | | 275,453 | | | | 249,720 | | Less: current portion of benefit obligation | | | (17,818 | ) | | | (21,991 | ) | Non-current benefit obligation | | $ | 257,635 | | | $ | 227,729 | |
Deferred Compensation and Pension Plans The Enhanced Wealth Accumulation Plan (“EWAP”)EWAP was established in fiscal 1994, which replaced the Wealth Accumulation Plan (“WAP”).WAP. Certain vice presidents elected to participate in a “deferral unit” that required the participant to contribute a portion of their compensation for an eight year period, or in some cases, make an after taxafter-tax contribution, in return for defined benefit payments from the Company over a fifteen year period at retirement age of 65 or later. Participants were able to acquire additional “deferral units” every five years. Vice presidents who did not choose to roll over their WAP units into the EWAP continue to be covered under the earlier version in which participants generally vest and commence receipt of benefit payments at retirement age of 65. In June 2003, the Company amended the EWAP and WAP, so as not to allow new participants or the purchase of additional deferral units by existing participants. The Company also maintains a Senior Executive Incentive Plan (“SEIP”)SEIP for participants approved by the Board. Generally, to be eligible, the vice president must be participating in the EWAP. Participation in the SEIP required the participant to contribute a portion of their compensation during a four-year period, or in some cases make an after taxafter-tax contribution, in return for a defined benefit paid by the Company generally over a fifteen year period after ten years of participation in the plan or such later date as elected by the participant. In June 2003, the Company amended the SEIP, so as not to allow new participants or the purchase of additional deferral units by existing participants. The Company has a defined benefit pension plan, referred to as the Worldwide Executive Benefit (“WEB”),WEB, covering certain executives in the U.S. and foreign countries. The WEB is designed to integrate with government sponsored and local benefits and provide a monthly benefit to vice presidents upon retirement from the Company. Each year a plan participant accrued and was fully vested in one-twentieth of the targeted benefits expressed as a percentage set by the Company for that year. Upon retirement, a participant receives a monthly benefit payment equal to the sum of the percentages accrued over such participant’s term of employment, up to a maximum of 20 years, multiplied by the participant’s highest average monthly salary during the 36 consecutive months in the final 72 months of active full-time employment through June 2003. In June 2003, the Company froze the WEB, so as to not allow new participants, future accruals and future salary increases. F-25
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) In conjunction with the acquisition of Legacy Hay on December 1, 2015,Group, the Company acquired multiple pension and savings plans covering certain of its employees worldwide. Among these plans is a defined benefit pension plan for certain employees in the United States.U.S. The assets of this plan are held separately from the assets of the sponsors in self-administered funds. The plan is funded consistent with local statutory requirements. On July 8, 2016, the Company established the Long Term Performance UnitLTPU Plan (“LTPU Plan”) in order to promote the success of the Company by providing a select group of management and highly compensated employees with nonqualified supplemental retirement benefits as an additional means to attract, motivate and retain such employee.employees. A unit award has a base value of $50,000 for the purpose of determining the payment that would be made upon early termination for a partially vested unit awards. The units vest 25% on each anniversary date with the unit becoming fully vested on the fourth anniversary of the grant date, subject to the participant’s continued service as of each anniversary date. Each vested unit award will pay out an annual benefit of $25,000 for each of five years commencing on the seventh anniversary of the grant date. | | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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Deferred Compensation and Pension Plans The following tables reconcile the benefit obligation for the deferred compensation plans: | | | | Year Ended April 30, | | | Year Ended April 30, | | | | | 2017 | | 2016 | | 2015 | | | 2019 | | | 2018 | | | | | (in thousands) | | | (in thousands) | | Change in benefit obligation: | | | | | | | | | | | | | | | Benefit obligation, beginning of year | | $ | 124,566 | | | $ | 89,138 | | | $ | 86,577 | | | $ | 126,494 | | | $ | 121,042 | | Service cost | | | 5,507 | | | | — | | | | — | | | | 17,281 | | | | 11,373 | | Interest cost | | | 3,820 | | | 3,423 | | | 2,989 | | | | 5,044 | | | | 3,787 | | Actuarial (gain) loss | | | (4,791 | ) | | 4,393 | | | 5,864 | | | Acquisitions | | | — | | | 39,079 | | | | — | | | Settlements | | | — | | | (4,799 | ) | | | — | | | Actuarial loss (gain) | | | | 7,803 | | | | (1,574 | ) | Administrative expenses paid | | | | (272 | ) | | | (166 | ) | Benefits paid from plan assets | | | (1,884 | ) | | (595 | ) | | | — | | | | (1,877 | ) | | | (1,833 | ) | Benefits paid from cash | | | (6,176 | ) | | (6,073 | ) | | (6,292 | ) | | | (6,104 | ) | | | (6,135 | ) | | | | | | | | | | | | Benefit obligation, end of year | | | 121,042 | | | 124,566 | | | 89,138 | | | | 148,369 | | | | 126,494 | | | | | | | | | | | | | | | | | | | | | | | Change in fair value of plan assets: | | | | | | | | | | | | | | | Fair value of plan assets, beginning of year | | | 24,867 | | | | — | | | | — | | | | 26,090 | | | | 25,446 | | Actual return on plan assets | | | 2,463 | | | (78 | ) | | | — | | | | 1,160 | | | | 2,425 | | Benefits paid from plan assets | | | (1,884 | ) | | (595 | ) | | | — | | | | (1,877 | ) | | | (1,833 | ) | Acquisitions | | | — | | | 25,540 | | | | — | | | | | | | | | | | | | | Administrative expenses paid | | | | (272 | ) | | | (166 | ) | Employer contributions | | | | 30 | | | | 218 | | Fair value of plan assets, end of year | | | 25,446 | | | 24,867 | | | | — | | | | 25,131 | | | | 26,090 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Funded status and balance, end of year (1) | | $ | (95,596 | ) | | $ | (99,699 | ) | | $ | (89,138 | ) | | $ | (123,238 | ) | | $ | (100,404 | ) | | | | | | | | | | | | | | | | | | | | Current liability | | $ | 6,182 | | | $ | 5,845 | | | $ | 5,832 | | | $ | 8,331 | | | $ | 6,496 | | Non-current liability | | | 89,414 | | | 93,854 | | | 83,306 | | | | 114,907 | | | | 93,908 | | | | | | | | | | | | | Total liability | | $ | 95,596 | | | $ | 99,699 | | | $ | 89,138 | | | $ | 123,238 | | | $ | 100,404 | | | | | | | | | | | | | | | | | | | | | Plan Assets - weighted-average asset allocation: | | | | | | | | | | | | | | | Debt securities | | | | 54 | % | | | 55 | % | Equity securities | | | 54 | % | | 64 | % | | — | % | | | 45 | % | | | 44 | % | Debt securities | | | 46 | % | | 31 | % | | — | % | | Other | | | — | % | | 5 | % | | — | % | | | 1 | % | | | 1 | % | | | | | | | | | | | | Total | | | 100 | % | | 100 | % | | — | % | | | 100 | % | | | 100 | % | | | | | | | | | | | |
(1) | 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 funding benefits under such plans. As of April 30, 2017, 20162019 and 2015,2018, the Company held contracts with gross CSV of $180.3 million, $175.7$219.2 million and $172.3$186.8 million, offset by outstanding policy loans of $67.2 million, $68.4$93.2 million and $69.6$66.7 million, respectively. |
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| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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F-26
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) Significant changes affecting pension benefit obligations in 2019 compared to 2018 primarily included actuarial loss in 2019 due to a change in discount rate, update of census data and change in the mortality assumption that affect the assumptions used to value liabilities. The mortality assumption reflects a change from the use of the MP-2017 improvement scale to MP-2018 improvement scale, and from the use of no collar base tables to “top quartile” and white-collar base tables for some of our plans. The fair value measurements of the defined benefit plan assets fall within the following levels of the fair value hierarchy as of April 30, 20172019 and 2016:2018: | | | | | | | | | | | | | | | | | | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | | | (in thousands) | | April 30, 2017: | | | | | | | | | | | | | | | | | Mutual funds | | $ | — | | | $ | 25,446 | | | $ | — | | | $ | 25,446 | | Common stock | | | — | | | | — | | | | — | | | | — | | Corporate and municipal bonds | | | — | | | | — | | | | — | | | | — | | U.S. Treasury and agency securities | | | — | | | | — | | | | — | | | | — | | Money market funds | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | Total | | $ | — | | | $ | 25,446 | | | $ | — | | | $ | 25,446 | | | | | | | | | | | | | | | | | | | | | | | | April 30, 2016: | | | | | | | | | | | | | | | | | Mutual funds | | $ | 7,990 | | | $ | — | | | $ | — | | | $ | 7,990 | | Common stock | | | 7,910 | | | | — | | | | — | | | | 7,910 | | Corporate and municipal bonds | | | — | | | | 5,597 | | | | — | | | | 5,597 | | U.S. Treasury and agency securities | | | — | | | | 2,055 | | | | — | | | | 2,055 | | Money market funds | | | 1,315 | | | | — | | | | — | | | | 1,315 | | | | | | | | | | | | | | | | | | | Total | | $ | 17,215 | | | $ | 7,652 | | | $ | — | | | $ | 24,867 | | | | | | | | | | | | | | | | | | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | | (in thousands) | | April 30, 2019: | | | | | | | | | | | | | | | | | Mutual funds | | $ | — | | | $ | 24,931 | | | $ | — | | | $ | 24,931 | | Money market funds | | | 200 | | | | — | | | | — | | | | 200 | | Total | | $ | 200 | | | $ | 24,931 | | | $ | — | | | $ | 25,131 | | | | | | | | | | | | | | | | | | | April 30, 2018: | | | | | | | | | | | | | | | | | Mutual funds | | $ | — | | | $ | 25,899 | | | $ | — | | | $ | 25,899 | | Money market funds | | | 191 | | | | — | | | | — | | | | 191 | | Total | | $ | 191 | | | $ | 25,899 | | | $ | — | | | $ | 26,090 | |
Plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and investment return over the long term. The investment goal is a return on assets that is at least equal to the assumed actuarial rate of return over the long term within reasonable and prudent levels of risk. Investment policies reflect the unique circumstances of the respective plans and include requirements designed to mitigate risk including quality and diversification standards. Asset allocation targets are reviewed periodically with investment advisors to determine the appropriate investment strategies for acceptable risk levels. Our target allocation ranges are as follows: equity securities 50%40% to 70%50%, debt securities 30%45% to 50%55% and other assets of 0% to 10%. We establish our estimatedlong-term long‑term return on plan assets considering various factors, including the targeted asset allocation percentages, historic returns and expected future returns. In fiscal 2017, the Company changed the method of achieving the target allocation by investing in mutual funds that are only available to institutional investors rather than owning specific equity and debt instruments as was done in previous years. The mutual funds are valued at fair value as determined by the net asset value of shares held at year-end. The components of net periodic benefits costs are as follows: | | | | Year Ended April 30, | | | Year Ended April 30, | | | | | 2017 | | 2016 | | 2015 | | | 2019 | | | 2018 | | | 2017 | | | | | (in thousands) | | | (in thousands) | | Service cost | | $ | 5,507 | | | $ | — | | | $ | — | | | $ | 17,281 | | | $ | 11,373 | | | $ | 5,402 | | Interest cost | | | 3,820 | | | 3,423 | | | 2,989 | | | | 5,044 | | | | 3,787 | | | | 3,925 | | Amortization of actuarial loss | | | 3,051 | | | 2,924 | | | 3,050 | | | | 1,798 | | | | 2,308 | | | | 3,051 | | Expected return on plan assets | | | (1,559 | ) | | (682 | ) | | | — | | | | (1,568 | ) | | | (1,594 | ) | | | (1,559 | ) | | | | | | | | | | | | Net periodic benefit cost | | $ | 10,819 | | | $ | 5,665 | | | $ | 6,039 | | | | | | | | | | | | | | Net periodic benefit cost (1) | | | $ | 22,555 | | | $ | 15,874 | | | $ | 10,819 | |
(1) | The service cost, interest cost and other components of net periodic benefit costs are included in compensation and benefits expense, interest expense, net and other income, net, respectively, on the consolidated statements of income. |
The weighted-average assumptions used in calculating the benefit obligations were as follows: | | | | Year Ended April 30, | | | Year Ended April 30, | | | | | 2017 | | 2016 | | 2015 | | | 2019 | | | 2018 | | | 2017 | | Discount rate, beginning of year | | | 3.18 | % | | 3.28 | % | | 3.60 | % | | | 3.93 | % | | | 3.57 | % | | | 3.18 | % | Discount rate, end of year | | | 3.57 | % | | 3.18 | % | | 3.28 | % | | | 3.57 | % | | | 3.93 | % | | | 3.57 | % | Rate of compensation increase | | | 0.00 | % | | 0.00 | % | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | Expected long-term rates of return on plan assets | | | 6.50 | % | | 6.50 | % | | — | % | | | 6.00 | % | | | 6.25 | % | | | 6.50 | % |
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| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017
F-27
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) |
At April 30, 2017,Benefit payments, which reflect expected future service, as appropriate, are expected to be paid over the next ten years as follows:
Year Ending April 30, | | Deferred Retirement Plans | | | | (in thousands) | | 2020 | | $ | 10,595 | | 2021 | | | 10,507 | | 2022 | | | 10,068 | | 2023 | | | 9,305 | | 2024 | | | 19,150 | | 2025-2029 | | | 165,527 | |
Medical and Life Insurance Plan In conjunction with the acquisition of Hay Group, the Company electedinherited a benefit plan which offers medical and life insurance coverage to change126 participants. In fiscal 2018, the method it usesCompany amended the plan and required any active participants that were not yet eligible for benefits to estimateretire within a short time frame in order to receive any benefits from the interestplan. As a result of the amendment, participants eligible to the plan declined and servicethe Company reduced the benefit obligation by $4.0 million against other comprehensive income (loss) during fiscal 2018. The medical and life insurance benefit plan is unfunded. The following table reconciles the benefit obligation for the medical and life insurance plan: | | Year End April 30, | | | | 2019 | | | 2018 | | | | (in thousands) | | Change in benefit obligation: | | | | | | | | | Benefit obligation, beginning of year | | $ | 7,157 | | | $ | 12,147 | | Plan amendment | | | — | | | | (4,008 | ) | Service cost | | | — | | | | 91 | | Interest cost | | | 243 | | | | 369 | | Actuarial loss (gain) | | | 520 | | | | (875 | ) | Benefits paid | | | (610 | ) | | | (567 | ) | Benefit obligation, end of year | | $ | 7,310 | | | $ | 7,157 | | | | | | | | | | | Current liability | | $ | 643 | | | $ | 668 | | Non-current liability | | | 6,667 | | | | 6,489 | | Total liability | | $ | 7,310 | | | $ | 7,157 | |
The components of net periodic cost for its defined benefit pension and supplemental benefit plans, which will impact the estimate of net periodic cost beginning in fiscal 2018. benefits costs are as follows: | | Year Ended April 30, | | | | 2019 | | | 2018 | | | 2017 | | | | (in thousands) | | Service cost | | $ | — | | | $ | 91 | | | $ | 150 | | Interest cost | | | 243 | | | | 369 | | | | 431 | | Net periodic service credit amortization | | | (308 | ) | | | (308 | ) | | | — | | Amortization of actuarial gain | | | (14 | ) | | | — | | | | — | | Net periodic benefit cost (1) | | $ | (79 | ) | | $ | 152 | | | $ | 581 | |
| (1) | The service cost, interest cost and the other components of net periodic benefit costs are included in compensation and benefits expense, interest expense, net and other income, net, respectively, on the consolidated statements of income. |
F-28
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) The Company will utilize a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curveweighted-average assumptions used in calculating the determination of the benefit obligation to the relevant projected cash flows. Previously, the Company estimated the interestmedical and service cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. This change compared to the previous method will impact the interest and service components of net periodic cost in future periods. The Company made this change to provide a more precise measurement of interest and service costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This change does not affect the measurement of the total benefit obligationlife insurance plan were as the change in the interest and service costs is offset in net actuarial gains and losses. The impact to interest and service costs is not expected to be significant. The Company will account for this change prospectively as a change in accounting estimate.follows: | | Year Ended April 30, | | | | 2019 | | | 2018 | | | 2017 | | Discount rate, beginning of year | | | 3.94 | % | | | 3.75 | % | | | 3.36 | % | Discount rate, end of year | | | 3.67 | % | | | 3.94 | % | | | 3.75 | % | Healthcare care cost trend rate | | | 6.50 | % | | | 7.00 | % | | | 7.00 | % |
Benefit payments, which reflect expected future service, as appropriate, are expected to be paid over the next ten years as follows: | | | | | Year Ending April 30, | | Deferred Retirement
Plans | | | | | (in thousands) | | 2018 | | $ | 8,906 | | 2019 | | | 9,148 | | 2020 | | | 9,653 | | 2021 | | | 9,163 | | 2022 | | | 9,122 | | 2023-2027 | | | 83,403 | |
During fiscal 2018, the Company expects to recognize $2.3 million in net periodic benefit expense from deferred compensation and pension plans that will be transferred from accumulated other comprehensive income through the amortization of actuarial losses in the consolidated statements of income.
Medical and Life Insurance
In conjunction with the acquisition of Legacy Hay on December 1, 2015, the Company inherited a benefit plan which offers medical and life insurance coverage to approximately 190 participants. Medical and life insurance benefit plans are unfunded.
The following table reconciles the benefit obligation for the medical and life insurance plan:
| | | | | | | | | | | | Year End April 30, | | | | | 2017 | | | 2016 | | | | | (in thousands) | | Change in benefit obligation: | | | | | | | | | Benefit obligation, beginning of year | | $ | 13,006 | | | $ | — | | Acquisitions | | | — | | | | 12,322 | | Service cost | | | 155 | | | | 62 | | Interest cost | | | 426 | | | | 208 | | Actuarial (gain) loss | | | (833 | ) | | | 816 | | Benefits paid | | | (607 | ) | | | (402 | ) | | | | | | | | | | Benefit obligation, end of year | | $ | 12,147 | | | $ | 13,006 | | | | | | | | | | | Current liability | | $ | 765 | | | $ | 673 | | Non-current liability | | | 11,382 | | | | 12,333 | | | | | | | | | | | Total liability | | $ | 12,147 | | | $ | 13,006 | | | | | | | | | | |
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| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
|
Year Ending April 30, | | Medical and Life Insurance | | | | (in thousands) | | 2020 | | $ | 651 | | 2021 | | | 646 | | 2022 | | | 632 | | 2023 | | | 616 | | 2024 | | | 597 | | 2025-2029 | | | 2,542 | |
The components of net periodic benefits costs are as follows:
| | | | | | | | | | | | Year Ended April 30, | | | | | 2017 | | | 2016 | | | | | (in thousands) | | Service cost | | $ | 155 | | | $ | 62 | | Interest cost | | | 426 | | | | 208 | | | | | | | | | | | Net periodic benefit cost | | $ | 581 | | | $ | 270 | | | | | | | | | | |
The weighted-average assumptions used in calculating the Medical and Life Insurance plan were as follows:
| | | | | | | | | | | | Year Ended April 30, | | | | | 2017 | | | 2016 | | Discount rate, beginning of year or acquisition date | | | 3.36 | % | | | 4.10 | % | Discount rate, end of year | | | 3.75 | % | | | 3.36 | % | Healthcare care cost trend rate | | | 7.00 | % | | | 7.00 | % |
Benefit payments, which reflect expected future service, as appropriate, are expected to be paid over the next ten years as follows:
| | | | | Year Ending April 30, | | Medical and Life
Insurance | | | | | (in thousands) | | 2018 | | $ | 770 | | 2019 | | | 781 | | 2020 | | | 804 | | 2021 | | | 820 | | 2022 | | | 828 | | 2023-2027 | | | 4,102 | |
The current health care cost trend rate assumption is 7.0%. We anticipate that the health care cost trend rate assumption will be 5.0% by fiscal 2022. Increasing the assumed health care cost trend rate by one-percentage point would increase the accumulated postretirement benefit obligation for the medical and life insurance plan by less than $0.1 million. Decreasing the assumed health care cost trend rate by one-percentage point would decrease the accumulated postretirement benefit obligation for the medical and life insurance plan by less than $0.1 million.
International Retirement Plans The Company also maintains various retirement plans and other miscellaneous deferred compensation arrangements in 2123 foreign jurisdictions. The aggregate of the long-term benefit obligation accrued at April 30, 20172019 and 20162018 is $12.0$14.7 million for 1,7102,777 participants and is $15.4$13.7 million for 1,4502,423 participants, respectively. The Company’s contribution to these plans was $9.3$13.3 million and $5.1$11.8 million in fiscal 20172019 and 2016,2018, respectively. Executive Capital Accumulation Plan The Company’s ECAP is intended to provide certain employees an opportunity to defer salary and/or bonus on a pre-tax basis or make an after-tax contribution.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 five year period. Participants have the ability to allocate their deferrals among a number of investment options and may receive their benefits at termination, retirement or ‘in service’ either in a lump sum or in quarterly installments over one to 15 years. The ECAP amounts that are expected to be paid to employees over the next 12 months are classified as a current liability included in compensation and benefits payable on the accompanying consolidated balance sheet. | | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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sheets. The Company issued ECAP awards during fiscal 2019, 2018 and 2017 2016 and 2015, of $8.5 million, $6.2 million $23.2 million and $19.1$6.2 million, respectively. 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 fiscal 20172019, 2018, and 2015,2017, the deferred compensation liability increased; therefore, the Company recognized compensation expense of $10.6$8.7 million, $11.1 million, and $5.9$10.6 million, respectively. Offsetting the increases in compensation and benefits liability was an increase in the fair value of marketable securities classified as trading (held in trust to satisfy obligations of the ECAP liabilities) of $10.8$8.1 million, $10.3 million, and $8.8$10.8 million in fiscal 20172019, 2018, and 2015,2017, respectively, recorded in other income, (loss), net on the consolidated statements of income. During fiscal 2016, the deferred compensation liability decreased; therefore, the Company recognized a credit to compensation expense of $1.7 million, offset by a decrease in the fair value of marketable securities classified as trading (held in trust to satisfy obligations of the ECAP liabilities) of $3.3 million, recorded in other income (loss), net on the consolidated statements of income. F-29
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) Changes in the ECAP liability were as follows: | | | | Year Ended April 30, | | | Year Ended April 30, | | | | | 2017 | | 2016 | | | 2019 | | | 2018 | | | | | (in thousands) | | | (in thousands) | | Balance, beginning of year | | $ | 105,676 | | | $ | 99,461 | | | $ | 128,430 | | | $ | 111,584 | | Employee contributions | | | 5,349 | | | 7,015 | | | | 4,852 | | | | 5,036 | | Amortization of employer contributions | | | 13,667 | | | 16,439 | | | | 9,573 | | | | 12,175 | | Gain (loss) on investment | | | 10,565 | | | (1,654 | ) | | Gain on investment | | | | 8,697 | | | | 11,095 | | Employee distributions | | | (23,044 | ) | | (15,201 | ) | | | (20,891 | ) | | | (11,923 | ) | Exchange rate fluctuations | | | (629 | ) | | (384 | ) | | | (500 | ) | | | 463 | | | | | | | | | | Balance, end of year | | | 111,584 | | | 105,676 | | | | 130,161 | | | | 128,430 | | Less: current portion | | | (4,496 | ) | | (11,092 | ) | | | (8,844 | ) | | | (14,827 | ) | | | | | | | | | Non-current portion | | $ | 107,088 | | | $ | 94,584 | | | $ | 121,317 | | | $ | 113,603 | | | | | | | | | |
As of April 30, 20172019 and 2016,2018, the unamortized portion of the Company contributions to the ECAP was $25.5$16.8 million and $33.2$19.2 million, respectively. Defined Contribution Plan The Company has a defined contribution plan (“401(k) plan”) for eligible employees. Participants may contribute up to 50% of their base compensation as defined in the plan agreement. In addition, the Company has the option to make matching contributions. The Company intends to make matching contributions related to fiscal 20172019 in fiscal 2018.2020. The Company made a $1.8$2.7 million matching contribution in fiscal 20172019 related to contributions made by employees in fiscal 20162018 and a $1.7$2.3 million matching contribution in fiscal 20162018 related to contributions made by employees in fiscal 2015.2017. Company Owned Life Insurance 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 funding benefits under such plans. The gross CSV of these contracts of $180.3$219.2 million and $175.7$186.8 million as of April 30, 20172019 and 2016,2018, respectively, is offset by outstanding policy loans of $67.2$93.2 million and $68.4$66.7 million in the accompanying consolidated balance sheets as of April 30, 20172019 and 2016,2018, respectively. Total death benefits payable, net of loans under COLI contracts, were $220.6$223.6 million and $216.7$226.0 million at April 30, 20172019 and 2016,2018, respectively. Management intends to use the future death benefits from these insurance contracts to fund the deferred compensation and pension arrangements; however, there may not be a direct correlation between the timing of the future cash receipts and disbursements under these arrangements. The CSV value of the underlying COLI investments increased by $4.9$6.2 million, $4.0$7.8 million and $10.5$4.9 million during fiscal 2017, 20162019, 2018 and 2015,2017, respectively, recorded as a decrease in compensation and benefits expense. In addition, certain policies are held in trusts to provide additional benefit | | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
|
security for the deferred compensation and pension plans. As of April 30, 2017,2019, COLI contracts with a net CSV of $59.5$115.7 million and death benefits, net of loans, of $99.9$178.7 million were held in trust for these purposes. 7. Restructuring Charges, NetFee Revenue DuringSubstantially all fee revenue is derived from fees for professional services related to executive and professional recruitment performed on a retained basis, recruitment process outsourcing, talent and organizational advisory services and the sale of products, standalone or as part of a solution. The Company adopted ASC 606 in its fiscal 2016,year beginning May 1, 2018 using the modified retrospective transition method applied to those contracts still outstanding and not completed as of May 1, 2018. The impact of the adoption of ASC 606 to the balance sheet was immaterial.
Contract Balances A contract asset (unbilled receivables) is recorded when the Company implemented a restructuring plantransfers 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 order to rationalize its cost structure by eliminating redundant positions and consolidating office space due to the acquisitionadvance of Legacy Hay on December 1, 2015. This resulted in restructuring charges, net of $33.0 million in fiscal 2016, of which $32.1 million related to severance and $0.9 million, related to consolidation/abandonment of premises. The Company continued the implementationperformance of the fiscal 2016 restructuring planobligation. 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 fiscal 2017 in order to integrate the Hay Group entities that were acquired in fiscal 2016 by eliminating redundant positions and operational, general and administrative expenses and consolidating premises. This resulted in restructuring charges of $34.6 million in fiscal 2017 of which $16.0 million related to severance and $18.6 million related to consolidation of premises.
During fiscal 2015, the Company took actions to rationalize its cost structure as a result of efficiencies obtained from prior year technology investments that enabled further integration of the legacy business and the recent acquisitions (PDI and Global Novations, LLC) as well as other cost saving initiatives. This resulted in restructuring charges, net of $9.5 million against operations in fiscal 2015, of which $9.2 million related to severance and $0.3 million, related to consolidation/abandonment of premises.
Changes in the restructuring liability were as follows:
| | | | | | | | | | | | | | | | Severance | | | Facilities | | | Total | | | | | (in thousands) | | Liability as of April 30, 2015 | | $ | 375 | | | $ | 771 | | | $ | 1,146 | | Restructuring charges, net | | | 32,151 | | | | 862 | | | | 33,013 | | Reductions for cash payments | | | (25,625 | ) | | | (834 | ) | | | (26,459 | ) | Non-cash items | | | (1,752 | ) | | | (91 | ) | | | (1,843 | ) | Exchange rate fluctuations | | | 144 | | | | (39 | ) | | | 105 | | | | | | | | | | | | | | | Liability as of April 30, 2016 | | | 5,293 | | | | 669 | | | | 5,962 | | Restructuring charges, net | | | 15,963 | | | | 18,637 | | | | 34,600 | | Reductions for cash payments | | | (14,974 | ) | | | (8,703 | ) | | | (23,677 | ) | Non-cash items | | | — | | | | (2,024 | ) | | | (2,024 | ) | Exchange rate fluctuations | | | (941 | ) | | | (225 | ) | | | (1,166 | ) | | | | | | | | | | | | | | Liability as of April 30, 2017 | | $ | 5,341 | | | $ | 8,354 | | | $ | 13,695 | | | | | | | | | | | | | | |
As of April 30, 2017 and 2016, the restructuring liability is included in the current portion of other accrued liabilities on the consolidated balance sheets, except for $4.6sheet.
F-30
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) The following table outlines our contract asset and liability balances as of April 30, 2019 and May 1, 2018: | | April 30, 2019 | | | May 1, 2018 | | | | (in thousands) | | Contract assets (unbilled receivables) | | $ | 60,595 | | | $ | 65,164 | | Contract liabilities (deferred revenue) | | $ | 112,999 | | | $ | 114,695 | |
During the year ended April 30, 2019, we recognized revenue of $97.0 million and $0.6 million, respectively, of facilities costs which primarily relate to commitments under operating leases, net of estimated sublease income, which arethat was included in other long-term liabilities.the contract liabilities balance at the beginning of the period. | | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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Performance ObligationsThe 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 April 30, 2019, 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 $539.5 million. Of the $539.5 million of remaining performance obligations, we expect to recognize approximately $307.7 million as fee revenue in fiscal 2020, $132.2 million in fiscal 2021, $77.4 million in fiscal 2022 and the remaining $22.2 million in fiscal 2023 and thereafter. However, this amount should not be considered an indication of the Company’s future revenue as contracts with an initial term of one year or less are not included. Further, our contract terms and conditions allow for clients to increase or decrease the scope of services and such changes do not increase or decrease a performance obligation until the Company has an enforceable right to payment. 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 11—Segments. The following table provides further disaggregation of fee revenue by industry: The restructuring liability by segment is summarized below:
| | Year Ended April 30, | | | | 2019 | | | 2018 | | | 2017 | | | | Dollars | | | % | | | Dollars | | | % | | | Dollars | | | % | | | | (dollars in thousands) | | Industrial | | $ | 561,029 | | | | 29.1 | % | | $ | 530,547 | | | | 30.0 | % | | $ | 459,732 | | | | 29.4 | % | Financial Services | | | 349,968 | | | | 18.2 | | | | 305,047 | | | | 17.3 | | | | 257,671 | | | | 16.4 | | Life Sciences/Healthcare | | | 323,091 | | | | 16.8 | | | | 294,999 | | | | 16.7 | | | | 273,493 | | | | 17.5 | | Consumer Goods | | | 297,676 | | | | 15.5 | | | | 276,979 | | | | 15.7 | | | | 263,671 | | | | 16.8 | | Technology | | | 260,918 | | | | 13.5 | | | | 226,142 | | | | 12.8 | | | | 198,867 | | | | 12.7 | | Education/Non-Profit | | | 122,524 | | | | 6.3 | | | | 120,809 | | | | 6.8 | | | | 99,978 | | | | 6.4 | | General | | | 10,827 | | | | 0.6 | | | | 12,694 | | | | 0.7 | | | | 12,109 | | | | 0.8 | | Fee Revenue | | $ | 1,926,033 | | | | 100.0 | % | | $ | 1,767,217 | | | | 100.0 | % | | $ | 1,565,521 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | April 30, 2017 | | | | | Severance | | | Facilities | | | Total | | | | | (in thousands) | | Executive Search | | | | | | | | | | | | | North America | | $ | 134 | | | $ | 250 | | | $ | 384 | | Europe, Middle East and Africa (“EMEA”) | | | 393 | | | | — | | | | 393 | | Asia Pacific | | | — | | | | 6 | | | | 6 | | Latin America | | | — | | | | 87 | | | | 87 | | | | | | | | | | | | | | | Total Executive Search | | | 527 | | | | 343 | | | | 870 | | Hay Group | | | 4,814 | | | | 7,879 | | | | 12,693 | | Futurestep | | | — | | | | 132 | | | | 132 | | | | | | | | | | | | | | | Liability as of April 30, 2017 | | $ | 5,341 | | | $ | 8,354 | | | $ | 13,695 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | April 30, 2016 | | | | | Severance | | | Facilities | | | Total | | | | | (in thousands) | | Executive Search | | | | | | | | | | | | | North America | | $ | — | | | $ | 5 | | | $ | 5 | | EMEA | | | 1,533 | | | | 23 | | | | 1,556 | | Asia Pacific | | | 33 | | | | — | | | | 33 | | | | | | | | | | | | | | | Total Executive Search | | | 1,566 | | | | 28 | | | | 1,594 | | Hay Group | | | 3,727 | | | | 396 | | | | 4,123 | | Futurestep | | | — | | | | 245 | | | | 245 | | | | | | | | | | | | | | | Liability as of April 30, 2016 | | $ | 5,293 | | | $ | 669 | | | $ | 5,962 | | | | | | | | | | | | | | |
8. Income Taxes The
Income from continuing operations before provision for income taxes is based on reported income before income taxes. Deferred income tax assets and liabilities reflect the impactequity in earnings of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes,unconsolidated subsidiaries was as measured by applying the currently enacted tax laws.follows: | | Year Ended April 30, | | | | 2019 | | | 2018 | | | 2017 | | | | (in thousands) | | Domestic | | $ | (22,350 | ) | | $ | 46,867 | | | $ | 5,539 | | Foreign | | | 156,379 | | | | 158,866 | | | | 110,470 | | Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries | | $ | 134,029 | | | $ | 205,733 | | | $ | 116,009 | |
F-31
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) The provision (benefit) for domestic and foreign income taxes was as follows: | | Year Ended April 30, | | | | 2019 | | | 2018 | | | 2017 | | | | (in thousands) | | Current income taxes: | | | | | | | | | | | | | Federal | | $ | 6,152 | | | $ | 29,400 | | | $ | (2,026 | ) | State | | | 9,097 | | | | 2,863 | | | | 1,207 | | Foreign | | | 42,091 | | | | 44,434 | | | | 23,334 | | Current provision for income taxes | | | 57,340 | | | | 76,697 | | | | 22,515 | | Deferred income taxes: | | | | | | | | | | | | | Federal | | | (16,211 | ) | | | (3,530 | ) | | | 3,341 | | State | | | (7,682 | ) | | | (317 | ) | | | 341 | | Foreign | | | (3,903 | ) | | | (2,717 | ) | | | 2,907 | | Deferred (benefit) provision for income taxes | | | (27,796 | ) | | | (6,564 | ) | | | 6,589 | | Total provision for income taxes | | $ | 29,544 | | | $ | 70,133 | | | $ | 29,104 | |
| | | | | | | | | | | | | | | | Year Ended April 30, | | | | | 2017 | | | 2016 | | | 2015 | | | | | (in thousands) | | Current income taxes: | | | | | | | | | | | | | Federal | | $ | (2,026 | ) | | $ | 13,087 | | | $ | 16,569 | | State | | | 1,207 | | | | 3,271 | | | | 2,412 | | Foreign | | | 23,334 | | | | 16,394 | | | | 13,650 | | | | | | | | | | | | | | | Current provision for income taxes | | | 22,515 | | | | 32,752 | | | | 32,631 | | Deferred income taxes: | | | | | | | | | | | | | Federal | | | 3,341 | | | | (5,334 | ) | | | 3,140 | | State | | | 341 | | | | (1,838 | ) | | | (239 | ) | Foreign | | | 2,907 | | | | (6,620 | ) | | | (2,006 | ) | | | | | | | | | | | | | | Deferred provision (benefit) for income taxes | | | 6,589 | | | | (13,792 | ) | | | 895 | | | | | | | | | | | | | | | Total provision for income taxes | | $ | 29,104 | | | $ | 18,960 | | | $ | 33,526 | | | | | | | | | | | | | | |
| | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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The domestic and foreign components of income from continuing operations before domestic and foreign income and other taxes and equity in earnings of unconsolidated subsidiaries were as follows:
| | | | | | | | | | | | | | | | Year Ended April 30, | | | | | 2017 | | | 2016 | | | 2015 | | | | | (in thousands) | | Domestic | | $ | 5,539 | | | $ | 22,228 | | | $ | 65,885 | | Foreign | | | 110,470 | | | | 26,534 | | | | 53,817 | | | | | | | | | | | | | | | Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries | | $ | 116,009 | | | $ | 48,762 | | | $ | 119,702 | | | | | | | | | | | | | | |
The reconciliation of the statutory federal income tax rate to the effective consolidated tax rate is as follows: | | | | | | | | | | | | | | | | Year Ended April 30, | | | | | 2017 | | | 2016 | | | 2015 | | U.S. federal statutory income tax rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | Non-deductible transaction costs | | | — | | | | 5.8 | | | | — | | Foreign tax rates differential | | | (9.1 | ) | | | (2.8 | ) | | | (4.2 | ) | COLI increase, net | | | (1.5 | ) | | | (2.9 | ) | | | (3.1 | ) | Conclusion of U.S. federal tax audit | | | — | | | | (4.4 | ) | | | — | | Non-deductible operating expenses | | | 0.6 | | | | 1.5 | | | | 0.5 | | Devaluation of Venezuelan currency | | | — | | | | 7.4 | | | | — | | Change in valuation allowance | | | (3.1 | ) | | | (6.2 | ) | | | — | | Change in uncertain tax positions | | | — | | | | 1.3 | | | | (0.1 | ) | Foreign source income, net of credits generated | | | (0.1 | ) | | | 0.5 | | | | 0.4 | | Other | | | 3.3 | | | | 3.7 | | | | (0.5 | ) | | | | | | | | | | | | | | Effective income tax rate | | | 25.1 | % | | | 38.9 | % | | | 28.0 | % | | | | | | | | | | | | | |
| | Year Ended April 30, | | | | 2019 | | | 2018 | | | 2017 | | U.S. federal statutory income tax rate | | | 21.0 | % | | | 30.4 | % | | | 35.0 | % | Foreign tax rates differential | | | 5.0 | | | | (2.3 | ) | | | (9.1 | ) | Transition tax | | | — | | | | 9.0 | | | | — | | Deferred tax remeasurement | | | — | | | | (2.4 | ) | | | — | | Non-deductible officers compensation | | | 1.1 | | | | — | | | | — | | Excess tax benefit on stock-based compensation | | | (3.1 | ) | | | — | | | | — | | Change in valuation allowance | | | (2.0 | ) | | | (2.3 | ) | | | (3.1 | ) | Other | | | — | | | | 1.7 | | | | 2.3 | | Effective income tax rate | | | 22.0 | % | | | 34.1 | % | | | 25.1 | % |
The 21% corporate income tax rate enacted as part of the 2017 Tax Act went fully into effect in our fiscal 2019. In fiscal 2018, the Company was subject to a federal blended rate of 30.4% (35% in the eight months prior to enactment and 21% in the four months after). Our lower effective tax rate in fiscal 2017 was due primarily2019 is partially attributable to a higher percentage of taxablethe reduced U.S. federal income arising in jurisdictions with lower statutory tax rates. The effective tax rate in fiscal 2016 was higher largely due to the impact of non-deductible expenses incurredas well as a tax benefit recorded in connection with stock-based compensation. In the acquisition of Legacy Hay and non-deductible charges related to the devaluation of the Venezuelan currency. In bothlast three fiscal 2017 and 2016,years, the Company recorded an income tax benefit from the reversal of valuation allowances previously recorded against deferred tax assets, including net operating losses, of certain foreign subsidiaries that have returned to profitability and are now more-likely-than-not to realize those deferred tax assets. | | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017In fiscal 2018, the Company recorded a provisional tax charge of $18.4 million for the one-time tax on accumulated foreign earnings (the “Transition Tax”) and a provisional tax benefit of $5.9 million from the remeasurement of our U.S. federal deferred tax assets and liabilities at the rate at which we expected these deferred tax balances to be realized. In accordance with Staff Accounting Bulletin No. 118 (“SAB 118”), we finalized our computation of the Transition Tax and remeasurement of deferred tax balances in fiscal 2019 and determined that the provisional estimates recorded in the fiscal 2018 do not require adjustment. Although the SAB 118 measurement period has closed, and the Company did not make any adjustments to its provisional estimates recorded in prior periods, further technical guidance on a broad range of topics related to the Tax Act is expected. When applicable, we will recognize the effects of such guidance in the period in which it is issued.
The Tax Act also introduced a tax on Global Intangible Low-Taxed Income (“GILTI”) which first became effective in fiscal 2019. The Company has elected to treat taxes due on future U.S. inclusions in taxable income related to GILTI as an expense when incurred (the “period cost method”) as opposed to factoring such amounts in the Company’s measurement of its deferred taxes (the “deferred method”). F-32
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) |
Components of deferred tax assets and liabilities arewere as follows: | | | | April 30, | | | April 30, | | | | | 2017 | | 2016 | | | 2019 | | | 2018 | | | | | (in thousands) | | | (in thousands) | | Deferred tax assets: | | | | | | | | | | | | | Deferred compensation | | $ | 92,043 | | | $ | 91,712 | | | $ | 75,521 | | | $ | 67,852 | | Loss and credit carryforwards | | | 32,854 | | | 31,023 | | | Loss carryforwards | | | | 22,467 | | | | 22,297 | | Reserves and accruals | | | 14,095 | | | 14,189 | | | | 12,954 | | | | 13,945 | | Deferred rent | | | 9,797 | | | 7,684 | | | | 7,652 | | | | 6,827 | | Deferred revenue | | | 2,434 | | | 11,464 | | | | 1,090 | | | | 1,793 | | Allowance for doubtful accounts | | | 1,705 | | | 1,431 | | | | 3,217 | | | | 2,296 | | Other | | | 3,041 | | | 5,002 | | | | — | | | | 982 | | | | | | | | | | Gross deferred tax assets | | | 155,969 | | | 162,505 | | | | 122,901 | | | | 115,992 | | | | | | | | | | Deferred tax liabilities: | | | | | | | | | | | | | Intangibles | | | (90,214 | ) | | (94,284 | ) | | | (28,958 | ) | | | (57,046 | ) | Property and equipment | | | (11,507 | ) | | (10,603 | ) | | | (15,883 | ) | | | (5,000 | ) | Prepaid expenses | | | (17,324 | ) | | (12,698 | ) | | | (20,152 | ) | | | (19,123 | ) | Other | | | (2,485 | ) | | (815 | ) | | | (1,759 | ) | | | (2,726 | ) | | | | | | | | | Gross deferred tax liabilities | | | (121,530 | ) | | (118,400 | ) | | | (66,752 | ) | | | (83,895 | ) | | | | | | | | | Valuation allowances | | | (21,278 | ) | | (22,030 | ) | | | (14,032 | ) | | | (15,682 | ) | | | | | | | | | Net deferred tax asset | | $ | 13,161 | | | $ | 22,075 | | | $ | 42,117 | | | $ | 16,415 | | | | | | | | | |
Deferred tax assets are reduced by a valuation allowance if it is more-likely-than-not that some portion or all of the deferred tax assetassets will not be realized. Management believes uncertainty exists regarding the realizability of certain operating losses and has, therefore, established a valuation allowance for this portion of the deferred tax asset. Realization of the deferred income tax asset is dependent on the Company generating sufficient taxable income of the appropriate nature in future years. Although realization is not assured, management believes that it is more likely than notthan-not that the net deferred income tax assets will be realized. Deferred tax assets and deferred tax liabilities are presented net on the consolidated balance sheets by tax jurisdiction. As of April 30, 2017,2019, the Company had U.S. federal net operating loss carryforwards of $3.6$2.9 million, which the Company anticipates will be fully utilized by fiscal 2028. The Company has state net operating loss carryforwards of $23.3$39.8 million, which, if unutilized, will begin to expire in fiscal 2018.2020. The Company also has foreign net operating loss carryforwards of $108.4$79.9 million, which, if unutilized, will begin to expire in fiscal 2018. The Company also has foreign tax credit carryforwards of $3.0 million, which, if unutilized, will expire in 2027.2020. The Company has not provided for U.S. taxes or foreign withholding taxes onWe continue to consider approximately $359.3$555.4 million of undistributed earnings of itsour foreign subsidiaries asto be indefinitely reinvested, and, accordingly, have provided no taxes on such earnings other than the Transition Tax. While we do not anticipate a need to repatriate funds to the U.S. to satisfy domestic liquidity needs, we review our cash positions regularly and, to the extent we determine that all or a portion of our foreign earnings are intended to benot indefinitely reinvested, indefinitely. If a distribution of these earnings were to be made, the Company might be subject to bothwe provide additional taxes, if applicable, including foreign withholding taxes and U.S. state income taxes, net of any allowable foreign tax credits or deductions. An estimate of these taxes, however, is not practicable.taxes.
The Company and its subsidiaries file federal and state income tax returns in the U.S. as well as in foreign jurisdictions. These income tax returns are subject to audit by the Internal Revenue Service (the ‘IRS’“IRS”) and various state and foreign tax authorities. In December 2015, theThe IRS has concluded an examinationits audit of the Company’sour fiscal year 2013 U.S.2016 federal income tax return. The State of California isNew York and the City of New York are currently auditing the Company’s state income tax returns for various fiscal years 2013 and 2014.years. Outside the United States,U.S., income tax returns of the Company’s subsidiaries are under audit in Canada, Germany and India. The Company’s income tax returns are not otherwise under examination in any material jurisdictions. The statute of limitations varies by jurisdiction in which the Company operates. With few exceptions, however, the Company’s tax returns for years prior to fiscal 20112013 are no longer open to examination by tax authorities (including U.S. federal, state and foreign). | | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017F-33
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) |
Unrecognized tax benefits are the differences between the amount of benefits of tax positions taken, or expected to be taken, on a tax return and the amount of benefits recognized for financial reporting purposes. As of April 30, 2017,2019, the Company had a liability of $2.5$7.8 million for unrecognized tax benefits. A reconciliation of the beginning and ending balances of the unrecognized tax benefits is as follows: | | | | Year Ended April 30, | | | Year Ended April 30, | | | | | 2017 | | | 2016 | | 2015 | | | 2019 | | | 2018 | | | 2017 | | | | | (in thousands) | | | (in thousands) | | Unrecognized tax benefits, beginning of year | | $ | 2,095 | | | $ | 2,423 | | | $ | 2,701 | | | $ | 3,674 | | | $ | 2,478 | | | $ | 2,095 | | Settlement with tax authority | | | — | | | | (1,963 | ) | | (497 | ) | | | (1,771 | ) | | | (708 | ) | | | — | | Additions based on tax positions related to the current year | | | 383 | | | | 1,305 | | | 219 | | | | 1,775 | | | | 1,116 | | | | 383 | | Additions based on tax positions related to prior years | | | — | | | | 330 | | | | — | | | | 4,116 | | | | 788 | | | | — | | | | | | | | | | | | | Unrecognized tax benefits, end of year | | $ | 2,478 | | | $ | 2,095 | | | $ | 2,423 | | | $ | 7,794 | | | $ | 3,674 | | | $ | 2,478 | | | | | | | | | | | | |
The liability for unrecognized tax benefits is included in income taxes payable in the consolidated balance sheets.
The full amount of unrecognized tax benefits would impact the effective tax rate if recognized. In the next twelve12 months, it is reasonably possible that the Company’s unrecognized tax benefits could change due to the resolution of certain tax matters which could include paymentseither because the tax positions are sustained on those tax matters.audit or the Company agrees to their disallowance. These resolutions and payments could reduce the Company’s liability for unrecognized tax benefits balance by approximately $0.3$3.7 million. The Company does not expect a change in the amount of unrecognized tax benefits to have a material financial statement impact. The Company classifies interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. The Company had accruals of $0.4 million and $0.3 million for interest related to unrecognized tax benefits as of April 30, 2019 and 2018, respectively. The Company had no accrual for interest or penalties related to unrecognized tax benefits as of April 30, 20172019 and 2018. The Company recognized interest expense of $0.1 million, $0.3 million and $0.1 million during the years ended April 30, 2016. The Company accrued approximately $0.1 million of interest related to unrecognized tax benefits over the last three fiscal years.2019, 2018 and 2017, respectively. 9. Property and Equipment, Net Property and equipment include the following: | | | | April 30, | | | April 30, | | | | | 2017 | | 2016 | | | 2019 | | | 2018 | | | | | (in thousands) | | | (in thousands) | | Computer equipment and software (1) | | $ | 160,399 | | | $ | 148,769 | | | $ | 220,894 | | | $ | 191,437 | | Leasehold improvements | | | 75,921 | | | 59,858 | | | | 84,368 | | | | 82,467 | | Furniture and fixtures | | | 39,848 | | | 43,069 | | | | 42,318 | | | | 42,889 | | Automobiles | | | 1,956 | | | 2,103 | | | | 1,022 | | | | 1,305 | | | | | | | | | | | 348,602 | | | | 318,098 | | | | | 278,124 | | | 253,799 | | | Less: accumulated depreciation and amortization | | | (168,557 | ) | | (158,363 | ) | | | (217,097 | ) | | | (198,197 | ) | | | | | | | | | Property and equipment, net | | $ | 109,567 | | | $ | 95,436 | | | $ | 131,505 | | | $ | 119,901 | | | | | | | | | |
(1) | Depreciation expense for capitalized software was $12.6$14.6 million, $11.3$12.8 million and $9.0$12.6 million during fiscal 2017, 20162019, 2018 and 2015,2017, respectively. The net book value of the Company’s computer software costs included in property and equipment, net was $33.2$65.8 million and $32.3$46.4 million as of April 30, 20172019 and 2016,2018, respectively. |
Depreciation expense for property and equipment was $31.9$33.0 million, $24.5$33.8 million and $19.4$31.9 million during fiscal 2017, 20162019, 2018 and 2015,2017, respectively. 10. Long-Term Debt On June 15, 2016,December 19, 2018, the Company entered into a senior secured $400 millionan Amended and Restated Credit Agreement (the “Credit Agreement”) with a syndicate of banks and Wells Fargo Bank, National Association as administrative agent to among other things, provide for enhanced financial flexibility and in recognition of the accelerated pace of the Hay Group integration.flexibility. The Credit Agreement provides for, among other things: (a) a senior secured term loan facility in an aggregate principal amount of $275 $650.0 million (the “ Term Facility”), (b) afive-year senior secured revolving credit facility (the “Revolver”) and together with the Term Facility, the “Credit Facilities”) in an aggregate principal amount of $125 million, (c) annual term loan amortization of 7.5%, 7.5%, 10.0%, 10.0%, and 10.0%, with the remaining principal due at | | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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maturity, (d)(b) certain customary affirmative and negative covenants, including a maximum consolidated total leverage ratio (as defined below) and a minimum interest coverage ratio, and (e) an expanded definition of permitted add-backs to Adjusted EBITDA in recognition ofratio. The Credit Agreement permits the accelerated integration actions. The Company’s credit agreement permits payment of dividends to stockholders and makeCompany share repurchases so long as the pro forma leverage ratio is no greater than 2.50 3.25 to 1.00, and the pro forma domestic liquidity is at least $50.0 million. The Company drew down $275$226.9 million on the new term loanRevolver and used $140 million of the proceeds to pay-off
F-34
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) the term loan that was outstanding as of April 30, 2016.December 19, 2018. The remaining fundspayoff of the old credit facility and draw down on the new Revolver are considered a debt modification and therefore, the previously incurred unamortized and current debt issuance costs will be used for working capitalamortized over the life of the new issuance. The principal balance of the revolver is due on the date of its termination. The Revolver matures on December 19, 2023 and general corporate purposes. Principal payments underany unpaid principal balance is payable on this date. The Revolver may also be prepaid and terminated early by the term facility are as follows:Company at any time without premium or penalty (subject to customary LIBOR breakage fees). | | | | | Year Ending April 30, | | Principal
Payments on
Term Loan | | | | | (in thousands) | | 2018 | | $ | 20,625 | | 2019 | | | 25,781 | | 2020 | | | 27,500 | | 2021 | | | 27,500 | | 2022 | | | 158,125 | | | | | | | | | $ | 259,531 | | | | | | |
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 FacilitiesAgreement may fluctuate between LIBOR plus 1.25% per annum to LIBOR plus 2.00% per annum, in the case of LIBOR borrowings (or between the alternate base rate plus 0.25% per annum and the alternate base rate plus 1.00% per annum, in the alternative), based upon the Company’s total funded debt to adjustedAdjusted EBITDA ratio (as set forth in the Credit Agreement, the “consolidated leverage ratio”) at such time. In addition, the Company will be required to pay to the lenders a quarterly commitment fee ranging from 0.20% to 0.35% per annum on the average daily unused amount of the Term Facility,Revolver, based upon the Company’s consolidated leverage ratio at such time, and fees relating to the issuance of letters of credit. During fiscal 2017,2019 the average interest rate on our long-term debt arrangements was 3.50%. During fiscal 2018 the Term Facilityaverage interest rate on our previous term loan was 2.23%2.60%. Both the Revolver and the Term Facility mature on June 15, 2021, and may be prepaid and terminated early by the Company at any time without premium or penalty (subject to customary LIBOR breakage fees). The Term Facility is payable in quarterly installments with the final installment consisting of all remaining unpaid principal due on the Term Facility Maturity date of June 15, 2021. The Company made $15.5 million in principal payments during fiscal 2017. As of April 30, 2017, $259.52019, $226.9 million was outstanding under the Term FacilityRevolver compared to $140.0$238.9 million as of April 30, 2016,2018, under the previous facility.term loan. The unamortized debt issuance costs associated with the long-term debt were $4.0 million and $2.7 million as of April 30, 2019 and April 30, 2018, respectively. The fair value of the Company’s Term FacilityRevolver is based on borrowing rates currently required of loans with similar terms, maturity and credit risk. The carrying amount of the Term FacilityRevolver approximates fair value because the base interest rate charged varies with market conditions and the credit spread is commensurate with current market spreads for issuers of similar risk. The fair value of the Term FacilityRevolver is classified as a Level 2 liability in the fair value hierarchy. As of April 30, 2017,2019, the Company was in compliance with its debt covenants.
The Company had a total of $420.2 million available under the Revolver after the Company drew down $226.9 million and after $2.9 million of standby letters of credit were issued as of April 30, 2019.As of April 30, 2017 and 2016,2018, the Company had no borrowings under the Revolver. The Company had $3.0 million and $2.8 million of standby letters of credits issued under its long-term debt arrangements as of April 30, 2017 and 2016, respectively.previous revolver. The Company had a total of $8.1$122.1 million and $6.4available under the previous revolver after $2.9 million of standby letters of creditscredit were issued as of April 30, 2018. The Company had a total of $8.5 million and $7.4 million of standby letters with other financial institutions as of April 30, 20172019 and 2016,2018, respectively. The standby letters of credits were generally issued as a result of entering into office premise leases. The Company has outstanding borrowings against the CSV of COLI contracts of $67.2$93.2 million and $68.4$66.7 million at April 30, 20172019 and 2016,2018, respectively. CSV reflected in the accompanying consolidated balance sheets is net of the outstanding borrowings, which are secured by the CSV of the life insurance policies. Principal payments are not scheduled and interest is payable at least annually at various fixed and variable rates ranging from 4.76% to 8.00%. | | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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11. Business Segments The Company currently operates inthrough three global businesses:segments: Executive Search, Hay GroupAdvisory and Futurestep.RPO & Professional Search. The Executive Search segment focuses on recruiting Board of Directorboard level, chief executive and C-levelother senior executive and general management positions, in addition to research-based interviewing and onboarding solutions, for clients predominantly in the consumer goods, financial services, industrial, life sciences/healthcare and technology industries. Hay GroupAdvisory assists clients with ongoing assessment, compensationto synchronize strategy and development of their senior executives and management teams, and addressestalent by addressing four fundamental needs: TalentOrganizational Strategy, Assessment and Succession, Management, Leadership Development and Rewards Motivation and Engagement,Benefits, all underpinned by a comprehensive array of world-leading IP, products and tools. FuturestepRPO & Professional Search is a global industry leader in high-impact talent acquisition solutions. Its portfolio of services includes global and regional RPO, project recruitment, individual professional search and consulting. The Executive Search business segment is managed by geographic regional leaders and Hay GroupAdvisory and FuturestepRPO & Professional Search worldwide operations are managed by their Chief Executive Officers. The Executive Search geographic regional leaders and the Chief Executive Officers of Hay GroupAdvisory and FuturestepRPO & Professional Search report directly to the Chief Executive Officer of the Company. The Company also operates a Corporate segment to record global expenses of the Company. F-35
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) The Company evaluates performance and allocates resources based on the Company’s chief operating decision maker’s (“CODM”) 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, except the items described above are excluded from EBITDA to arrive at Adjusted EBITDA. For fiscal 2017, and 2016, Adjusted EBITDA includesincluded deferred revenue adjustment related to the Legacy Hay Group acquisition, reflecting revenue that the Hay GroupAdvisory would have realized if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue. For fiscal 2019 and 2018, management no longer had adjusted fee revenue. The accounting policies for the reportable segments are the same as those described in the summary of significant accounting policies, except the items described above are excluded from EBITDA to arrive at Adjusted EBITDA. | | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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Financial highlights by businessoperating segment are as follows: | | | | Year Ended April 30, 2017 | | | Year Ended April 30, 2019 | | | | | Executive Search | | | | | | | | | | | Executive Search | | | | | | | | | | | | | | | | | | | | | North
America | | EMEA | | Asia
Pacific | | Latin
America | | Subtotal | | Hay
Group | | Futurestep | | Corporate | | Consolidated | | | North America | | | EMEA | | | Asia Pacific | | | Latin America | | | Subtotal | | | Advisory | | | RPO & Professional Search | | | Corporate | | | Consolidated | | | | | (in thousands) | | | (in thousands) | | Fee revenue | | $ | 356,625 | | | $ | 146,506 | | | $ | 80,169 | | | $ | 34,376 | | | $ | 617,676 | | | $ | 724,186 | | | $ | 223,659 | | | $ | — | | | $ | 1,565,521 | | | $ | 455,826 | | | $ | 182,829 | | | $ | 104,291 | | | $ | 31,896 | | | $ | 774,842 | | | $ | 821,048 | | | $ | 330,143 | | | $ | — | | | $ | 1,926,033 | | Deferred revenue adjustment due to acquisition | | | — | | | | — | | | | — | | | | — | | | | — | | | 3,535 | | | | — | | | | — | | | 3,535 | | | Total revenue | | | $ | 469,743 | | | $ | 186,131 | | | $ | 105,543 | | | $ | 31,960 | | | $ | 793,377 | | | $ | 838,620 | | | $ | 341,865 | | | $ | — | | | $ | 1,973,862 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted fee revenue | | $ | 356,625 | | | $ | 146,506 | | | $ | 80,169 | | | $ | 34,376 | | | $ | 617,676 | | | $ | 727,721 | | | $ | 223,659 | | | $ | — | | | $ | 1,569,056 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total revenue | | $ | 369,803 | | | $ | 150,113 | | | $ | 81,744 | | | $ | 34,533 | | | $ | 636,193 | | | $ | 741,533 | | | $ | 243,943 | | | $ | — | | | $ | 1,621,669 | | | Net income attributable to Korn/Ferry International | | | | | | | | | | | | | | | | | | $ | 84,181 | | | Net income attributable to Korn Ferry | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 102,651 | | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | 3,057 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,145 | | Other income, net | | | | | | | | | | | | | | | | | | (11,820 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (10,094 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | 10,251 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 16,891 | | Equity in earnings of unconsolidated subsidiaries, net | | | | | | | | | | | | | | | | | | (333 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (311 | ) | Income tax provision | | | | | | | | | | | | | | | | | | 29,104 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 29,544 | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss) | | $ | 81,550 | | | $ | 27,854 | | | $ | 8,580 | | | $ | 6,268 | | | $ | 124,252 | | | $ | 47,302 | | | $ | 29,986 | | | $ | (87,100 | ) | | $ | 114,440 | | | $ | 120,754 | | | $ | 29,974 | | | $ | 24,364 | | | $ | 3,998 | | | $ | 179,090 | | | $ | 5,617 | | | $ | 50,884 | | | $ | (94,765 | ) | | $ | 140,826 | | Depreciation and amortization | | 3,812 | | | 1,030 | | | 1,060 | | | 483 | | | 6,385 | | | 32,262 | | | 2,818 | | | 5,795 | | | 47,260 | | | | 3,890 | | | | 1,254 | | | | 1,428 | | | | 410 | | | | 6,982 | | | | 29,057 | | | | 3,255 | | | | 7,195 | | | | 46,489 | | Other income (loss), net | | 844 | | | (15 | ) | | 300 | | | 684 | | | 1,813 | | | 341 | | | (91 | ) | | 9,757 | | | 11,820 | | | | 6,388 | | | | 432 | | | | 281 | | | | 322 | | | | 7,423 | | | | 3,198 | | | | 268 | | | | (795 | ) | | | 10,094 | | Equity in earnings of unconsolidated subsidiaries, net | | 333 | | | | — | | | | — | | | | — | | | 333 | | | | — | | | | — | | | | — | | | 333 | | | | 311 | | | | — | | | | — | | | | — | | | | 311 | | | | — | | | | — | | | | — | | | | 311 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EBITDA | | 86,539 | | | 28,869 | | | 9,940 | | | 7,435 | | | 132,783 | | | 79,905 | | | 32,713 | | | (71,548 | ) | | 173,853 | | | | 131,343 | | | | 31,660 | | | | 26,073 | | | | 4,730 | | | | 193,806 | | | | 37,872 | | | | 54,407 | | | | (88,365 | ) | | | 197,720 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Restructuring charges, net | | 1,719 | | | 629 | | | 1,495 | | | 773 | | | 4,616 | | | 29,663 | | | 101 | | | 220 | | | 34,600 | | | Integration/acquisition cost | | | — | | | | — | | | | — | | | | — | | | | — | | | 14,440 | | | | — | | | 7,939 | | | 22,379 | | | Deferred revenue adjustment due to acquisition | | | — | | | | — | | | | — | | | | — | | | | — | | | 3,535 | | | | — | | | | — | | | 3,535 | | | Separation costs | | | — | | | | — | | | | — | | | | — | | | | — | | | 609 | | | | — | | | | — | | | 609 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Integration/acquisition costs | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 6,559 | | | | — | | | | 187 | | | | 6,746 | | Tradename write-offs | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 106,555 | | | | — | | | | — | | | | 106,555 | | Adjusted EBITDA | | $ | 88,258 | | | $ | 29,498 | | | $ | 11,435 | | | $ | 8,208 | | | $ | 137,399 | | | $ | 128,152 | | | $ | 32,814 | | | $ | (63,389 | ) | | $ | 234,976 | | | $ | 131,343 | | | $ | 31,660 | | | $ | 26,073 | | | $ | 4,730 | | | $ | 193,806 | | | $ | 150,986 | | | $ | 54,407 | | | $ | (88,178 | ) | | $ | 311,021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Identifiable assets (1) | | $ | 340,069 | | | $ | 158,927 | | | $ | 87,845 | | | $ | 26,897 | | | $ | 613,738 | | | $ | 1,057,611 | | | $ | 116,717 | | | $ | 274,832 | | | $ | 2,062,898 | | | $ | 427,089 | | | $ | 171,120 | | | $ | 116,006 | | | $ | 24,600 | | | $ | 738,815 | | | $ | 1,045,432 | | | $ | 166,492 | | | $ | 384,113 | | | $ | 2,334,852 | | Long-lived assets (1) | | $ | 23,746 | | | $ | 11,089 | | | $ | 8,371 | | | $ | 3,262 | | | $ | 46,468 | | | $ | 37,846 | | | $ | 6,693 | | | $ | 18,560 | | | $ | 109,567 | | | $ | 19,864 | | | $ | 9,266 | | | $ | 9,255 | | | $ | 2,711 | | | $ | 41,096 | | | $ | 46,689 | | | $ | 8,980 | | | $ | 34,740 | | | $ | 131,505 | | Goodwill (1) | | $ | 46,201 | | | $ | 44,976 | | | $ | 972 | | | $ | — | | | $ | 92,149 | | | $ | 457,241 | | | $ | 27,475 | | | $ | — | | | $ | 576,865 | | | $ | 46,571 | | | $ | 45,480 | | | $ | 972 | | | $ | — | | | $ | 93,023 | | | $ | 457,361 | | | $ | 27,914 | | | $ | — | | | $ | 578,298 | |
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| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended April 30, 2016 | | | | | Executive Search | | | | | | | | | | | | | | | | | North
America | | | EMEA | | | Asia
Pacific | | | Latin
America | | | Subtotal | | | Hay
Group | | | Futurestep | | | Corporate | | | Consolidated | | | | | (in thousands) | | Fee revenue | | $ | 371,345 | | | $ | 144,319 | | | $ | 80,506 | | | $ | 26,744 | | | $ | 622,914 | | | $ | 471,145 | | | $ | 198,053 | | | $ | — | | | $ | 1,292,112 | | Deferred revenue adjustment due to acquisition | | | — | | | | — | | | | — | | | | — | | | | — | | | | 10,967 | | | | — | | | | — | | | | 10,967 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted fee revenue | | $ | 371,345 | | | $ | 144,319 | | | $ | 80,506 | | | $ | 26,744 | | | $ | 622,914 | | | $ | 482,112 | | | $ | 198,053 | | | $ | — | | | $ | 1,303,079 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total revenue | | $ | 386,256 | | | $ | 148,285 | | | $ | 83,206 | | | $ | 26,781 | | | $ | 644,528 | | | $ | 488,217 | | | $ | 213,969 | | | $ | — | | | $ | 1,346,714 | | Net income attributable to Korn/Ferry International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 30,913 | | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 520 | | Other loss, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,167 | | Interest income, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (237 | ) | Equity in earnings of unconsolidated subsidiaries, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (1,631 | ) | Income tax provision | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 18,960 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss) | | $ | 100,381 | | | $ | 20,607 | | | $ | 12,572 | | | $ | (1,854 | ) | | $ | 131,706 | | | $ | (3,415 | ) | | $ | 26,702 | | | $ | (102,301 | ) | | $ | 52,692 | | Depreciation and amortization | | | 3,267 | | | | 1,029 | | | | 941 | | | | 312 | | | | 5,549 | | | | 21,854 | | | | 2,386 | | | | 6,431 | | | | 36,220 | | Other (loss) income, net | | | (147 | ) | | | 433 | | | | 21 | | | | 312 | | | | 619 | | | | (868 | ) | | | 364 | | | | (4,282 | ) | | | (4,167 | ) | Equity in earnings of unconsolidated subsidiaries, net | | | 437 | | | | — | | | | — | | | | — | | | | 437 | | | | — | | | | — | | | | 1,194 | | | | 1,631 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EBITDA | | | 103,938 | | | | 22,069 | | | | 13,534 | | | | (1,230 | ) | | | 138,311 | | | | 17,571 | | | | 29,452 | | | | (98,958 | ) | | | 86,376 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Restructuring charges, net | | | 499 | | | | 5,807 | | | | 577 | | | | 322 | | | | 7,205 | | | | 25,682 | | | | 49 | | | | 77 | | | | 33,013 | | Integration/acquisition costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | 17,607 | | | | — | | | | 27,802 | | | | 45,409 | | Venezuelan foreign currency loss | | | — | | | | — | | | | — | | | | 6,635 | | | | 6,635 | | | | 7,085 | | | | — | | | | — | | | | 13,720 | | Deferred revenue adjustment due to acquisition | | | — | | | | — | | | | — | | | | — | | | | — | | | | 10,967 | | | | — | | | | — | | | | 10,967 | | Separation costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 744 | | | | 744 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA | | $ | 104,437 | | | $ | 27,876 | | | $ | 14,111 | | | $ | 5,727 | | | $ | 152,151 | | | $ | 78,912 | | | $ | 29,501 | | | $ | (70,335 | ) | | $ | 190,229 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Identifiable assets (1) | | $ | 227,228 | | | $ | 150,516 | | | $ | 86,394 | | | $ | 24,273 | | | $ | 488,411 | | | $ | 1,005,457 | | | $ | 104,396 | | | $ | 300,336 | | | $ | 1,898,600 | | Long-lived assets (1) | | $ | 19,044 | | | $ | 4,817 | | | $ | 3,708 | | | $ | 1,479 | | | $ | 29,048 | | | $ | 42,974 | | | $ | 4,635 | | | $ | 18,779 | | | $ | 95,436 | | Goodwill (1) | | $ | 48,320 | | | $ | 46,193 | | | $ | 972 | | | $ | — | | | $ | 95,485 | | | $ | 465,937 | | | $ | 28,650 | | | $ | — | | | $ | 590,072 | |
| | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended April 30, 2015 | | | | | Executive Search | | | | | | | | | | | | | | | | | North
America | | | EMEA | | | Asia
Pacific | | | Latin
America | | | Subtotal | | | Hay
Group | | | Futurestep | | | Corporate | | | Consolidated | | | | | (in thousands) | | Fee revenue | | $ | 330,634 | | | $ | 153,465 | | | $ | 84,148 | | | $ | 29,160 | | | $ | 597,407 | | | $ | 267,018 | | | $ | 163,727 | | | $ | — | | | $ | 1,028,152 | | Total revenue | | $ | 344,913 | | | $ | 158,052 | | | $ | 87,142 | | | $ | 29,218 | | | $ | 619,325 | | | $ | 275,220 | | | $ | 171,521 | | | $ | — | | | $ | 1,066,066 | | Net income attributable to Korn/Ferry International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 88,357 | | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | Other income, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (7,458 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1,784 | | Equity in earnings of unconsolidated subsidiaries, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (2,181 | ) | Income tax provision | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 33,526 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss) | | $ | 80,818 | | | $ | 18,867 | | | $ | 14,631 | | | $ | 4,704 | | | $ | 119,020 | | | $ | 28,175 | | | $ | 19,940 | | | $ | (53,107 | ) | | $ | 114,028 | | Depreciation and amortization | | | 3,515 | | | | 1,764 | | | | 1,045 | | | | 350 | | | | 6,674 | | | | 13,427 | | | | 1,882 | | | | 5,614 | | | | 27,597 | | Other income (loss), net | | | 288 | | | | 83 | | | | 369 | | | | 109 | | | | 849 | | | | (22 | ) | | | 54 | | | | 6,577 | | | | 7,458 | | Equity in earnings of unconsolidated subsidiaries, net | | | 426 | | | | — | | | | — | | | | — | | | | 426 | | | | — | | | | — | | | | 1,755 | | | | 2,181 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EBITDA | | | 85,047 | | | | 20,714 | | | | 16,045 | | | | 5,163 | | | | 126,969 | | | | 41,580 | | | | 21,876 | | | | (39,161 | ) | | | 151,264 | | Restructuring charges, net | | | 1,151 | | | | 3,987 | | | | 17 | | | | 229 | | | | 5,384 | | | | 2,758 | | | | 1,154 | | | | 172 | | | | 9,468 | | Acquisition costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 959 | | | | 959 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA | | $ | 86,198 | | | $ | 24,701 | | | $ | 16,062 | | | $ | 5,392 | | | $ | 132,353 | | | $ | 44,338 | | | $ | 23,030 | | | $ | (38,030 | ) | | $ | 161,691 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Identifiable assets (1) | | $ | 327,446 | | | $ | 156,072 | | | $ | 94,099 | | | $ | 25,328 | | | $ | 602,945 | | | $ | 265,546 | | | $ | 103,782 | | | $ | 345,528 | | | $ | 1,317,801 | | Long-lived assets (1) | | $ | 17,271 | | | $ | 3,885 | | | $ | 4,235 | | | $ | 966 | | | $ | 26,357 | | | $ | 12,377 | | | $ | 4,204 | | | $ | 19,150 | | | $ | 62,088 | | Goodwill (1) | | $ | 49,603 | | | $ | 45,922 | | | $ | 972 | | | $ | — | | | $ | 96,497 | | | $ | 129,549 | | | $ | 28,394 | | | $ | — | | | $ | 254,440 | |
(1) | As of the end of the fiscal year. |
F-36
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) | | Year Ended April 30, 2018 | | | | Executive Search | | | | | | | | | | | | | | | | | | | | North America | | | EMEA | | | Asia Pacific | | | Latin America | | | Subtotal | | | Advisory | | | RPO & Professional Search | | | Corporate | | | Consolidated | | | | (in thousands) | | Fee revenue | | $ | 408,098 | | | $ | 173,725 | | | $ | 96,595 | | | $ | 30,624 | | | $ | 709,042 | | | $ | 785,013 | | | $ | 273,162 | | | $ | — | | | $ | 1,767,217 | | Total revenue | | $ | 421,260 | | | $ | 177,234 | | | $ | 98,062 | | | $ | 30,717 | | | $ | 727,273 | | | $ | 801,005 | | | $ | 291,241 | | | $ | — | | | $ | 1,819,519 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income attributable to Korn Ferry | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 133,779 | | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,118 | | Other income, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (11,119 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 13,832 | | Equity in earnings of unconsolidated subsidiaries, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (297 | ) | Income tax provision | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 70,133 | | Operating income (loss) | | $ | 100,397 | | | $ | 26,768 | | | $ | 18,425 | | | $ | 4,022 | | | $ | 149,612 | | | $ | 100,535 | | | $ | 39,396 | | | $ | (81,097 | ) | | $ | 208,446 | | Depreciation and amortization | | | 3,930 | | | | 1,689 | | | | 1,408 | | | | 455 | | | | 7,482 | | | | 31,527 | | | | 3,054 | | | | 6,525 | | | | 48,588 | | Other income, net | | | 845 | | | | 168 | | | | 373 | | | | 181 | | | | 1,567 | | | | 2,501 | | | | 152 | | | | 6,899 | | | | 11,119 | | Equity in earnings of unconsolidated subsidiaries, net | | | 297 | | | | — | | | | — | | | | — | | | | 297 | | | | — | | | | — | | | | — | | | | 297 | | EBITDA | | | 105,469 | | | | 28,625 | | | | 20,206 | | | | 4,658 | | | | 158,958 | | | | 134,563 | | | | 42,602 | | | | (67,673 | ) | | | 268,450 | | Restructuring charges (recoveries), net | | | — | | | | — | | | | 313 | | | | — | | | | 313 | | | | (241 | ) | | | 6 | | | | — | | | | 78 | | Integration/acquisition costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | 9,151 | | | | — | | | | 279 | | | | 9,430 | | Adjusted EBITDA | | $ | 105,469 | | | $ | 28,625 | | | $ | 20,519 | | | $ | 4,658 | | | $ | 159,271 | | | $ | 143,473 | | | $ | 42,608 | | | $ | (67,394 | ) | | $ | 277,958 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Identifiable assets (1) | | $ | 411,347 | | | $ | 198,815 | | | $ | 98,599 | | | $ | 23,832 | | | $ | 732,593 | | | $ | 1,092,474 | | | $ | 144,160 | | | $ | 318,687 | | | $ | 2,287,914 | | Long-lived assets (1) | | $ | 22,813 | | | $ | 11,018 | | | $ | 10,834 | | | $ | 3,203 | | | $ | 47,868 | | | $ | 42,605 | | | $ | 6,390 | | | $ | 23,038 | | | $ | 119,901 | | Goodwill (1) | | $ | 47,757 | | | $ | 47,501 | | | $ | 972 | | | $ | — | | | $ | 96,230 | | | $ | 458,169 | | | $ | 29,823 | | | $ | — | | | $ | 584,222 | |
(1) | As of the end of the fiscal year. |
F-37
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) | | Year Ended April 30, 2017 | | | | Executive Search | | | | | | | | | | | | | | | | | | | | North America | | | EMEA | | | Asia Pacific | | | Latin America | | | Subtotal | | | Advisory | | | RPO & Professional Search | | | Corporate | | | Consolidated | | | | (in thousands) | | Fee revenue | | $ | 356,625 | | | $ | 146,506 | | | $ | 80,169 | | | $ | 34,376 | | | $ | 617,676 | | | $ | 724,186 | | | $ | 223,659 | | | $ | — | | | $ | 1,565,521 | | Deferred revenue adjustment due to acquisition | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,535 | | | | — | | | | — | | | | 3,535 | | Adjusted fee revenue | | $ | 356,625 | | | $ | 146,506 | | | $ | 80,169 | | | $ | 34,376 | | | $ | 617,676 | | | $ | 727,721 | | | $ | 223,659 | | | $ | — | | | $ | 1,569,056 | | Total revenue | | $ | 369,803 | | | $ | 150,113 | | | $ | 81,744 | | | $ | 34,533 | | | $ | 636,193 | | | $ | 741,533 | | | $ | 243,943 | | | $ | — | | | $ | 1,621,669 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income attributable to Korn Ferry | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 84,181 | | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,057 | | Other income, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (10,328 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 14,607 | | Equity in earnings of unconsolidated subsidiaries, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (333 | ) | Income tax provision | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 29,104 | | Operating income (loss) | | $ | 81,621 | | | $ | 27,854 | | | $ | 8,580 | | | $ | 6,268 | | | $ | 124,323 | | | $ | 47,429 | | | $ | 29,995 | | | $ | (81,459 | ) | | $ | 120,288 | | Depreciation and amortization | | | 3,812 | | | | 1,030 | | | | 1,060 | | | | 483 | | | | 6,385 | | | | 32,262 | | | | 2,818 | | | | 5,795 | | | | 47,260 | | Other income (loss), net | | | 844 | | | | (15 | ) | | | 300 | | | | 684 | | | | 1,813 | | | | 1,900 | | | | (91 | ) | | | 6,706 | | | | 10,328 | | Equity in earnings of unconsolidated subsidiaries, net | | | 333 | | | | — | | | | — | | | | — | | | | 333 | | | | — | | | | — | | | | — | | | | 333 | | EBITDA | | | 86,610 | | | | 28,869 | | | | 9,940 | | | | 7,435 | | | | 132,854 | | | | 81,591 | | | | 32,722 | | | | (68,958 | ) | | | 178,209 | | Restructuring charges, net | | | 1,719 | | | | 629 | | | | 1,495 | | | | 773 | | | | 4,616 | | | | 29,663 | | | | 101 | | | | 220 | | | | 34,600 | | Integration/acquisition costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | 14,440 | | | | — | | | | 7,939 | | | | 22,379 | | Deferred revenue adjustment due to acquisition | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,535 | | | | — | | | | — | | | | 3,535 | | Separation costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | 609 | | | | — | | | | — | | | | 609 | | Adjusted EBITDA | | $ | 88,329 | | | $ | 29,498 | | | $ | 11,435 | | | $ | 8,208 | | | $ | 137,470 | | | $ | 129,838 | | | $ | 32,823 | | | $ | (60,799 | ) | | $ | 239,332 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Identifiable assets (1) | | $ | 340,069 | | | $ | 158,927 | | | $ | 87,845 | | | $ | 26,897 | | | $ | 613,738 | | | $ | 1,057,611 | | | $ | 116,717 | | | $ | 274,832 | | | $ | 2,062,898 | | Long-lived assets (1) | | $ | 23,746 | | | $ | 11,089 | | | $ | 8,371 | | | $ | 3,262 | | | $ | 46,468 | | | $ | 37,846 | | | $ | 6,693 | | �� | $ | 18,560 | | | $ | 109,567 | | Goodwill (1) | | $ | 46,201 | | | $ | 44,976 | | | $ | 972 | | | $ | — | | | $ | 92,149 | | | $ | 457,241 | | | $ | 27,475 | | | $ | — | | | $ | 576,865 | |
(1) | As of the end of the fiscal year. |
Fee revenue attributed to an individual customer or country, other than the U.S., and United Kingdom, did not account for more than 10% of the total fee revenue in fiscal year 2017, 20162019, 2018 or 2015.2017. Fee revenue classified by country in which the Company derives revenues are as follows: | | | | Year Ended April 30, | | | Year Ended April 30, | | | | | 2017 | | | 2016 | | | 2015 | | | 2019 | | | 2018 | | | 2017 | | | | | (in thousands) | | | (in thousands) | | U.S. | | $ | 728,871 | | | $ | 669,585 | | | $ | 557,024 | | | $ | 859,969 | | | $ | 778,470 | | | $ | 728,871 | | United Kingdom | | | | 202,055 | | | | 176,091 | | | | 145,551 | | Other countries | | | 836,650 | | | | 622,527 | | | | 471,128 | | | | 864,009 | | | | 812,656 | | | | 691,099 | | | | | | | | | | | | | Total fee revenue | | $ | 1,565,521 | | | $ | 1,292,112 | | | $ | 1,028,152 | | | $ | 1,926,033 | | | $ | 1,767,217 | | | $ | 1,565,521 | | | | | | | | | | | | |
| | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017
F-38
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) |
Other than the U.S., no single country controlled over 10% of the total long-lived assets, excluding financial instruments and tax assets. Long-lived assets, excluding financial instruments and tax assets, classified by controlling countries over 10% of the totalcountry are as follows: | | | | Year Ended April 30, | | | Year Ended April 30, | | | | | 2017 | | | 2016 | | | 2015 | | | 2019 | | | 2018 | | | 2017 | | | | | (in thousands) | | | (in thousands) | | U.S. (1) | | $ | 70,949 | | | $ | 64,525 | | | $ | 50,103 | | | $ | 98,455 | | | $ | 80,424 | | | $ | 70,949 | | Other countries | | | 38,618 | | | | 30,911 | | | | 11,985 | | | | 33,050 | | | | 39,477 | | | | 38,618 | | | | | | | | | | | | | Total long-lived assets | | $ | 109,567 | | | $ | 95,436 | | | $ | 62,088 | | | $ | 131,505 | | | $ | 119,901 | | | $ | 109,567 | | | | | | | | | | | | |
(1) | Includes Corporate long-lived assets |
12. AcquisitionsRestructuring Charges, Net The following is a summary of acquisitionsDuring fiscal 2016, the Company completed during the periods indicated (no acquisitions were completedimplemented a restructuring plan in fiscal 2017):
| | | | | | | | | | | | Year Ended April 30, | | | | | 2016 (1) | | | 2015 (2) | | | | | (in thousands) | | Receivables due from clients | | $ | 116,509 | | | $ | 3,085 | | Other current assets | | | 15,587 | | | | 56 | | Property and equipment | | | 29,428 | | | | 202 | | Intangible assets | | | 196,400 | | | | 6,600 | | Other non-current assets | | | 7,345 | | | | 18 | | Current liabilities | | | 125,640 | | | | 2,635 | | Deferred compensation and other retirement plans | | | 31,400 | | | | — | | Deferred tax liabilities | | | 58,729 | | | | — | | Other liabilities | | | 8,536 | | | | 56 | | | | | | | | | | | Net assets acquired | | | 140,964 | | | | 7,270 | | Purchase price | | | 476,885 | | | | 17,496 | | | | | | | | | | | Goodwill | | $ | 335,921 | | | $ | 10,226 | | | | | | | | | | | Integration/acquisition costs | | $ | 45,409 | | | $ | 959 | | | | | | | | | | | | | | Goodwill by segment – Hay Group | | $ | 335,921 | | | $ | 10,226 | | | | | | | | | | |
(1) | On December 1, 2015, the Company completed its acquisition of Legacy Hay, a global leader in people strategy and organizational performance, for $476.9 million, net of cash acquired. The purchase price consisted of $259.0 million in cash ($54 million from foreign locations), net of estimated cash acquired and 5,922,136 shares of the Company’s common stock, par value $0.01 per share (the “Consideration Shares”), representing an aggregate value of $217.9 million based on the closing price of the Company’s common stock on The New York Stock Exchange on November 30, 2015. On November 23, 2015, the Company borrowed $150 million from the Term Facility, to finance a portion of the Legacy Hay acquisition purchase price. As part of the acquisition, the Company has committed to a $40 million retention pool (of which $9.0 million was paid in fiscal 2017) for certain employees of Legacy Hay subject to certain circumstances. Of the remaining balance, 50% will be payable within 45 days after November 30, 2017 and the remaining 50% will be payable within 45 days after November 30, 2018. |
| The acquisition strengthens the Company’s intellectual property, enhances our geographical presence, adds complimentary capabilities to further leverage search relationships and broadens capabilities for assessment and development. It improves our ability to support the global business community not only in attracting top talent and designing compensation and reward incentives, but also with an integrated approach to the entire leadership and people continuum. Actual results of operations of Legacy Hay are included in the Company’s consolidated financial statements from December 1, 2015, the effective date of the acquisition, and includes $186.8 million, $740.2 million and $28.5 million in fee revenue, total assets and Adjusted EBITDA, respectively, with an Adjusted EBITDA margin of 14.4%, during fiscal 2016. Legacy Hay is included in the Hay Group segment. |
| | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
|
(2) | On March 1, 2015, the Company acquired all outstanding membership interests of Pivot Leadership, a global provider of innovative, customized and scalable executive development programs, for $17.5 million, net of cash acquired, which includes $2.2 million in contingent consideration. As of April 30, 2017 and 2016, the fair value of the contingent consideration is $1.3 million and $3.0 million and is included in other liabilities in the accompanying consolidated balance sheets. The contingent consideration is based on the achievement of certain revenue targets and can be up to $6.5 million, payable in four installments in fiscal 2017 to 2020. In fiscal 2017, the Company paid $1.1 millionorder to rationalize its cost structure by eliminating redundant positions and consolidating office space due to meeting certain revenue targets. The acquisition allows us to integrate the Company’s talent management solution with Pivot’s executive learning capabilities. Actual results of operations of Pivot Leadership are included in the Company’s consolidated financial statements from March 1, 2015, the effective date of the acquisition, and includes $3.7 million and $20.0 million in fee revenue and total assets, respectively, during fiscal 2015. Tax deductible goodwill from the Pivot Leadership acquisition was $7.4 million as of April 30, 2017 and 2016. |
The aggregate purchase price for Legacy Hay was allocated on a preliminary basis to the assets acquired and liabilities assumed on their estimated fair values at the date of acquisition. During fiscal 2017, the Company finalized the purchase price allocation by recording a decrease to goodwill of $8.2 million primarily as a result of tax returns filed for periods prior to the acquisition and an increase in other assets.
Pro forma financial information (unaudited)
Unaudited pro forma consolidated fee revenue was $1.6 billion for bothof Hay Group on December 1, 2015. The Company continued the implementation of the fiscal 2016 restructuring plan in fiscal 2017 and 2015,2018. This resulted in restructuring charges of $0.1 million in fiscal 2018 related to the consolidation of premises and unaudited pro forma consolidatedrestructuring charges of $34.6 million in fiscal 2017, of which $16.0 million related to severance and $18.6 million related to the consolidation of premises. No restructuring charges, net income was $23 million and $75 million forwere incurred in fiscal 2016 and 2015, respectively, as though the acquisition of Legacy Hay had occurred as of the beginning of fiscal 2015. The unaudited pro forma financial information is for illustrative purposes and is not indicative of the results of operations that would have been realized if the acquisition had been completed on the date indicated, nor is it indicative of future operating results.
The unaudited pro forma results primarily include adjustments for amortization charges for acquired intangible assets and property and equipment, compensation expense for retention awards and imputed interest expense on Term Facility and the related tax effect on the aforementioned items.2019.
13. Goodwill and Intangible Assets Changes in the carrying value of goodwill by reportable segment were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Executive Search | | | | | | | | | | | | | | North
America | | | EMEA | | | Asia
Pacific | | | Subtotal | | | Hay Group | | | Futurestep | | | Consolidated | | | | | (in thousands) | | Balance as of May 1, 2015. | | $ | 49,603 | | | $ | 45,922 | | | $ | 972 | | | $ | 96,497 | | | $ | 129,549 | | | $ | 28,394 | | | $ | 254,440 | | Additions | | | — | | | | — | | | | — | | | | — | | | | 335,921 | | | | — | | | | 335,921 | | Exchange rate fluctuations. | | | (1,283 | ) | | | 271 | | | | — | | | | (1,012 | ) | | | 467 | | | | 256 | | | | (289 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of April 30, 2016. | | | 48,320 | | | | 46,193 | | | | 972 | | | | 95,485 | | | | 465,937 | | | | 28,650 | | | | 590,072 | | Adjustments | | | — | | | | — | | | | — | | | | — | | | | (8,179 | ) | | | — | | | | (8,179 | ) | Exchange rate fluctuations. | | | (2,119 | ) | | | (1,217 | ) | | | — | | | | (3,336 | ) | | | (517 | ) | | | (1,175 | ) | | | (5,028 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of April 30, 2017. | | $ | 46,201 | | | $ | 44,976 | | | $ | 972 | | | $ | 92,149 | | | $ | 457,241 | | | $ | 27,475 | | | $ | 576,865 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Executive Search | | | | | | | | | | | | | | | | North America | | | EMEA | | | Asia Pacific | | | Subtotal | | | Advisory | | | RPO & Professional Search | | | Consolidated | | | | (in thousands) | | Balance as of May 1, 2017 | | $ | 46,201 | | | $ | 44,976 | | | $ | 972 | | | $ | 92,149 | | | $ | 457,241 | | | $ | 27,475 | | | $ | 576,865 | | Exchange rate fluctuations | | | 1,556 | | | | 2,525 | | | | — | | | | 4,081 | | | | 928 | | | | 2,348 | | | | 7,357 | | Balance as of April 30, 2018 | | | 47,757 | | | | 47,501 | | | | 972 | | | | 96,230 | | | | 458,169 | | | | 29,823 | | | | 584,222 | | Exchange rate fluctuations | | | (1,186 | ) | | | (2,021 | ) | | | — | | | | (3,207 | ) | | | (808 | ) | | | (1,909 | ) | | | (5,924 | ) | Balance as of April 30, 2019 | | $ | 46,571 | | | $ | 45,480 | | | $ | 972 | | | $ | 93,023 | | | $ | 457,361 | | | $ | 27,914 | | | $ | 578,298 | |
| | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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Tax deductible goodwill from the PIVOT Leadership acquisition was $7.1 million and $7.0 million as of April 30, 2019 and 2018, respectively. Intangible assets include the following: | | | | April 30, 2017 | | April 30, 2016 | | | April 30, 2019 | | | April 30, 2018 | | | | | (in thousands) | | | (in thousands) | | | Amortized intangible assets: | | Gross | | Accumulated
Amortization | | Net | | Gross | | Accumulated
Amortization | | Net | | | Gross | | | Accumulated Amortization | | | Net | | | Gross | | | Accumulated Amortization | | | Net | | Customer lists | | $ | 125,099 | | | $ | (31,094 | ) | | $ | 94,005 | | | $ | 125,099 | | | $ | (19,910 | ) | | $ | 105,189 | | | $ | 125,099 | | | $ | (53,352 | ) | | $ | 71,747 | | | $ | 125,099 | | | $ | (42,248 | ) | | $ | 82,851 | | Intellectual property | | 33,100 | | | (16,994 | ) | | 16,106 | | | 33,100 | | | (13,281 | ) | | 19,819 | | | | 33,100 | | | | (22,045 | ) | | | 11,055 | | | | 33,100 | | | | (20,112 | ) | | | 12,988 | | Proprietary databases | | 4,256 | | | (3,202 | ) | | 1,054 | | | 4,256 | | | (2,777 | ) | | 1,479 | | | | 4,256 | | | | (4,053 | ) | | | 203 | | | | 4,256 | | | | (3,628 | ) | | | 628 | | Non-compete agreements | | | | 910 | | | | (893 | ) | | | 17 | | | | 910 | | | | (873 | ) | | | 37 | | Trademarks | | 3,986 | | | (3,986 | ) | | | — | | | 3,986 | | | (3,986 | ) | | | — | | | | 3,986 | | | | (3,986 | ) | | | — | | | | 3,986 | | | | (3,986 | ) | | | — | | Non-compete agreements | | 910 | | | (833 | ) | | 77 | | | 910 | | | (753 | ) | | 157 | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 167,351 | | | $ | (56,109 | ) | | 111,242 | | | $ | 167,351 | | | $ | (40,707 | ) | | 126,644 | | | $ | 167,351 | | | $ | (84,329 | ) | | | 83,022 | | | $ | 167,351 | | | $ | (70,847 | ) | | | 96,504 | | | | | | | | | | | | | | | | | | | | Unamortized intangible assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Trademarks | Trademarks | | | 106,000 | | | | | | | 106,000 | | | | | | | | | | | | — | | | | | | | | | | | | 106,000 | | Exchange rate fluctuations | Exchange rate fluctuations | | | 77 | | | | | | | 383 | | | | | | | | | | | | (74 | ) | | | | | | | | | | | 712 | | | | | | | | | | | | | | | | | | Total Intangible assets | Total Intangible assets | | | $ | 217,319 | | | | | | | $ | 233,027 | | | | | | | | | | | $ | 82,948 | | | | | | | | | | | $ | 203,216 | | | | | | | | | | | | | | | | | |
Acquisition-related
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KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) During fiscal 2019, the Company decided to further integrate our go-to-market activities under one master brand —Korn Ferry, and discontinued the use of all sub-brands. Two of the Company’s sub-brands, Hay Group and Lominger, came to Korn Ferry through acquisitions. As a result of the decision to discontinue their use, the Company took a non-cash intangible assets acquiredasset impairment charge of $106.6 million during the year ended April 30, 2019, recorded in fiscal 2016 in connection with the acquisition of Legacy Hay consists of customer listsgeneral and intellectual property of $84.0 million and $10.2 million, respectively, with weighted-average useful lives from the date of purchase of 11 years and seven years, respectively. Acquisition-related intangible assets not subject to amortization acquired in connection with the acquisition of Legacy Hay consists of trademarks of $102.2 million.administrative expenses. Amortization expense for amortized intangible assets was $15.4$13.5 million, $11.7$14.7 million and $8.2$15.4 million during fiscal 2017, 20162019, 2018 and 2015,2017, respectively. Estimated annual amortization expense related to amortizing intangible assets is as follows: | Year Ending April 30, | | Estimated
Annual
Amortization
Expense | | | Estimated Annual Amortization Expense | | | | | (in thousands) | | | (in thousands) | | 2018 | | $ | 14,742 | | | 2019 | | | 13,487 | | | 2020 | | | 13,204 | | | $ | 13,204 | | 2021 | | | 13,280 | | | | 13,071 | | 2022 | | | 13,269 | | | | 13,060 | | 2023 | | | | 11,208 | | 2024 | | | | 8,731 | | Thereafter | | | 43,260 | | | | 23,748 | | | | | | | $ | 83,022 | | | | $ | 111,242 | | | | | | | |
All amortizable intangible assets will be fully amortized by the end of fiscal 2031.2032. 14. Commitments and Contingencies Lease Commitments The Company leases office premises and certain office equipment under leases expiring at various dates through 2030. Total rental expense during fiscal 2017, 20162019, 2018 and 20152017 amounted to $58.2 million, $57.6 million and $56.8 million, $45.5 million and $38.0 million, respectively. | | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
|
Future minimum commitments under non-cancelable operating leases with lease terms in excess of one year excluding commitments accrued in the restructuring liability are as follows: | Year Ending April 30, | | Lease
Commitments | | | Lease Commitments | | | | | (in thousands) | | | (in thousands) | | 2018 | | $ | 62,384 | | | 2019 | | | 57,812 | | | 2020 | | | 54,817 | | | $ | 55,351 | | 2021 | | | 50,418 | | | | 52,567 | | 2022 | | | 44,100 | | | | 45,465 | | 2023 | | | | 38,582 | | 2024 | | | | 34,008 | | Thereafter | | | 145,284 | | | | 74,764 | | | | | | | $ | 300,737 | | | | $ | 414,815 | | | | | | | |
Employment Agreements The Company has a policy of entering into offer letters of employment or letters of promotion with vice presidents, which provide for an annual base salary and discretionary and incentive bonus payments. Certain key vice presidents who typically have been employed by the Company for several years may also have a standard form employment agreement. Upon termination without cause, the Company is required to pay the amount of severance due under the employment agreement, if any. The Company also requires its vice presidents to agree in their employment letters and their employment agreement, if applicable, not to compete with the Company during the term of their employment and for a certain period after their employment ends. F-40
KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2019 (continued) Litigation From time to time, the Company has been and is involved in litigation incidental to its business. The Company is currently not a party to any litigation which, if resolved adversely against the Company, would, in the opinion of management, after consultation with legal counsel, have a material adverse effect on the Company’s business, financial position or results of operations. 15. Quarterly Results (Unaudited) The following table sets forth certain unaudited consolidated statementstatements of income data for the quarters in fiscal 20172019 and 2016.2018. The unaudited quarterly information has been prepared on the same basis as the annual financial statements and, in management’s opinion, includes all adjustments necessary to present fairly the information for the quarters presented. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Quarters Ended | | | | | Fiscal 2017 | | | Fiscal 2016 | | | | | April 30 | | | January 31 | | | October 31 | | | July 31 | | | April 30 | | | January 31 | | | October 31 | | | July 31 | | | | | (in thousands, except per share data) | | Fee revenue | | $ | 406,065 | | | $ | 381,918 | | | $ | 401,917 | | | $ | 375,621 | | | $ | 399,960 | | | $ | 344,158 | | | $ | 280,600 | | | $ | 267,394 | | Operating income (loss) | | $ | 32,834 | | | $ | 30,542 | | | $ | 46,548 | | | $ | 4,516 | | | $ | 4,842 | | | $ | (14,067 | ) | | $ | 29,013 | | | $ | 32,904 | | Net income (loss) | | $ | 27,736 | | | $ | 24,378 | | | $ | 31,056 | | | $ | 4,068 | | | $ | 6,375 | | | $ | (15,995 | ) | | $ | 17,971 | | | $ | 23,082 | | Net income (loss) attributable to Korn/Ferry International | | $ | 26,924 | | | $ | 23,897 | | | $ | 30,152 | | | $ | 3,208 | | | $ | 5,855 | | | $ | (15,995 | ) | | $ | 17,971 | | | $ | 23,082 | | Net earnings (loss) per common share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic. | | $ | 0.48 | | | $ | 0.42 | | | $ | 0.53 | | | $ | 0.06 | | | $ | 0.10 | | | $ | (0.30 | ) | | $ | 0.36 | | | $ | 0.46 | | Diluted. | | $ | 0.47 | | | $ | 0.42 | | | $ | 0.52 | | | $ | 0.06 | | | $ | 0.10 | | | $ | (0.30 | ) | | $ | 0.35 | | | $ | 0.46 | |
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| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (continued)
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| | Quarters Ended | | | | Fiscal 2019 | | | Fiscal 2018 | | | | April 30 | | | January 31 | | | October 31 | | | July 31 | | | April 30 | | | January 31 | | | October 31 | | | July 31 | | | | (in thousands, except per share data) | | Fee revenue | | $ | 490,756 | | | $ | 474,504 | | | $ | 495,205 | | | $ | 465,568 | | | $ | 475,364 | | | $ | 447,581 | | | $ | 443,018 | | | $ | 401,254 | | Operating income (loss) | | $ | 62,275 | | | $ | 62,683 | | | $ | 70,987 | | | $ | (55,119 | ) | | $ | 64,197 | | | $ | 49,846 | | | $ | 52,468 | | | $ | 41,935 | | Net income (loss) | | $ | 50,627 | | | $ | 45,444 | | | $ | 47,317 | | | $ | (38,592 | ) | | $ | 42,309 | | | $ | 27,427 | | | $ | 36,732 | | | $ | 29,429 | | Net income (loss) attributable to Korn Ferry | | $ | 50,264 | | | $ | 44,964 | | | $ | 46,034 | | | $ | (38,611 | ) | | $ | 41,160 | | | $ | 27,247 | | | $ | 36,331 | | | $ | 29,041 | | Net earnings (loss) per common share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic | | $ | 0.90 | | | $ | 0.81 | | | $ | 0.82 | | | $ | (0.70 | ) | | $ | 0.74 | | | $ | 0.49 | | | $ | 0.65 | | | $ | 0.52 | | Diluted | | $ | 0.89 | | | $ | 0.80 | | | $ | 0.81 | | | $ | (0.70 | ) | | $ | 0.73 | | | $ | 0.48 | | | $ | 0.64 | | | $ | 0.51 | |
16. Subsequent EventsEvent Quarterly Dividend Declaration On June 20, 2017,2019, the Board of Directors of the Company declared a cash dividend of $0.10 per share that will be paid onwith a payment date of July 14, 201731, 2019 to holders of the Company’s common stock of record at the close of business on June 30, 2017.July 2, 2019. The declaration and payment of future dividends under the quarterly dividend policy will be at the discretion of the Board of Directors and will depend upon many factors, including the Company’s earnings, capital requirements, financial conditions, the terms of the Company’s indebtedness and other factors that the Board of Directors may deem to be relevant. The Board may amend, revoke or suspend the dividend policy at any time and for any reason. | | |
| | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
April 30, 2017
|
KORN FERRY AND SUBSIDIARIES SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS April 30, 2019 | Column A | | Column B | | | Column C | | Column D | | Column E | | | Column B | | | Column C | | | Column D | | | Column E | | | | | | | | Additions | | | | | | | | | | | Additions | | | | | | | | | | Description | | Balance at
Beginning
of Period | | | Charges to
Cost and
Expenses | | | (Charges)
Recoveries
to Other
Accounts (1) | | Deductions (2) | | Balance at
End of
Period | | | Balance at Beginning of Period | | | Charges to Cost and Expenses | | | Recoveries (Charges) to Other Accounts (1) | | | Deductions (2) | | | Balance at End of Period | | | | | (in thousands) | | | (in thousands) | | Allowance for doubtful accounts: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended April 30, 2019 | | | $ | 17,845 | | | $ | 14,260 | | | $ | (826 | ) | | $ | (9,697 | ) | | $ | 21,582 | | Year Ended April 30, 2018 | | | $ | 15,455 | | | $ | 13,675 | | | $ | 551 | | | $ | (11,836 | ) | | $ | 17,845 | | Year Ended April 30, 2017 | | $ | 11,292 | | | $ | 12,987 | | | $ | (415 | ) | | $ | (8,409 | ) | | $ | 15,455 | | | $ | 11,292 | | | $ | 12,987 | | | $ | (415 | ) | | $ | (8,409 | ) | | $ | 15,455 | | Year Ended April 30, 2016 | | $ | 9,958 | | | $ | 8,570 | | | $ | (270 | ) | | $ | (6,966 | ) | | $ | 11,292 | | | Year Ended April 30, 2015 | | $ | 9,513 | | | $ | 7,741 | | | $ | (693 | ) | | $ | (6,603 | ) | | $ | 9,958 | | | | | | | | | | | | | | | | | | | | | | | | | Deferred tax asset valuation allowance: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended April 30, 2019 | | | $ | 15,682 | | | $ | 5,170 | | | $ | — | | | $ | (6,820 | ) | | $ | 14,032 | | Year Ended April 30, 2018 | | | $ | 21,278 | | | $ | 3,421 | | | $ | — | | | $ | (9,017 | ) | | $ | 15,682 | | Year Ended April 30, 2017 | | $ | 22,030 | | | $ | 7,931 | | | $ | — | | | $ | (8,683 | ) | | $ | 21,278 | | | $ | 22,030 | | | $ | 7,931 | | | $ | — | | | $ | (8,683 | ) | | $ | 21,278 | | Year Ended April 30, 2016 | | $ | 21,608 | | | $ | 18,993 | | | $ | — | | | $ | (18,571 | ) | | $ | 22,030 | | | Year Ended April 30, 2015 | | $ | 26,969 | | | $ | 2,537 | | | $ | — | | | $ | (7,898 | ) | | $ | 21,608 | | |
(1) | Exchange rate fluctuations. |
(2) | Allowance for doubtful accounts represents accounts written-off, net of recoveries and deferred tax asset valuation represents release of prior valuation allowances. |
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