UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended April 30, 20192022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____to _____
Commission File Number 001-14505
KORN FERRY
(Exact Name of Registrant as Specified in its Charter)
Delaware |
| 95-2623879 |
(State or Other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
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1900 Avenue of the Stars, Suite |
| 90067 |
(Address of Principal Executive Offices) |
| (Zip Code) |
(310) 552-1834
(Registrant’s Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
Common Stock, par value $0.01 per share | KFY | New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☑ |
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| Accelerated filer | ☐ |
Non-accelerated filer | ☐ |
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| Smaller reporting company | ☐ |
Emerging growth company | ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The number of shares outstanding of our common stock as of June 21, 2019 was 56,436,120 shares. The aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates of the registrant on October 31, 2018,29, 2021, the last business day of the registrant’s most recently completed second fiscal quarter (assuming that the registrant’s only affiliates are its officers, directors and 10% or greater stockholders) was approximately $2,029,075,004$3,237,768,536 based upon the closing market price of $45.14$77.21 on that date of a share of common stock as reported on the New York Stock Exchange.
The number of shares outstanding of our common stock as of June 22, 2022 was 53,019,359 shares.
Documents incorporated by reference
Portions of the registrant’s definitive Proxy Statement for its 20192022 Annual Meeting of Stockholders scheduled to be held on October 3, 2019 are incorporated by reference into Part III of this Form 10-K.
Index to Annual Report on Form 10-K for the Fiscal Year Ended April 30, 20192022
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Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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ABOUT KORN FERRYCompany Overview
Korn Ferry (referred to herein as the “Company” or in the first personfirst-person notations “we,” “our,” and “us”) is a global organizational consulting firm.
Korn Ferry is a different firm synchronizingtoday than when we were founded. We are a Company with a more diverse service and solution offering that is aligned with our clients’ desire to synchronize their strategy, operations, and talent to drive superior business performance. Today, we believe we are the organizational consultancy that is uniquely positioned to help companies look at talent and strategy together, ensuring that they have the right people in the right places and are providing them with the right rewards. We bring their strategies to life by designing their organizational structure and helping them hire, motivate and hold on to the best people. And we help professionals navigate and advance their career.
We operate in 104 offices in 52 countries, enabling us to deliverFor fiscal 2022, our exceptional performance reflects the relevance of our strategy, the top-line synergies created by our end-to-end human capital solutions, on a global basis, whereverthe resilience of our clients do business. Ascolleagues, and increasing connection with our Korn Ferry brand. The past year has presented many challenges. However, with the commitment of April 30, 2019,our colleagues, we had 8,678 full-time employees, including 1,448 consultants who are primarily responsible for originating client services.have concluded the year with strong, record results.
During fiscal 2019,2022, we partnered with 13,834 clientalmost 15,000 organizations. Our clients include many of the world’s largest and most prestigious public and private companies, middle marketmiddle-market and emerging growth companies, as well asand government and nonprofit organizations, including 98% of the Fortune 100 and 93% of the Financial Times Stock Exchange 100.non-profit organizations. We have built strong client loyalty, with nearly 90% of our engagements in fiscal 2019 being2022 completed on behalf of clients for whom we had conducted engagements in the previous three fiscal years. We work with:
• | 97% of the S&P 100, and 85% of the S&P 500 |
• | 92% of the Euronext 100 |
• | 85% of the FTSE 100 |
• | 89% of the S&P Europe 350 |
• | 68% of the S&P Asia 50 |
• | 73% of the S&P Latin America 40 |
In addition, we work with:
• | 2 in every 3 best companies to work for (Fortune Magazine) |
• | 1 in every 2 of the fastest growing companies in the world (Fortune Magazine) |
• | 80% of the top companies changing the world (Fortune Magazine) |
• | 80% of the world’s top performing companies (Drucker Institute) |
• | 96% of the top 50 world's most admired companies (Fortune Magazine) |
We also continued to make significant investments—in strategic acquisitions and the innovation and development of our assets, platforms, core capabilities, and solutions, all while we sought to attract, retain, and develop our people. These investments are intended to help us further differentiate our competitiveness in the marketplace. Today, as a result of our investments, innovation and growth, we believe we are uniquely positioned to address the most pressing human capital issues faced by organizations worldwide. We continue to transform ourselves and our clients. We are now a company with a more durable business, with greater and growing relevance, and a new sustainable level of business and profitability that is poised for further growth.
We have made significant investmentscontinue to replicate and scale our solutions and to lead innovation at the intersection of talent and strategy in the digitally enabled new world of work. The depth and breadth of our business that have strengthened ourofferings across the talent lifecycle—from attraction to assessment to recruitment to development, management, and reward—place us in a distinctive position. We offer end-to-end solutions—a view into an organization’s entire talent ecosystem—to create positive client outcomes. Our deeply embedded intellectual property (“IP”), enhanceddata, and content within our geographical presence, added complementary offeringssolutions are designed to deepen client relationshipshelp clients solve new and broadenedevolving issues within today’s dynamic work landscape. We continue to align to the most pressing issues for organizations: workforce transformation, diversity equity & inclusion ("DE&I”) initiatives, environmental, social & governance (“ESG”) matters, accelerating revenue growth (“ARG”) in a post-COVID-19 world, and new career trends like career nomads who are more frequently changing jobs. We think we are uniquely positioned to help clients and their people exceed their potential in this environment.
We now place an even greater focus on driving a One Korn Ferry story. Partnering with internal and external stakeholders, this singular vision engages our capabilities around talent acquisition, organizational strategy, assessment, developmentemployees, resonates in the broader market, and rewards. Approximately 70%is a platform for
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differentiation and sustainable growth.
We develop and train nearly one million professionals a year and place on average a candidate every three minutes, each business hour.
A critical driver of our revenue comes from clients that utilize multiple linessuccess has been the evolution and maturation of our business.go-to-market (“GTM”) activities. We lead with our Marquee and Regional Accounts, approximately 350 accounts or 2% of our total clients which represent 36% of our total fee revenue. We continue to invest in Global Account Leaders (“GALs”), exiting the year with more than 60 colleagues in this role. Leveraging our acquisition of the Miller Heiman Group, we use our own sales effectiveness methodologies and discipline in our Marquee and Regional account programs to drive rates of top line growth in excess of the rest of our portfolio.
We were originally formed ascontinue to capitalize on the top-line synergies created by our end-to-end core and integrated solutions that address every aspect of an employee’s engagement with their employer. This manifests itself in our ability to continue to increase fee revenues referred from one line of business to another, almost 30% for fiscal 2022.
Fiscal 2022 Performance Highlights
Our results reflect the dedication and hard work of our more than 10,770 talented colleagues. They focus on creating value that matters for all our stakeholders, the clients, shareholders, and the communities in which we operate.
Our strategic growth reflects a California corporation in November 1969more balanced and reincorporated as a Delaware corporationsustainable organization with solid revenue and earnings streams in fiscal 2000.2022:
• | Our performance drove record-breaking results, generating $2,626.7 million in fee revenue, up 45.1% compared to fiscal 2021. |
• | Diluted Earnings Per Share was $5.98 in fiscal 2022, a new high. |
• | Net Income Attributable to Korn Ferry was $ 326.4 million (margin 12.4%), an increase of $211.9 million compared to fiscal 2021. Operating income and Adjusted EBITDA* were $470.1 million (margin of 17.9%) and $538.9 million (margin of 20.5%), respectively, an increase of $314.3 million and $252.6 million, respectively, compared to fiscal 2021. |
* Consolidated Adjusted EBITDA are non-GAAP financial measures and have limitations as analytical tools. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of why management believes the presentation of these non-GAAP financial measures provide meaningful supplemental information regarding Korn Ferry’s performance.
On June 12, 2018,
During fiscal 2022, we continued with our balanced approach to capital allocation. We repurchased approximately 1,471,000 shares of stock for $98.8 million and paid dividends of $26.8 million. Recognizing the Boardopportunities of Directorsa large addressable market and the shift from career employee to career nomad, we acquired The Lucas Group, which brings substantial professional search and interim expertise to Korn Ferry. We also recently completed the acquisition of Patina Solutions Group, an interim executive solutions firm that provides access to a network of C-suite, top-tier, and professional interim talent. Both additions are expected to enhance our industry-leading search portfolio. These two acquisitions were completed with $133.8 million of our capital. We reinvested $45.6 million of capital into the development of technology-enabled products and solutions.
The Korn Ferry approved 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 continuing to harmonize under one brand to help the firm position itself as a preeminent organizational consulting firm and bring more client awareness to its broad range of talent management solutions. While the rebranding has not impacted the Company’s segment financial reporting, the Company renamed its Hay Group segment as Advisory and its Futurestep segment as RPO & Professional Search. The Company’s Executive Search segment name remains unchanged.
We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (the “SEC”), pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our reports, proxy statements and other documents filed electronically with the SEC are available at the website maintained by the SEC at www.sec.gov.
We also make available, free of charge on the Investor Relations portion of our website at http://ir.kornferry.com, our annual, quarterly, and current reports, and, if applicable, amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the SEC at www.sec.gov.
We also make available on the Investor Relations portion of our website at http://ir.kornferry.com press releases and related earnings presentations and other important information, which we encourage you to review.Story
Our Corporate Governance Guidelines, Code of Business Conduct and Ethics, and the charters of the Audit Committee, Compensation and Personnel Committee, and Nominating and Corporate Governance Committee of our Board of Directors are also posted on the Investor Relations portion of our website at http://ir.kornferry.com. Stockholders may request copies of these documents by writing to our Corporate Secretary at 1900 Avenue of the Stars, Suite 2600, Los Angeles, California 90067.Strategy
THE KORN FERRY OPPORTUNITY
Aligned around our vision to beAs the preeminent organizational consulting firm, we are pursuing an ambitiousact as business advisors in talent and strategy that will help us to focus relentlessly on clients and collaborate intensively across the organization. Thisbring together solutions for our clients. Our approach buildsis focused on the best of our past and gives us a clear path to the future with focused initiativesfollowing priorities to increase our client and commercial impact.impact:
1. | Drive a One Korn Ferry go-to-market strategy through our Marquee and Regional Accounts and integration across solutions and geographies. |
2. | Create the Top-of-Mind Brand in Organizational Consulting - Lead innovation through relevant market offerings and evolve our thought leadership around talent strategy. |
3. | Deliver Client Excellence and Innovation and diversify our offerings into fully integrated, scalable and sustainable client engagements. |
4. | Advance Korn Ferry as a Premier Career Destination - Attract and retain top talent through continued investment in building a world-class organization through a capable, motivated, and agile workforce. |
5. | Pursue Transformational M&A Opportunities at the Intersection of Talent and Strategy. |
Our Core Capabilities
Korn Ferry is transforming how clients address theirWe offer a unique set of capabilities tailored to the new world of work. These offerings cover the entirety of the talent management needs. We have evolved from a mono-line business to a global organizational consulting firm, giving our consultants more frequent and expanded opportunities to engage with clients.
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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—journey, strengthening our work and thinking in the structure, roles and responsibilities—to seize these opportunities. In addition, we help organizations select and hire the talent they need to execute their strategy—and show them the best way to compensate, develop and motivate their people.
We do this through ournext. Our five core solution sets:
Core Solutions
capabilities include:
| • | Organization Strategy:We map talent strategy to business strategy, |
• | Assessment and Succession: We |
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| Talent Acquisition:From executive search to recruitment process outsourcing ("RPO"), we |
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| Leadership and Professional Development: We develop leaders along every stage of their career journey with a spectrum of intensive high-touch and scalable high-tech development experiences. |
• | Total Rewards:We help organizations |
Our Integrated Solutions
Additionally, weWe deliver differentiated approaches for our clients through our and integrated market offerings, which bringsolutions, bringing together our best thinking from across our core solutions. These offeringscapabilities to target specific client needs, guided by an ever-changing business environment.
One such strategic growth area is transaction services related to mergers and acquisitions (M&A) and divestitures. A key differentiator with this service is our ability to help organizations drive growth by aligning leadership, talent and culture to the investment thesis during the integration process—from the C-suite through all employee levels. We also help companies develop and execute cost optimization strategies around rewards, organization design and workforce planning, to prepare them for potential market volatility.
Other integrated offerings focus on our clients’ transformational challenges. Our digital transformation service helps clients execute on a digital operating model, including the introduction and integration of new agile ways of working. Rich proprietary data enables our clients to better deliver the right value proposition to attract, retain and engage digital talent. In addition, we help specific functional areas, such as HR, develop their future-state model within a digital environment.
Our diversity and inclusion (“D&I”) service helps clients innovate and grow by creating an inclusive culture and diverse workforce. Organizations are in different places on their D&I journeys, ranging from compliance-driven, values-driven, talent performance driven, and beyond. Therefore, we combine our insights into a single offering that can be tailored to different markets and buyers.
From core through integrated, across our solution portfolio, we have the advantage of best-in-class solutions, products and talent, coupled with deep market expertise, to deliver a seamless approach to organization, talent and rewards strategies. Our change management capabilities further support our clients, through the successful execution of their transformational strategies and the effective implementation of their people and culture programs.
OUR INTELLECTUAL PROPERTY AND TECHNOLOGY
We know what good looks like: We bring together the industry knowledge, assessments, and data to benchmark clients against the best. We offer a complete view of the talent they need and the talent they have. We know if their rewards are fair and effective. And we align their structures, role profiles, and people to support the strategy so that clients know where to focus their efforts to create lasting change in the organization.
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At the core of our approach is deep IP and research that allows us to deliver meaningful business outcomes for our clients. We house all of this data inside our Talent Hub. With more than four billion data points in total, including 69 million assessments, profiles of eight million candidates, rewards data on 20 million professionals and engagement data on more than seven million professionals, our Talent Hub is the science-based engine that uses this rich data set to fuel all of our services, solutions and products, connecting dots to drive meaningful change.
Advanced Analytics
Core IP data and assets include proprietary leadership assessment, recruitment and development models, emotional and social competencies, human motives and values, job grading, engagement and rewards systems. We integrate and build upon our data sets using advanced modeling and artificial intelligence (“AI”) to produce predictive insights and deliver demonstrable client impact.
The Korn Ferry Institute
The Korn Ferry Institute, our research and analytics arm, unites three areas: agile client execution; applied research and analytics; and breakthrough innovation. These teams work together to help business and public-sector leaders understand the key trends and drivers of human and organizational performance, so that they make better, science-based decisions on critical leadership, people, management and policy issues.
At the highest level, the Korn Ferry Institute explores three themes:challenges:
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In the fiscal year ahead, we will continue to innovate and simplify our IP for greater leverage of our data set, driving even greater business impact.
INDUSTRY TRENDS
In this competitive global economic environment, our clients are seeking new pathways to drive operational excellence and superior performance outcomes. This trend is attractive to our sector, as organizations are increasingly turning to partners like Korn Ferry to synchronize their strategy with their talent as an answer to today’s most pressing business challenges, specifically:
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Our Businesses
We have seven reportable segments that operate through the following four lines of business, supported by a corporate center. This structure allows us to focus on our clients and partner with them to solve the challenges they face in their businesses.
1. | Consulting aligns organization structure, culture, performance, and people |
Summary of financial fiscal 2022 highlights:
• | Fee revenue was $650.2 million, an increase of |
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In addition, we believeClient Base—During fiscal 2022, the following factors will have a long-term positive impact onConsulting segment partnered with over 4,900 clients across the globe, and 28% of Consulting’s fiscal 2022 fee revenue was referred from Korn Ferry’s other lines of business. Our
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clients come from the private, public, and not-for-profit sectors, across every major industry and represent diverse business challenges.
Competition—The people and organizational consulting market is fragmented, with different company offers for our industry:core solutions. Our competitors include consulting organizations affiliated with accounting, insurance, information systems, and strategy consulting firms such as McKinsey, Willis Towers Watson and Deloitte. We also compete with smaller boutique firms specializing in specific regional, industry, or functional leadership and HR consulting aspects.
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Summary of financial fiscal 2022 highlights:
• | Fee revenue was $349.0 million, an increase of |
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Client Base—During fiscal 2022, the Digital segment partnered with over 8,300 clients across the globe, and 34% of Digital’s fiscal 2022 fee revenue was referred from Korn Ferry’s other lines of business, primarily Consulting. Our clients come from the private, public and not-for-profit sectors, across every major industry and represent diverse business challenges.
Competition—Again, there is fragmentation in this sector. We compete with specialist suppliers, and boutique and large consulting companies in each solution area such as AON, Mercer, Willis Towers Watson, SHL, Fuel 50, SkillSoft, Criteria, Predictive Index, Prevue Hire and Textlio. One of our advantages is linking our data, IP, and our technology platform across our solutions. This allows us to give organizations an end-to-end view of talent.
3. | Executive Searchhelps organizations recruit board-level, chief executive, and other senior executive and general management talent to deliver lasting impact. Our approach to placing talent brings together our research-based IP, proprietary assessments and behavioral interviewing with our practical experience to determine the ideal organizational fit. Salary benchmarking then builds appropriate frameworks for compensation and retention. This business is |
Summary of financial fiscal 2022 highlights:
• | Fee revenue was $935.6 million, an increase of 47% compared to fiscal 2021, representing 36% of total fee revenue. |
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| In fiscal 2022, we opened more than 7,200 new engagements with an average of 555 consultants. |
Consultants are organized in six broad industry groups and bring an in-depth understanding of the market conditions and strategic management issues clients face within their industries and geographies. In addition, we regularly look to expand our specialized expertise through internal development and strategic hiring in targeted growth areas.
Functional Expertise — We also have organized executive search centers of functional expertise. Members of functional groups are located throughout our regions and across our industry groups. These consultants have extensive backgrounds in placing executives in particular functions, such as board directors, CEOs, and other senior executive officers. Most assignments for fiscal 2022 were for our Board & CEO Services group, which focuses exclusively on placing CEOs and board directors in organizations worldwide. They are a dedicated team from the most senior ranks of the Company. Their work is with CEOs and the boardroom, and their expertise is in organizational leadership and governance. They conduct hundreds of engagements every year, tapping talent from every corner of the globe. This work spans across ranges of corporate scale
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and purpose.
Percentage of Fiscal 2022 Assignments Opened by Functional Expertise
Board Level/CEO/CFO/Senior Executive and General Management | 76 | % | ||
Finance and Control | 7 | % | ||
Information Systems | 6 | % | ||
Marketing and Sales | 4 | % | ||
Manufacturing/Engineering/Research and Development/Technology | 4 | % | ||
Human Resources and Administration | 3 | % |
Client Base—Our more than 4,300 Executive Search engagement clients in fiscal 2022 include many of the world’s largest and most prestigious public and private companies.
Competition—Our Executive Search line of business competes with specialist global executive search firms, such as Egon Zehnder, Heidrick & Struggles International, Inc., Russell Reynolds Associates and Spencer Stuart. We also compete with smaller boutique firms specializing in regional, industry, or functional searches. We believe our brand name, differentiated business model, systematic approach to client service, innovative technology, unique IP, global network, prestigious clientele, strong specialty practices and high-caliber colleagues are recognized worldwide. We also believe our long-term incentive compensation arrangements and other executive benefits distinguish us from most of our competitors and are essential in attracting and retaining our top consultants.
4. | RPO and Professional Search focuses on delivering enterprise talent acquisition solutions to our clients, at the professional level. We leverage the power of people, process expertise, IP-enabled technology and compensation information to do this. Transaction sizes range from single professional searches to team, department, line of business projects and global outsource recruiting solutions. During fiscal 2022, we acquired The |
Summary of financial fiscal 2022 highlights:
• | Fee revenue was $691.9 million, an increase of 87% compared to |
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GROWTH STRATEGY
Our objective is to expand our position asClient Base—During fiscal 2022, the preeminent organizational consulting firm. In order to meet this objective, we will continue to pursue our multi-pronged strategy:
Drive a One Korn Ferry Go-to-Market Strategy
Our synergistic go-to-market strategy, bringing together our core solutions, is driving more integrated, scalable client relationships. This is evidenced by the fact that approximately 70% of our revenues come from clients that utilize multiple lines of our business. Additionally, our Net Promoter Score, a metric used to gauge customer loyalty, has increased by three points compared to last year. To better compete in the market, we will continue to evolve from our traditional line of business segmentation to integrated solutions and industries.
Our Marquee Accounts program is a core pillar of our go-to-market strategy. This program drives major global and regional strategic account development, in addition to providing a framework for all our client development activities as we move our firm to deeper client relationships. Our Marquee Accounts program now comprises 21% of our global fee revenues. In the year ahead, we will continue to grow and expand our account management activities. This includes driving consistent account selection, assignment, planning and execution; implementing account-based marketing efforts; optimizing the pipeline and opportunity process; integrating our best thinking across solutions; and hiring additional dedicated account leaders. We will also expand this successful go-to-market program to the next level of accounts—our Regional Accounts program.
Another 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 (“HR”) programs. We continue to seek ways to further scale these highly profitable products to our global clients.
Deliver Client Excellence and Innovation
Technology is positioned to reshape the future of work and with it, the workforce as we know it today. Market innovations contribute to more accurate, faster, cost-effective and impactful business and human decisions. Our firm is well positioned in that context. We have a set of assets that are critical to such decisions: deep science on organization and human motivation, data on talent, work and rewards, and proven products and solutions.
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We are combining our IP and technology into a unified single platform to allow clients to make faster, better talent decisions. Our IP-driven tools and services are being utilized by our clients for everything from organizational development and job profiling to selection, training, individual and team development, succession planning, M&A, D&I, digital transformation and more.
Enhancements to our Talent Hub platform, including Korn Ferry Listen, Assess, Perform and Pay, will allow us to embed analytics directly into our clients’ user experience, providing actionable insights. In fiscal 2019, we collaborated with experience management (XM) software leader Qualtrics, whereby Korn Ferry is building a global delivery and advisory service to improve employee experience programs at scale.
New Offerings—More than 63,000 consumers have registered and are using Korn Ferry Advance, our new business-to-consumer offering, since it launched in the United States (the “U.S.”) in July 2017. We are expanding and enhancing the offering to provide more focused assistance to people looking to make their next career move, as well as to provide tailored career services to an organization’s people. Korn Ferry Advance will continue to leverage cutting-edge technology as well as the greatest asset we have—our consultants. Korn Ferry Advance is also being used to augment our Korn Ferry Advisory offerings, primarily in Leadership Development and Coaching.
Create the Top-of-Mind Brand in Organizational Consulting
Next to our people, the Korn Ferry brand is the strongest asset of the Company. Positioning Korn Ferry as the preeminent global organizational consultancy and demonstrating our ability to drive business performance through people remains the goal of our global marketing program.
The Korn Ferry brand is brought to market via two distinct channels: business-to-business (“B2B”) and business-to-consumer (“B2C”). In both instances, we communicate key core values about what we do, expressing that we are ‘more than’ as well as inspiring action in the way our customers run their businesses and in the way they approach their careers. We are executing against our strategy with these priorities in mind:
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Advance Korn Ferry as a Premier Career Destination
We continue to invest in building a world-class organization that is aligned to our strategy and is staffed by a capable, motivated and agile workforce. A few key initiatives in this area include:
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Pursue Transformational Opportunities at the Intersection of Talent and Strategy
We have developed a core competency in identifying, acquiring and integrating M&A targets that have the potential to further our strategic objectives and enhance shareholder value. Our disciplined approach to M&A will continue to play a critical role in the ongoing evolution of Korn Ferry into an industry specialized, business outcomes oriented solutions provider at the intersection of talent and strategy. While we will continue to execute on our targeted organic growth pathways, M&A will be a vital component of our future growth and capital deployment strategies.
OUR ORGANIZATION
The Company operates through its three global segments: Executive Search, Advisory, and RPO & Professional Search. Our Executive Search business is managed and reported on a geographic basis throughout four regions: North America, Europe, the Middle East and Africa (“EMEA”), Asia Pacific and Latin America. Advisory and RPO & Professional Search segment partnered with more than 3,500 clients across the globe, and 50% of RPO & Professional Search’s fiscal 2022 fee revenue was referred from Korn Ferry’s other lines of business.
Competition—We primarily compete for RPO business with other global RPO providers such as Cielo, Alexander Mann Solutions, IBM, Allegis, Kelly Services and Randstad and professional search assignments with regional contingency and large national retained recruitment firms such as Robert Half, Michael Page, Harvey Nash, Robert Walters and BTG. We believe our competitive advantage is distinct. We are managed on astrategic, collaborating with clients to hire best-fit candidates using our assessment IP, proprietary technology and professional recruiters. Our Talent Delivery Centers provide our teams with increased scalability, multilingual capabilities, global basis with operationsreach and functional specialization. We also work under the One Korn Ferry umbrella to help clients plan for their broader talent acquisition needs as part of their business strategy planning.
Finally, our corporate center manages finance, legal, technology/IT, human resources, marketing, and our research arm, the Korn Ferry Institute.
We help clients in four geographic markets: North America, Latin America, EMEA, Asia Pacific and Latin America.APAC. Our geographic markets bring together capabilities from across the organization—infusing industry and functional expertise and skills—to deliver value to our partners.
We operate in 105 offices in 53 countries, helping us deliver our solutions globally, wherever our clients do business. We continue our commitment to diversity and inclusion, hiring, promoting, and extending opportunities to women and underrepresented groups. As of April 30, 2022, 72% of our workforce in the U.S. is female or from an underrepresented group. Broken down further, 64% of our workforce in the U.S. is female, and 65% of our global workforce is female. Our global age demographic is 62% Millennials (ages 26-41), Gen Z/Centennials (ages 25 and below). As of April 30, 2022, we had 10,779 full-time employees:
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1consultants and execution staff, primarily responsible for originating client services
2 Support staff includes associates, researchers, administrative, and support staff
Business challenges we solve
Our judgment and expertise are built from decades of experience and insight into the business challenges companies are grappling with across industries. We work to understand the relevant macro trends impacting society and the future of work. As the world/workforce emerges from COVID-19, we believe it is even more evident that the world of work has permanently changed. We support our clients amid a time of enormous transition and change, with these specific business challenges:
• | Transforming businesses while delivering robust performance. |
• | Solving leadership challenges arising from the new landscape of hybrid and remote working. |
• | Delivering for people, planet, and profit, and assisting with ESG and other corporate strategic initiatives. |
• | Finding the right talent in a dynamic and dislocated labor market. |
• | Engaging and motivating employees so companies can retain and reward their talent. |
• | Supporting the work-scape transition from a place of work to collaboration spaces. |
• | Building work environments that are inclusive and free from bias. |
Korn Ferry Intelligence Cloud
Korn Ferry Intelligence Cloud powers our capabilities, integrated solutions and products. With four billion data points, Intelligence Cloud blends our proprietary insight and consultancy with market data and AI-technology to accurately provide insights and actions. Intelligence Cloud is the digital platform that underpins our solutions; helping global organizations advance a talent strategy that results in reduced time to hire, cheaper cost per acquisition, improved mobility and retention and better sales performance.
Organizations can access the data and insight within the platform—which focuses on talent mobility, talent management, talent acquisition and sales effectiveness—via a suite of specialist enterprise applications or via tailored tech-enabled consultancy:
Talent mobility: using our Success Profiles™, organizations can benchmark people—leaders, teams and individuals—and create career paths to build a future-ready workforce.
Talent management: Intelligence Cloud is designed to pinpoint the skillsets and mindsets needed to deliver against future goals and identify gaps, while robust talent assessment and development tools upskill and reskill existing employees.
Talent acquisition & strategy: using AI, Intelligence Cloud helps make sense of external talent market data to identify candidates for critical roles to solve talent shortages and skills gaps.
Sales effectiveness: we bring together the Miller Heiman™ sales methodology, AI-powered technology and seamless integration with Salesforce and Microsoft CRMs, to improve sales performance and predictability through actionable insights for sellers.
Our Knowledge in Data
Our vast wealth of data, IP, and insights include the following:
• | More than five billion data points collected |
• | Over 86 million assessments taken |
• | Almost six million employee engagement survey responses over recent 3 years period. |
And we hold:
• | Rewards data for over 23 million people |
• | Organizational benchmark data on 12,000 entities |
• | More than 5,000 individual success profiles covering more than 30,000 job titles |
• | Management data on more than 150 countries. |
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Innovation & Intellectual Property
Korn Ferry is dedicated to developing leading-edge services and leveraging innovation. We are transforming how clients address their talent management needs. We have evolved from a mono-line business to a multi-faceted consultancy, giving our consultants more opportunities to engage with clients. The expansion of our business into larger markets offers higher growth potential and more durable and visible revenue streams. In addition, we have made investments in technology, learning platforms, virtual coaching, individual learning journeys, data insights, and intellectual property that permeates all our solutions.
The Korn Ferry Institute
The Korn Ferry Institute is our research and analytics arm. The Korn Ferry Institute develops robust research, innovative IP, and advanced analytics to enable Korn Ferry employees to partner with people and organizations to activate their potential and succeed.
We have built the Korn Ferry Institute on three core pillars:
1. | Robust Research and Thought Leadership to anticipate and innovate: We explore trends and define leadership and human and organizational performance for a fast-changing economy. Some project examples from fiscal 2022 include: |
• | Board and investor ESG research |
• | CEO of the future |
• | Enterprise Leader research |
• | Climate change thought leadership series |
• | Neuroscience and work thought leadership series |
• | ESG field guide and analysis of ESG regulations and reporting practices. |
2. | Science-Based IP to enable growth: We develop and measure what is required for success at work in the new economy. Examples from fiscal 2022 include: |
• | Personal purpose inventory and coaching guide |
• | Persona report and talent grid |
• | Mobile-friendly assessment enhancement design |
• | Continued expansion of Korn Ferry's robust success profiles. |
3. | Client Advanced Analytics and Data Management to generate insights: We integrate and build upon our datasets and external data using advanced modeling and artificial intelligence. This allows us to produce predictive insights and deliver demonstrable client impact. During fiscal 2022, we: |
• | Supported over 190 advanced analytic client projects to generate insights |
• | Enabled over 45 analytics ambassadors globally to support client analytics projects |
• | Expanded on internal AI/ML capabilities to analyze text |
• | Developed data management, architecture, storage, mining, and compliance best practices. |
In the fiscal year ahead, we intend to continue innovating to drive even greater business and societal impact by:
• | Focusing on the changing society and technology-led landscape so that our science, research and IP remain innovative |
• | Revamping and 'technologizing' our |
• | Driving a step-change in value through effective collecting, organizing, structuring, and delivering our rich data, IP, and analytics. We are achieving this in collaboration with IT, Digital, and solutions for faster, easier access to |
Global Delivery Capability
We believe a key differentiator for us is our global delivery capability. This allows us to support all parts of our business to give clients value-added services and solutions across the globe. We can bring the right people from anywhere in the world to our clients at the right time both in physical and virtual working environments, which is a capability that is particularly crucial as business needs and conditions continue to change rapidly.
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Competition
Korn Ferry operates in a rapidly changing global marketplace with a diverse range of organizations that offer services and solutions like those we offer. However, we believe no other company provides the same full range of services, uniquely positioning us for success in this highly fragmented, competitive landscape. And we believe we are poised for even more sustainable growth over the next fiscal year.
Our Market and Approach
Industry Recognition
Our company culture and excellent work within the industry are widely recognized. Some highlights from fiscal 2022 include global industry awards and accolades in recognition of performance and achievements:
• | Recognized by Seramount (formerly Working Mother Media) as the |
• | Best Places to Work for LGBTQ Equality from the Human Rights Campaign in 2021 |
• | Leader in 2022 Gartner Magic Quadrant for Sales Training Providers |
• | Pacesetter in ALM Intelligence’s Workforce Management Services Research Report for 2021 |
• | Pacesetter in ALM Intelligence’s Employee Well-being Research Report for 2022 |
• | Leader & Star Performer in Recruitment Process Outsourcing, 2021 Everest Group |
• | Listed in INC.’s Best-Led companies of 2021 in America |
Our Go-To-Market Approach
Our go-to-market strategy brings together Korn Ferry’s core solutions to drive more integrated, scalable client relationships. Our goal is to drive topline synergies by increasing growth in crossline business referrals. This has been successful as during fiscal 2022, approximately 70% of revenue came from clients using multiple lines of our business, consistent with fiscal 2021.
We intend to continue evolving integrated solutions along industry lines to drive cross-geography and cross-solution referrals. Our Marquee and Regional Accounts program is a pillar of our growth strategy, which now comprises more than one-third of our revenue, yet only 2% of our clients. Its success has been realized by using our own IP and by following a disciplined approach to account planning and management with the addition of Global Account Leaders, resulting in more enduring relationships with clients. Building long-term client relationships of scale delivers less cyclical, more resilient revenue and new business through structured, programmatic account planning and strategic investments in account management talent.
Elevating our Voice
Collaboration with sales and marketing teams has enabled a deeper connection with our customers through our thought leadership and best practices. We evolved our brand and value proposition to focus on enabling people and organizations to exceed their potential. We have helped them solve their biggest people challenges around performance, leadership, recruitment, culture, team, future of work, and talent management trends. We continue to focus on timely, news-driven issues pertinent to our clients that help them set their talent agenda. We publish whitepapers, research, trend analysis, and insights around relevant talent and people topics.
Our People
Culture and Workforce
Our culture has evolved tremendously over the years with a team spirit of working together across different offices, regions, and practices. We strive to foster a supportive, respectful culture where everyone feels valued for their contribution, can do their best work and exceed their potential. Our approach to talent acquisition, development, recognition, engagement and benefits are designed to support this approach. Our priority is to hire without bias and provide under-represented talent with equal opportunity across the firm. We work hard to build an environment of recognition by acknowledging others and appreciating their contributions and achievements. Our global talent promotion process recognizes colleagues for exceptional dedication and service to clients, embracing our firm's purpose and values, outstanding collaboration and stretching to meet expectations. We believe diversity drives innovation and connects us to our customers and communities. We are committed to building strong teams of people with diverse experiences, backgrounds, and perspectives.
Our Beliefs and Behaviors
Our culture starts with our values of Inclusion, Honesty, Knowledge, and Performance. Our values set the standard
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for what we expect of all our people. They also reflect the experience we want our clients to have when they work with us. We seek to embrace people with different points of view. We actively help our colleagues grow and develop with mentoring and support. We strive to learn, grow, to be better today than we were yesterday, and always do our best for our clients, colleagues, and shareholders.
As a global corporation, our commitment is to act ethically, which begins with each of us. This thinking is embedded in our core values and guides how we work together and with others. We strongly believe in a radically human approach, striving for empathy, honesty and authenticity across our interactions.
Developing and Rewarding Our People
We focus on making Korn Ferry a firm that energizes, develops, rewards and empowers people to pursue their passions and help our business succeed. Our global talent promotion process recognizes colleagues for exceptional dedication and service to clients. We run promotion cycles twice a year to allow us to appreciate the contribution of colleagues more frequently. In fiscal 2022, we promoted almost 2,000 people in our four lines of business and Corporate.
We offer competitive benefits across the globe customized to each country we operate in based on market prevalence and cultural relevance. The Korn Ferry Cares benefits strategy focuses on keeping our colleagues and their families healthy – physically, emotionally, financially, and socially. Our progressive benefit offerings in the U.S. helped us earn top recognitions by Seramount (formerly Working Mother Media) as the No. 1 company for female hires and promotions in 2021, one of the 100 Best Companies for Parents 2021, and as one of the Human Rights Campaign’s Best Places to Work for LGBTQ Equality 2021.
We believe in teaching and mentoring to support our colleagues’ career growth and success. These efforts have fostered stability and expertise in our workforce. Development happens broadly throughout the organization, from our formal mentoring program to direct training on our learning management platform, iAcademy. We also champion a range of career and leadership programs, such as our Mosaic program for diverse high-potentials, Leadership U for Korn Ferry, and Leadership U PLUS for Korn Ferry colleagues, an internal leadership development program. We also extended the use of our Korn Ferry Advance platform, used externally by clients for career coaching and career development, into an internal development program platform.
We run a global colleague advisory council that offers feedback to senior leadership on the colleague experience within Korn Ferry. Also, our internal employee engagement program, the Korn Ferry Founder Awards, recognizes and celebrates exceptional performance.
Employee Well-being
The well-being of our employees is a significant focus, particularly given the last few years of unprecedented change due to COVID-19 and the need to support our people in different ways. We run a series of initiatives to support employee well-being and instill an organizational culture of health, including an Employee Assistance program, mental health awareness campaigns, well-being webinars, flexible work schedules and parental support for distance learning.
Our employee safety
We are committed to creating a place where people can be successful professionally and personally. In response to the pandemic, we developed and implemented new practices designed to prioritize the health and safety of our employees and clients.
Available Information
We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission (the "SEC"), according to the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Our reports, proxy statements, and other documents filed electronically with the SEC are available at the website maintained by the SEC at https://www.sec.gov.
We also make available, free of charge on the Investor Relations portion of our website at http://ir.kornferry.com, those annual, quarterly, and current reports, and, if applicable, amendments to those reports, filed or furnished under Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the SEC at www.sec.gov.
Our Corporate Governance Guidelines, Code of Business Conduct and Ethics, and the charters of the Audit Committee, Compensation and Personnel Committee, and Nominating and Corporate Governance Committee of our Board of Directors are also posted on the Investor Relations portion of our website at http://ir.kornferry.com. Stockholders may request copies of these documents by writing to our Corporate Secretary at 1900 Avenue of the Stars, Suite 1500, Los Angeles, California 90067.
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In addition, we make available on the Investor Relations portion of our website at http://ir.kornferry.com press releases and related earnings presentations and other essential information, which we encourage you to review.
Item 1A. Risk Factors
The discussion below describes the material factors, events, and uncertainties that make an investment in our securities risky, and these risk factors should be considered carefully together with all other information in this Annual Report, including the financial statements and notes thereto. It does not address all of the risks that we face, and additional risks not presently known to us or that we currently deem immaterial may also arise and impair our business operations. Our business, financial condition or results of operations could be materially adversely affected by the occurrence of any of these risks.
Risks Related to Our Business
We face various risks related to health epidemics, pandemics, and similar outbreaks that negatively impact the operations and financial performance of many of the clients we serve. The ultimate magnitude of any future pandemics or similar outbreaks depends on a variety of factors, including its duration, related restrictions and operational requirements that apply to our business and the businesses of our clients, and the state of the global economy, the full extent of which we may not be capable of prediction.
Our business and financial results have been, and could be in the future, adversely affected by health epidemics, pandemics, and similar outbreaks. Pandemics can cause a global slowdown in economic activity, a decrease in demand for a broad variety of goods and services, disruptions in global supply chains, and significant volatility and disruption of financial markets. Because the severity, magnitude and duration of a pandemic and its economic consequences are uncertain and vary by region, its full impact on our operations and financial performance, is uncertain and difficult to predict. Further, a pandemic’s ultimate impact depends in part on many factors not within our control, including (1) restrictive governmental and business actions (including travel restrictions, vaccine mandates, testing requirements, and other workforce limitations), (2) economic stimulus, funding and relief programs and other governmental economic responses, (3) the effectiveness of governmental actions, (4) economic uncertainty in key global markets and financial market volatility, (5) levels of economic contraction or growth, (6) the impact of the pandemic on health and safety and (7) the availability and effectiveness of vaccines and booster shots.
Further, pandemics can subject our operations and financial performance to a number of risks, including those discussed below:
▪ | Operations-related risks: Across all of our businesses, we can face operational challenges including a heightened need to protect employee health and safety, office shutdowns, workplace disruptions, cybersecurity risks, and restrictions on |
▪ | Client-related risks: Our clients will be disrupted by quarantines, fluctuations in their financial condition, and restrictions on employees’ ability to work and office closures. Such disruptions may restrict our ability to provide products and services to our clients (or for clients to pay for such products and services) and may reduce demand for our products and services. |
▪ | Employee-related risks: We will experience disruptions to our operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of our employees to perform their jobs that may impact our ability to deliver our products and services in a timely manner or meet milestones or customer commitments. |
Our 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, 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 ability to recover from any disaster or other business continuity problem will depend on our ability to protect our technology infrastructure against damage from business continuity events that could have a significant disruptive effect on our operations. For example, much of our corporate staff are based in California, which has a high level of risk from wildfires and earthquakes. The impacts of climate change present notable risks, including damage to assets and technology caused by extreme weather events linked to climate change and may otherwise heighten or exacerbate the
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occurrence of such weather events. 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 of our key operating areas within or across regions, or our inability to successfully recover should we experience a disaster, pandemic or other business continuity problem, could materially interrupt our business operations and cause material financial loss, loss of human capital, regulatory actions, reputational harm, damaged client relationships or legal liability.
We are limited in our ability to recruit candidates from certain of our clients due to off-limit agreements with those clients and for client relation and marketing purposes; such limitations could harm our business.
Either by agreement with clients, or for client relations or marketing purposes, we are required to or elect to refrain from, for a specified period of time, recruiting candidates from a client when conducting searches on behalf of other clients. These off-limit agreements can cause us to lose search opportunities to our competition. The duration and scope of the off-limit agreement, including whether it covers all operations of the client and its affiliates or only certain divisions of a client, generally are subject to negotiation or internal policies and may depend on factors such as the scope, size and complexity of the client’s business, the length of the client relationship and the frequency with which we have been engaged to perform executive and professional searches for the client. We cannot ensure that off-limit agreements will not impede our growth or our ability to attract and serve new clients, or otherwise harm our business.
We face significant competition: competition in our industries could result in lost market share, reduced demand for our services, and/or require us to charge lower prices for our services, which could adversely affect our operating results and future growth.
We continue to face significant competition to each of our services and product offerings. The human resource consulting market has been traditionally fragmented and a number of large consulting firms, such as McKinsey, Willis Towers Watson and Deloitte have built businesses in human resource consulting to serve these needs. Our consulting business line has and continues to face competition from human resource consulting businesses. Many of these competitors are significantly larger than Korn Ferry and have considerable resources at their disposal, allowing for potentially significant investment to grow their human resource consulting business. Digital products in the human resource market have been traditionally fragmented and a number of firms such as AON, Mercer, Willis Towers Watson, SHL, Fuel 50, SkillSoft, Criteria, Predictive Index, Prevue Hire and Textio offer competitive products. Competitors in the digital marketplace are a combination of large, well-capitalized firms and niche players who have received multiple rounds of private financing. Increased competition, whether as a result of professional and social networking website providers, traditional executive search firms, sole proprietors and in-house human resource professionals (as noted above) or larger consulting firms building human resources consulting businesses, may lead to pricing pressures that could negatively impact our business. For example, increased competition could require us to charge lower prices, and/or cause us to lose market share, each of which could reduce our fee revenue.
Our executive search services face competition from both traditional and non-traditional competitors that provide job placement services, including other large global executive search firms, smaller specialty firms and web-based firms. We also face increased competition from sole proprietors and in-house human resource professionals whose ability to provide job placement services has been enhanced by professional profiles made available on the internet and enhanced social media-based search tools. The continued growth of the shared economy and related freelancing platform sites may also negatively impact demand for our services by allowing employers seeking services to connect with employees in real time and without any significant cost. Traditional executive search competitors include Egon Zehnder, Heidrick & Struggles International, Inc., Russell Reynolds Associates and Spencer Stuart. In each of our markets, one or more of our competitors may possess greater resources, greater name recognition, lower overhead or other costs and longer operating histories than we do, which may give them an advantage in obtaining future clients, capitalizing on new technology and attracting qualified professionals in these markets. Additionally, specialty firms can focus on regional or functional markets or on particular industries and executive search firms that have a smaller client base are subject to fewer off-limits arrangements. There are no extensive barriers to entry into the executive search industry and new recruiting firms continue to enter the market.
We believe the continuing development and increased availability of information technology will continue to attract new competitors, especially web-enabled professional and social networking website providers, and these providers may be facilitating a company’s ability to insource their recruiting capabilities. Competitors in these fields include SmashFly, iCIMS, Yello, Indeed, Google for Jobs and Jobvite. As these providers continue to evolve, they may develop offerings similar to or more expansive than ours, thereby increasing competition for our services or more broadly causing disruption in the executive search industry. Further, as technology continues to develop and the shared economy continues to grow, we expect that the use of freelancing platform sites will become more prevalent. As a result, companies may turn to such sites for their talent needs, which could negatively impact demand for the services we offer.
Our RPO & Professional Search services primarily compete for business with other RPO providers such as Cielo, Alexander Mann Solutions, IBM, Allegis, Kelly Services, Randstad and compete for mid-level professional search
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assignments with regional contingency recruitment firms and large national retained recruitment firms such as Robert Half, Michael Page, Harvey Nash, Robert Walters and BTG. In addition, some organizations have developed or may develop internal solutions to address talent acquisition that may be competitive with our solutions. This is a highly competitive and developing industry with numerous specialists. To compete successfully and achieve our growth targets for our talent acquisition business, we must continue to support and develop assessment and analytics solutions, maintain and grow our proprietary database, deliver demonstrable return on investment to clients, support our products and services globally, and continue to provide consulting and training to support our assessment products. Our failure to compete effectively could adversely affect our operating results and future growth.
Failure to attract and retain qualified and experienced consultants could result in a loss of clients which in turn could cause a decline in our revenue and harm to our business.
We compete with other executive and professional search and consulting firms for qualified and experienced consultants. These other firms may be able to offer greater compensation and benefits or more attractive lifestyle choices, career paths or geographic locations than we do. Attracting and retaining consultants in our industry is particularly important because, generally, a small number of consultants have primary responsibility for a client relationship. Because client responsibility is so concentrated, the loss of key consultants may lead to the loss of client relationships. In fiscal 2022, our top three consultants in Executive Search (including all four reportable regional segments) and in our Consulting segment had generated business equal to approximately 1% and 2% of our total fee revenues, respectively. Furthermore, our top ten consultants in Executive Search (including all four reportable regional segments) and in our Consulting segment had generated business equal to approximately 3% and 4% of our total fee revenues, respectively. This risk is heightened due to the general portability of a consultant’s business: consultants have in the past, and will in the future, terminate their employment with our Company. Any decrease in the quality of our reputation, reduction in our compensation levels relative to our peers or restructuring of our compensation program, whether as a result of insufficient revenue, a decline in the market price of our common stock or for any other reason, could impair our ability to retain existing consultants or attract additional qualified consultants with the requisite experience, skills and established client relationships. Our failure to retain our most productive consultants, whether in Executive Search, Consulting, Digital or RPO & Professional Search, or maintain the quality of service to which our clients are accustomed, as well as the ability of a departing consultant to move business to his or her new employer, could result in a loss of clients, which could in turn cause our fee revenue to decline and our business to be harmed. We may also lose clients if the departing Executive Search, Consulting, Digital or RPO & Professional Search consultant has widespread name recognition or a reputation as a specialist in his or her line of business in a specific industry or management function. We could also lose additional consultants if they choose to join the departing Executive Search, Consulting, Digital or RPO & Professional Search consultant at another executive search or consulting firm. Failing to limit departing consultants from moving business or recruiting our consultants to a competitor could adversely affect our business, financial condition and results of operations.
We are working to advance culture change through the continued implementation of diversity, equity and inclusion initiatives throughout our organization. If we do not successfully implement these initiatives, our ability to recruit, attract and retain talent may be adversely impacted.
We are highly dependent on the continued services of our small team of executives
We are dependent upon the efforts and services of our small executive team. While we have a preliminary plan for succession of certain key executives, the loss of any one of our key executives could have an adverse effect on our operations.
Failing to maintain our professional reputation and the goodwill associated with our brand name could seriously harm our business.
We depend on our overall reputation and brand name recognition to secure new engagements and to hire qualified professionals. Our success also depends on the individual reputations of our professionals. We obtain a majority of our new engagements from existing clients or from referrals by those clients. Any client who is dissatisfied with our services can adversely affect our ability to secure new engagements. If any factor, including poor performance or negative publicity, whether or not true, hurts our reputation, we may experience difficulties in competing successfully for both new engagements and qualified consultants, which could seriously harm our business.
As we develop new services, clients and practices, enter new lines of business, and focus more of our business on providing a full range of client solutions, the demands on our business and our operating and legal risks may increase.
As part of our corporate strategy, we are attempting to leverage our research and consulting services to sell a full range of services across the life cycle of a policy, program, project or initiative, and we are regularly searching for ways to provide new services to clients. This strategy, even if effectively executed, may prove insufficient in light of changes in market conditions, technology, competitive pressures or other external factors. In addition, we plan to extend our services to new clients and into new lines of business and geographic locations. As we focus on
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developing new services, clients, practice areas and lines of business; open new offices; and engage in business in new geographic locations, our operations are exposed to additional as well as enhanced risks.
In particular, our growth efforts place substantial additional demands on our management and staff, as well as on our information, financial, administrative and operational systems. We may not be able to manage these demands successfully. Growth may require increased recruiting efforts, opening new offices, increased business development, selling, marketing and other actions that are expensive and entail increased risk. We may need to invest more in our people and systems, controls, compliance efforts, policies and procedures than we anticipate. Therefore, even if we do grow, the demands on our people and systems, controls, compliance efforts, policies and procedures may exceed the benefits of such growth, and our operating results may suffer, at least in the short-term, and perhaps in the long-term.
Efforts involving a different focus and/or new services, clients, practice areas, lines of business, offices and geographic locations entail inherent risks associated with our inexperience and competition from mature participants in those areas. Our inexperience may result in costly decisions that could harm our profit and operating results. In particular, new or improved services often relate to the development, implementation and improvement of critical infrastructure or operating systems that our clients may view as “mission critical,” and if we fail to satisfy the needs of our clients in providing these services, our clients could incur significant costs and losses for which they could seek compensation from us. As our business continues to evolve and we provide a wider range of services, we will become increasingly dependent upon our employees, particularly those operating in business environments less familiar to us. Failure to identify, hire, train and retain talented employees who share our values could have a negative effect on our reputation and our business.
We are subject to potential legal liability from clients, employees, candidates for employment, stockholders and others. Insurance coverage may not be available to cover all of our potential liability and available coverage may not be sufficient to cover all claims that we may incur.
We are exposed to potential claims with respect to the executive search process and our consulting services, among numerous other matters. For example, a client could assert a claim for matters such as breach of an off-limit agreement or recommending a candidate who subsequently proves to be unsuitable for the position filled. Further, the current employer of a candidate whom we placed could file a claim against us alleging interference with an employment contract; a candidate could assert an action against us for failure to maintain the confidentiality of the candidate’s employment search; and a candidate or employee could assert an action against us for alleged discrimination, violations of labor and employment law or other matters. Also, in various countries, we are subject to data protection, employment and other laws impacting the processing of candidate information and other regulatory requirements that could give rise to liabilities/claims. Client dissatisfaction with the consulting services provided by our consultants may also lead to claims against us.
Additionally, as part of our consulting services, we often send a team of leadership consultants to our clients’ workplaces. Such consultants generally have access to client information systems and confidential information. An inherent risk of such activity includes possible claims of misuse or misappropriation of client IP, confidential information, funds or other property, as well as harassment, criminal activity, torts, or other claims. Such claims may result in negative publicity, injunctive relief, criminal investigations and/or charges, payment by us of monetary damages or fines, or other material adverse effects on our business.
From time to time, we may also be subject to legal actions or claims brought by our stockholders, including securities, derivative and class actions, for a variety of matters related to our operations, such as significant business transactions, cybersecurity incidents, volatility in our stock, and our responses to stockholder activism, among others. Such actions or claims and their resolution may result in defense costs, as well as settlements, fines or judgments against us, some of which are not, or cannot be, covered by insurance. The payment of any such costs, settlements, fines or judgments that are not insured could have a material adverse effect on our business. In addition, such matters may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and expose us to increased risks that would be uninsured.
We cannot ensure that our insurance will cover all claims or that insurance coverage will be available at economically acceptable rates. Our ability to obtain insurance, its coverage levels, deductibles and premiums, are all dependent on market factors, our loss history and insurers’ perception of our overall risk profile. Our insurance may also require us to meet a deductible. Significant uninsured liabilities could have a material adverse effect on our business, financial condition and results of operations.
We are subject to numerous and varied government regulations across the jurisdictions in which we operate.
Our business is subject to various federal, state, local, and foreign laws and regulations that are complex, change frequently and may become more stringent over time. Future legislation, regulatory changes or policy shifts under the new U.S. administration or other governments could impact our business. Our failure to comply with applicable laws
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and regulations could restrict our ability to provide certain services or result in the imposition of fines and penalties, substantial regulatory and compliance costs, litigation expense, adverse publicity, and loss of revenue. We incur, and expect to continue to incur, significant expenses in our attempt to comply with these laws, and our businesses are also subject to an increasing degree of compliance oversight by regulators and by our clients. In addition, our Digital services and increasing use of technology in our business expose us to data privacy and cybersecurity laws and regulations that vary and are evolving across jurisdictions. These and other laws and regulations, as well as laws and regulations in the various states or in other countries, could limit our ability to pursue business opportunities we might otherwise consider engaging in, impose additional costs or restrictions on us, result in significant loss of revenue, impact the value of assets we hold, or otherwise significantly adversely affect our business. Any failure by us to comply with applicable laws or regulations could also result in significant liability to us from private legal actions, or may result in the cessation of our operations or portions of our operations or impositions of fines and restrictions on our ability to carry on or expand our operations. Our operations could also be negatively affected by changes to laws and regulations and enhanced regulatory oversight of our clients and us. These changes may compel us to change our prices, may restrict our ability to implement price increases, and may limit the manner in which we conduct our business or otherwise may have a negative impact on our ability to generate revenues, earnings, and cash flows. If we are unable to adapt our products and services to conform to the new laws and regulations, or if these laws and regulations have a negative impact on our clients, we may experience client losses or increased operating costs, and our business and results of operations could be negatively affected.
Our business and operations are impacted by developing laws and regulations, as well as evolving investor and customer expectations with regard to environmental matters, including the impacts and actions needed to address climate change.
We are subject to evolving local, state, federal and/or international laws, regulations, and expectations regarding the environment and climate change. These requirements and expectations may increase the time and cost of our efforts to monitor and comply with those obligations; limit the extent, frequency, and modality with which our consultants travel; impact our business opportunities; and expose us to liability. Within our own operations, we face additional costs from rising energy costs which make it more expensive to power our corporate offices; efforts to mitigate or reduce our operations’ impacts from or on the environment, such as a shift to cloud technology or a leasing preference for buildings that are LEED-certified.
Risks Related to Our Profitability
We may not be able to align our cost structure with our revenue level, which in turn may require additional financing in the future that may not be available at all or may be available only on unfavorable terms.
Our efforts to align our cost structure with the current realities of our markets may not be successful. When actual or projected fee revenues are negatively impacted by weakening customer demand, we have and may again find it necessary to take cost cutting measures so that we can minimize the impact on our profitability. Failing to maintain a balance between our cost structure and our revenue could adversely affect our business, financial condition, and results of operations and lead to negative cash flows, which in turn might require us to obtain additional financing to meet our capital needs. If we are unable to secure such additional financing on favorable terms, or at all, our ability to fund our operations could be impaired, which could have a material adverse effect on our results of operations.
Our financial results could suffer if we are unable to achieve or maintain adequate utilization and suitable billing rates for our consultants.
Our profitability depends, to a large extent, on the utilization and billing rates of our professionals. Utilization of our professionals is affected by a number of factors, including: the number and size of client engagements; the timing of the commencement, completion and termination of engagements (for example, the commencement or termination of multiple RPO engagements could have a significant impact on our business, including significant fluctuations in our fee revenue, since these types of engagements are generally larger, in terms of both staffing and fee revenue generated, than our other engagements); our ability to transition our consultants efficiently from completed engagements to new engagements; the hiring of additional consultants because there is generally a transition period for new consultants that results in a temporary drop in our utilization rate; unanticipated changes in the scope of client engagements; our ability to forecast demand for our services and thereby maintain an appropriate level of consultants; and conditions affecting the industries in which we practice, as well as general economic conditions.
The billing rates of our consultants that we are able to charge are also affected by a number of factors, including: our clients’ perception of our ability to add value through our services; the market demand for the services we provide, which may vary globally or within particular industries that we serve; 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.
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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. Natural disasters, pandemics, disruptions to travel and transportation or problems with communications systems negatively impact our ability to perform services for, and interact with, our clients at their physical locations, 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 and these estimates may not be accurate. 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 2022, 2021, and 2020, fixed-fee engagements represented 22%, 26%, and 25% of our revenues, respectively.
Inflationary pressure could adversely impact our profitability.
Demand for our services is affected by global economic conditions and the general level of economic activity in the geographic regions in which we operate. During periods of slowed economic activity many companies hire fewer permanent employees, and our business, financial condition and results of operations may be adversely affected. If unfavorable changes in economic conditions occur, our business, financial condition and results of operations could suffer. Accelerated and pronounced economic pressures, such as the recent inflationary cost pressures, may negatively impact our expense base by increasing our operating costs including labor costs. Continued inflationary pressures may result in increases in operating costs that we may not be able to fully offset by raising prices for our services because if we do our clients may choose to reduce their business with us, which may reduce our operating margin.
Risks Related to Accounting and Taxation
Foreign currency exchange rate risks 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 are 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. Such variations expose us to both adverse as well as beneficial movements in currency exchange rates. Given the volatility of exchange rates, we are not always able to manage effectively our currency translation or transaction risks, which has and may continue to adversely affect our financial condition and results of operations.
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.
Risks Related to Our Financing/Indebtedness
Our indebtedness could adversely affect our financial condition, our ability to operate our business, react to changes in the economy or our industry, prevent us from fulfilling our obligations under our indebtedness and could divert our cash flow from operations for debt payments.
As of June 24, 2022, we had approximately $400.0 million in total indebtedness outstanding, $645.3 million of availability under our $650.0 million five-year senior secured revolving credit facility (the “Revolver”) and $500 million of availability under our $500.0 million five-year senior secured delayed draw term loan facility (“Delayed Draw Facility”), both provided for under our Credit Agreement, as amended on June 24, 2022 (the “Amended Credit Agreement”) that we entered into with a syndicate of banks and Bank of America, National Association as administrative agent. Subject to the limits contained in the Amended Credit Agreement that govern our Revolver and Delayed Draw Facility and the indenture governing our $400.0 million principal amount of the 4.625% Senior Unsecured Notes due 2027 (the “Notes”), we may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisition, or for other purposes. If we do so, the risks related to our debt could increase.
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Specifically, our level of debt could have important consequences to us, including the following: it may be difficult for us to satisfy our obligations, including debt service requirements under our outstanding debt; our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions or other general corporate purposes may be impaired; requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, including the Notes, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures, future business opportunities and other purposes; we are more vulnerable to economic downturns and adverse industry conditions and our flexibility to plan for, or react to, changes in our business or industry is more limited; our ability to capitalize on business opportunities and to react to competitive pressures, as compared to our competitors, may be compromised due to our high level of debt and the restrictive covenants in the Amended Credit Agreement and the indenture governing our Notes; our ability to borrow additional funds or to refinance debt may be limited; and it may cause potential or existing customers to not contract with us due to concerns over our ability to meet our financial obligations, such as insuring against our professional liability risks, under such contracts.
Furthermore, our debt under our Revolver bears interest at variable rates.
Despite our indebtedness levels, we and our subsidiaries may still incur substantially more debt, which could further exacerbate the risks associated with our substantial leverage.
We and our subsidiaries may incur substantial additional indebtedness in the future. The Amended Credit Agreement and the indenture governing our Notes contain restrictions on the incurrence of additional indebtedness, but these restrictions are subject to several qualifications and exceptions, and the indebtedness that may be incurred in compliance with these restrictions could be substantial. If we incur additional debt, the risks associated with our leverage, including those described above, would increase. Further, the restrictions in the indenture governing the Notes and the Amended Credit Agreement will not prevent us from incurring obligations, such as trade payables, that do not constitute indebtedness as defined in such debt instruments. As of June 24, 2022, we had $645.3 million of availability to incur additional secured indebtedness under our Revolver and $500 million of availability to incur additional secured indebtedness under our Delayed Draw Facility.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly.
Interest rates fluctuate. As a result, interest rates on the Revolver or other variable rate debt offerings could be higher or lower than current levels. When interest rates increase, our debt service obligations on our variable rate indebtedness, if any, would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease.
We may be unable to service our indebtedness.
Our ability to make scheduled payments on and to refinance our indebtedness depends on and is subject to our financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business and other factors, all of which are beyond our control, including the availability of financing in the international banking and capital markets. Lower total revenue generally will reduce our cash flow. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to service our debt, to refinance our debt or to fund our other liquidity needs.
If we are unable to meet our debt service obligations or to fund our other liquidity needs, we will need to restructure or refinance all or a portion of our debt, which could cause us to default on our debt obligations and impair our liquidity. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations.
Moreover, in the event of a default, the holders of our indebtedness, including the Notes, could elect to declare all the funds borrowed to be due and payable, together with accrued and unpaid interest, if any. The lenders under the Revolver could also elect to terminate their commitments thereunder, cease making further loans, and institute foreclosure proceedings against their collateral, and we could be forced into bankruptcy or liquidation. If we breach our covenants under the Revolver, we would be in default thereunder. The lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.
The agreements governing our debt impose significant operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities.
The Amended Credit Agreement and the indenture governing the Notes impose significant operating and financial restrictions on us. These restrictions limit our ability and the ability of our subsidiaries to, among other things: incur or guarantee additional debt or issue capital stock; pay dividends and make other distributions on, or redeem or
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repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; merge or consolidate; enter into agreements that restrict the ability of subsidiaries to make dividends, distributions or other payments to us or the guarantors; in the case of the indenture governing our Notes, designate restricted subsidiaries as unrestricted subsidiaries; and transfer or sell assets.
We and our subsidiaries are subject to covenants, representations and warranties in respect of the Revolver, including financial covenants as defined in the Amended Credit Agreement. See “Note 18 –Subsequent Events – Credit Facility” of our notes to our consolidated financial statements included in this Annual Report on Form 10-K.
As a result of these restrictions, we are limited as to how we conduct our business, and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.
Our failure to comply with the restrictive covenants described above and/or the terms of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations and financial condition could be adversely affected.
A decline in our operating results or available cash could cause us to experience difficulties in complying with covenants contained in more than one agreement, which could result in our bankruptcy or liquidation.
If we sustain a decline in our operating results or available cash, we could experience difficulties in complying with the financial covenants contained in the Amended Credit Agreement. The failure to comply with such covenants could result in an event of default under the Revolver and by reason of cross-acceleration or cross-default provisions, other indebtedness may then become immediately due and payable. In addition, should an event of default occur, the lenders under our Revolver could elect to terminate their commitments thereunder, cease making loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to obtain waivers from the lenders under our Revolver to avoid being in default. If we breach our covenants under our Revolver and seek a waiver, we may not be able to obtain a waiver from the lenders thereunder. If this occurs, we would be in default under our Revolver, the lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.
Risks Related to Technology, Cybersecurity and Intellectual Property
Social media platforms present risks and challenges that can cause damage to our brand and reputation.
The inappropriate and/or unauthorized use of social media platforms, including blogs, social media websites and other forms of Internet-based communications, which allow individuals access to a broad audience of consumers and other interested persons 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 have been and may continue to 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.
We have invested in specialized technology and other IP 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 Korn Ferry Advance and Talent Hub, that we believe provide us a competitive advantage in
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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, has been and may continue to 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 current insurance against the effects of a disaster regarding our information technology or our disaster recovery procedures 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 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 dependent on third parties for the execution of certain 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 have and may again lead to the improper disclosure of information obtained from our clients, candidates and employees, which could result in liability and harm to our reputation.
We use information technology and other computerresources 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 risk of security breaches which could lead to potential unauthorized disclosure of confidential information.Reliance on trained professionals to configure and operate this infrastructure creates the potential for human error, leading to potential exposure of sensitive or 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 have not and 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.
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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. Some U.S. states, including California, have also enacted cybersecurity laws requiring certain security measures of regulated entities that are broadly similar to GDPR requirements, such as the California Consumer Privacy Act and California Privacy Rights Act. New privacy laws in Colorado and Virginia will take effect in 2023, and we expect that other states will continue to adopt legislation in this area. 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.
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.
Risks Related to Acquisitions
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 Miller Heiman Group, AchieveForum and Strategy Execution in fiscal 2020 and The Lucas Group and Patina Solutions Group, Inc. in fiscal 2022. Targeted acquisitions have been and continue to be 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 Amended Credit Agreement limits us from consummating acquisitions unless we are in pro forma compliance with our financial covenants, 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.
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
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asset values, resulting in the creation of a significant amount of goodwill and other intangible assets. As of April 30, 2022, goodwill and purchased intangibles accounted for approximately 21% and 3%, respectively, of our total assets. We review goodwill and intangible assets annually (or more frequently, if impairment indicators arise) for impairment. 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 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.
Risks Related to Global Operations
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 have cut back on human resource initiatives, all of which negatively affects our financial condition and results of operations. We also experience more competitive pricing pressure during periods of economic decline. If the geopolitical uncertainties result in a reduction in business confidence, when 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 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 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 53 countries and, during the year ended April 30, 2022, generated 49% 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:
▪ | 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 |
▪ | difficulties in staffing and managing global operations, which could impact our ability to maintain an effective system of |
▪ | difficulties in building and maintaining a competitive presence in existing and new markets; |
▪ | social, economic and political instability, including the |
▪ | differences in
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▪ | statutory equity requirements; |
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▪ | differences in accounting and reporting requirements; |
▪ | repatriation controls; |
▪ | differences in labor and market conditions; |
▪ | potential adverse tax consequences; |
▪ | multiple regulations concerning immigration, 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. |
One or more of these factors has and may in the future harm our business, financial condition or results of operations.
Risks Related to Our Dividend Policy
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. Despite our history of paying dividends, 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 is restricted by agreements governing our debt, including our Amended Credit Agreement and indenture governing our Notes, 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 Revolver 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.
Our ability to pay dividends is restricted by agreements governing our debt, including our Amended Credit Agreement and indenture governing our Notes, and by Delaware law.
Both our Amended Credit Agreement and the indenture governing our Notes restrict our ability to pay dividends. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital 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 redeem our Notes and amend our Amended 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 Revolver, at or prior to maturity, or enter into additional agreements for indebtedness. Any such amendment, refinancing or additional agreement may contain covenants that 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, 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
21
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.
Risks Related to Our Stockholders
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.
General Risk Factors
Failing to retain our executive officers and key personnel or integrate new members of our senior management who are critical to our business may prevent us from successfully managing our business in the future.
Our future success depends upon the continued service of our executive officers and other key management personnel. Competition for qualified personnel is intense, and we may compete with other companies that have greater financial and other resources than we do. If we lose the services of one or more of our executives or key employees, or if one or more of them decides to join a competitor or otherwise compete directly or indirectly with us, or if we are unable to integrate new members of our senior management who are critical to our business, we may not be able to successfully manage our business or achieve our business objectives.
Changes in our accounting estimates and assumptions and other financial and nonfinancial reporting standard could negatively affect our financial position and results of operations.
We prepare our consolidated financial statements in accordance with U.S. 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-related bonuses, allowance for doubtful accounts, share-based payments and deferred income taxes. Actual results could differ from the estimates we make based on historical experience and various assumptions believed to be reasonable based on specific circumstances, and changes in accounting standards could have an adverse impact on our future financial position and results of operations.
As we endeavor to align with the recommendations of the Sustainability Accounting Standards Board and other standards or materiality assessments related to ESG matters, we have expanded, and may in the future continue to expand, our disclosures in these areas. A failure to accurately report or achieve progress on metrics, targets, or goals on a timely basis or at all could also have an adverse impact on our financial position, reputation, business, and growth.
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 our 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. Recently, the Biden Administration has proposed changes to federal tax policies that could significantly change how corporations are taxed on U.S. as well as on foreign earnings. While the proposed changes are still under debate, they could adversely affect our business and our results of operations.
As a result, we have been and may again 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 U.S., which could have a material adverse effect on our business, cash flow, results of operations, financial condition, as well as our effective
22
income tax rate.
Limited protection of our IP could harm our business, and we face the risk that our services or products may infringe upon the IP 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 cannot detect all 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 may not be able to successfully integrate or realize the expected benefits from our acquisitions.
Our future success depends in part on our ability to complete the integration of acquisition targets successfully into our operations. The process of integrating an acquired business subjects 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; |
▪ | 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 |
▪ | inability to retain the |
▪ | exposure to legal claims for activities of the acquired business prior to acquisition; and |
▪ | incurrence of |
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 you 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 that 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.
We may be subject to the actions of activist stockholders, which could disrupt our business.
We value constructive input from investors and regularly engage in dialogue with our stockholders regarding strategy and performance. Activist stockholders 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, such as through commencing a proxy contest, making public statements critical of our performance or business or engaging in other similar activities. Responding to stockholder 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
23
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.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Our corporate office is in Los Angeles, California. We lease our corporate office as well as an additional 104 offices through which we conduct business that are located in North America, EMEA, Asia Pacific and Latin America, all of which are used by all of our business segments. As of April 30, 2022, we leased an aggregate of approximately 1.2 million square feet of office space. The leases generally have remaining terms of 1 to 10 years and contain customary terms and conditions. We believe that our facilities are adequate for our current needs, and we do not anticipate any significant 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
| Age as of April 30, |
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Robert P. Rozek | 61 | Executive Vice President, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mark Arian | 61 | Chief | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Byrne Mulrooney | 61 | Chief Executive Officer, RPO Professional Search & Digital | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Michael Distefano (1) | 52 | Chief Executive Officer, Professional Search |
(1) | Appointed as an executive officer
|
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 of the Company since July 2007. He was the Executive Vice President and Chief Financial Officer of the Company 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 board of directors of Jefferies and Company, Inc., the principal operating subsidiary of Jefferies Group, Inc. from 1995 to 1999. Earlier, Mr. Burnison was a Partner 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 Partner with PricewaterhouseCoopers LLP. Mr. Rozek is a graduate of Canisius College in New York with a bachelor’s degree in accounting.
24
Mark Arian joined the Company as Chief Executive Officer of Korn Ferry’s Advisory segment in April 2017 and is now the Chief Executive Officer of Consulting. Prior to Korn Ferry, Mr. Arian served as a Managing Principal at Ernst & 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—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”) 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, 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 RPO & Professional Search and in March 2017 also became the Chief Executive Officer of Digital. Prior to joining Korn Ferry, he was President and Chief Operating Officer of Flynn Transportation Services, a third-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.
Michael Distefano has been the Chief Executive Officer, Professional Search and President of Search Innovation and Delivery Team since December 2020. Mr. Distefano joined the Company over 20 years ago in March of 2001 and served in various capacities since that time, including President of Korn Ferry Asia Pacific from May 2018 until April 2021 and prior to that as the Chief Marketing Officer from 2007 to 2021 and President of the Korn Ferry Institute. Prior to Korn Ferry, Mr. Distefano held leadership positions at GetSmart.com and Benefits Consulting, Inc. Mr. Distefano is a graduate of Bloomsburg University of Pennsylvania.
25
PART II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Mark Arian joined the Company as Chief Executive Officer of Korn Ferry’s Advisory 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—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”) 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, 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 RPO & Professional Search. Prior to joining Korn Ferry, he was President and Chief Operating Officer of Flynn Transportation Services, a third-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
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’.KFY. On June 21, 2019, the last reported sales price on the New York Stock Exchange for the Company’s common stock, was $40.05 per share and2022, there were approximately 24,047 beneficial46,937 stockholders of record of the Company’s common stock.
Performance Graph
We have presented below a graph comparing the cumulative total stockholder return onof the Company’s shares with the cumulative total stockholder return on (1) the Standard & Poor’s 500 Stock Index and (2) athe company-established peer group.groups for both 2022 and 2021. Cumulative total return for each of the periods shown in the performance graph is measured assuming an initial investment of $100 on April 30, 20142017 and the reinvestment of any dividends paid by the Company and any company in the peer group on the date the dividends were paid.
OurIn fiscal 2022, we established a new 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 1311 companies: CBIZ,ASGN Inc. (CBZ)(ASGN), Cushman & Wakefield Plc. (CWK), FTI Consulting Inc. (FCN), Heidrick & Struggles International Inc. (HSII), Huron Consulting Group Inc. (HURN), ICF International Inc. (ICFI), Insperity Inc. (NSP), Kelly Services,Jones Lang Lasalle Inc. (KELYA)(JLL), KforceManpowerGroup Inc. (KFRC)(MAN), Navigant Consulting, Inc. (NCI), Resources Connection, Inc. (RECN),PageGroup Plc. (MPGPF) and Robert Half International Inc. (RHI), 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,with significant global exposure that mirrors our global footprint 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 2021 peer group, presented for comparative purposes, consisted of Heidrick & Struggles International Inc. (HSII), Robert Half International Inc, (RHI), Willis Towers Watson Plc, (WLTW), Kforce Inc. (KFRC), Kelly Services Inc. (KELYA), TrueBlue Inc. (TBI), Insperity Inc. (NSP), FTI Consulting Inc. (FCN), CBIZ Inc. (CBZ), ICF International Inc. (ICFI), Huron Consulting Group Inc, (HURN) and Resources Connection Inc. (RGP).
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 Ferry, the S&P 500 Index, and a2021 Peer Group
and 2022 Peer Group
Copyright© 20192022 Standard & Poor's, a division of S&P Global. All rights reserved.
(*) | $100 invested on April 30, |
2526
Capital Allocation Approach
The Company and its Board of Directors endorse a balanced approach to capital allocation.allocation that contemplates debt service cost. The Company’s first priority is to invest in growth initiatives, such as the hiring of consultants, the continued development of IP and derivative products and services, and the investment in synergistic, accretive M&A transactions that earn a return superior to the Company'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.indebtedness. See Note 10— 11— Long Term Debt for a description of the Credit Agreement and indenture governing the Notes and Note 18 —Subsequent Events – Credit Facility for a description of the Amended 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. Every quarter since the adoption of the dividend policy, the Company has declared a quarterly dividend. On June 21, 2021, the Board of Directors increased the quarterly dividends to $0.12 per share for fiscal 2021. On June 21, 2022, the Board of Directors approved a 25% increase to our quarterly dividends to $0.15 per share.
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.
Stock Repurchase Program
On March 6, 2019,June 21, 2022, the Board of Directors approved an increase in the Company’s stock repurchase program of approximately $200$300 million, which bringsbrought our available capacity to repurchase shares in the open market or privately negotiated transactions to approximately $250$318 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$98.8 million, $33.1$30.4 million and $28.8$92.4 million of the Company’s common stock during fiscal 2019, 20182022, 2021 and 2017,2020, 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 agreementThe Amended Credit Agreement permits us to pay dividends to our stockholders and make share repurchases so long as our pro formathere is no default under the Amended Credit Agreement, the Company’s total funded debt to adjusted EBITDA ratio (as set forth in the Amended Credit Agreement, the “consolidated net leverage ratioratio”) is no greater than 3.255.00 to 1.00, and ourwe are in pro forma domestic liquiditycompliance with our financial covenant. Furthermore, our Notes allow the Company to pay $25.0 million of dividends per fiscal year with no restrictions plus an unlimited amount of dividends so long as the Company’s consolidated total leverage ratio is at least $50.0 million, includingnot greater than 3.50 to 1.00 and the revolving credit commitment minus amounts outstanding onCompany is not in default under the revolver, issued letters of credit and swing loans.indenture governing the Notes.
Issuer Purchases of Equity Securities
The following table summarizes common stock repurchased by us during the fourth quarter of fiscal 2019:2022:
|
| 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 |
|
|
| — |
|
|
|
|
| Total Number of Shares Purchased (1) |
|
| Average Price Paid Per Share |
|
| Total Number of Shares Purchased as Part of Publicly- Announced Programs |
|
| Approximate Dollar Value of Shares that May Yet be Purchased under the Programs (2) | |||
February 1, 2022 — February 28, 2022 |
|
| 240,000 |
|
| $ | 66.68 |
|
|
| 240,000 |
|
| $80.4 Million |
March 1, 2022 — March 31, 2022 |
|
| 453,182 |
|
| $ | 64.10 |
|
|
| 450,000 |
|
| $51.5 Million |
April 1, 2022 — April 30, 2022 |
|
| 346,698 |
|
| $ | 64.82 |
|
|
| 345,402 |
|
| $29.1 Million |
Total |
|
| 1,039,880 |
|
| $ | 64.94 |
|
|
| 1,035,402 |
|
|
|
(1) | Represents withholding of |
(2) | On |
26
Item 6. Reserved
27
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’s7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report on Form 10-K. The selected statements of income data set forth below for the fiscal years ended April 30, 2019, 2018 and 2017 and the selected balance sheets 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 2015 and the selected statement of income data set forth below for the fiscal years ended April 30, 2016 and 2015 are derived from audited consolidated financial statements and notes thereto which are not included in this Annual Report on Form 10-K.Operations
|
| 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 |
|
|
|
27
|
|
|
|
|
|
28
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-lookingForward-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 (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 areas well as the magnitude and duration of the impact of the global (“COVID-19”) pandemic on our business, employees, customers and our ability to provide services in affected regions constitute forward-looking statements. All of theseThese 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, those relating to the ultimate magnitude and duration of COVID-19 and of any future pandemics or similar outbreaks, and related restrictions and operational requirements that apply to our business and the businesses of our clients, and any related negative impacts on our business, employees, customers and our ability to provide services in affected regions, global and local political and or economic developments in or affecting countries where we have operations, competition, changes in demand for our services as a result of automation, dependence on and costs of attracting and retaining qualified and experienced consultants, inflationary pressures 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, globalconsolidation of or within the industries we serve, changes and local political or economic developments in or affecting countries where we have operations,governmental laws and regulations, evolving investor and customer expectations with regard to environmental matters, currency fluctuations in our international operations, risks related to growth, alignment of our cost structure, restrictions imposed by off-limits agreements, competition, consolidation in industries, reliance on information processing systems, cyber security vulnerabilities or events, changes to data security, data privacy, and data protection laws, dependence on third parties for the execution of critical functions, limited protection of our intellectual property (“IP”), our ability to enhance and develop new technology, our ability to successfully recover from a disaster or other business continuity problems, employment liability risk, an impairment in the carrying value of goodwill and other intangible assets, the effects of the Tax Cuts and Jobs Act (the “Tax Act”) and other future changes in tax laws, treaties, or regulations on our business and our company,Company, deferred tax assets that we may not be able to use, our ability to develop new products and services, the impact of the withdrawal of the United Kingdom from the European Union, changes in our accounting estimates and assumptions, alignment of our cost structure, the utilization and billing rates of our consultants, seasonality, the expansion of social media platforms, the ability to effect acquisitions, our indebtedness, 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 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. We also make available on the Investor Relations portion of our website earnings slides and other important information, which we encourage you to review.
Executive Summary
Korn Ferry (referred to herein as the “Company” or in the first personfirst-person notations “we,” “our,” and “us”) is a global organizational consulting firm. We currentlyhelp clients synchronize strategy, operations and talent to drive superior business performance. We work with organizations to design their structures, roles and responsibilities. We help them hire the right people to bring their strategy to life. And we advise them on how to reward, develop and motivate their people.
We are pursuing a strategy that will help Korn Ferry to focus on clients and collaborate intensively across the organization. This approach builds on the best of our past and gives us a clear path to the future with focused initiatives to increase our client and commercial impact. Korn Ferry is transforming how clients address their talent management needs. We have evolved from a mono-line business to a multi-faceted consultancy business, giving our consultants more frequent and expanded opportunities to engage with clients.
Our seven reportable segments operate through threethe following four lines of business:
1. | Consulting aligns organization structure, culture, performance and people to drive sustainable growth by addressing four fundamental needs: Organizational Strategy, Assessment and Succession, Leadership and Professional Development, and Total Rewards. We support this work with a comprehensive range of some of the world’s leading lP and data. The Consulting teams employ an integrated approach across core solutions, |
28
each one intended to strengthen our work and thinking in the next, to help clients execute their strategy in a digitally enabled world. |
2. | Digital delivers scalable tech-enabled solutions designed to identify the best structures, roles, capabilities and behaviors to drive businesses forward. Our digital products give clients direct access to our proprietary data, client data and analytics to deliver clear insights with the training tools needed to align organizational structure with business strategy. |
3. | Executive Search helps organizations recruit board level, chief executive and other senior executive and general management talent to deliver lasting impact. Our approach to placing talent that brings together our research-based IP, proprietary assessments, and behavioral interviewing with our practical experience to determine the ideal organizational fit. Salary benchmarking then builds appropriate frameworks for compensation and retention. This business is managed and reported on a geographic basis and represents four of the Company’s reportable segments (Executive Search North America, Executive Search EMEA, Executive Search Asia Pacific, and Executive Search Latin America). |
4. | RPO and Professional Search focuses on delivering enterprise talent acquisition solutions to our clients, at the professional level. We leverage the power of people, process expertise, IP-enabled technology, and compensation information to do this. Transaction sizes range from single professional searches to team, department, line of business projects, and global outsource recruiting solutions. |
The Company has seven reportable segments: Consulting, Digital, Executive Search Korn Ferry Advisory (Advisory)North America, Executive Search EMEA, Executive Search Asia Pacific, Executive Search Latin America and Korn Ferry RPO and Professional Search (“RPO & Professional Search”). Executive Search focuses on recruiting board level, chief executive and other senior executive and general management positions,Search.
Highlights of our performance 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 Advisory segment 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 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.fiscal 2022 include:
▪ | Approximately |
▪ | We have built strong client loyalty, with nearly 90% of the assignments performed during fiscal |
▪ | Approximately 70% of our revenues were generated from clients that |
29
|
|
▪ | In fiscal |
While most organizations can develop
Performance Highlights
On November 1, 2021, we completed the acquisition of The Lucas Group for $90.9 million, net of cash acquired. The Lucas Group contributes a sound strategy, they often struggle with howsubstantial professional search and interim expertise that has enhance our search portfolio. The Lucas Group is a professional search and interim staffing firm, targeting middle market businesses. The addition of The Lucas Group to make it stick. ThatKorn Ferry’s broader talent acquisition portfolio – spanning Executive Search and RPO & Professional Search – is whereexpected to accelerate our ability to capture additional share of this significant market. The Lucas Group is included in the RPO & Professional Search segment.
On April 1, 2022, we come in: synchronizing an organization’s strategy with itscompleted the acquisition of Patina Solutions Group for $42.9 million, net of cash acquired. Patina contributes a substantial interim executive solutions expertise across multiple industry verticals. Patina’s vast network of C-suite, top-tier, and professional interim talent to drive superior performance.spans functional area of expertise such as finance, operations, legal, human resources, IT and more. We help companies design their organization—the structure, roles and responsibilities—to seize these opportunities. In addition, we help organizations select and hire the talent they need to execute their strategy—and show them the best way to compensate, develop and motivate their people.
We dobelieve this through our five core solution sets:
|
|
|
|
|
|
|
|
|
|
On 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 allour clients looking for the Company’s sub-brands,right talent, who are highly agile, with specialized skills and expertise, to help them drive superior performance, including Futurestep, Hayon an interim basis. Patina offers solutions for today’s nomadic labor market. Patina Solutions Group and Lominger, among others. This integrated go-to-market approach was a key driver in our fee revenue growth in fiscal year 2018, which led to the decision to further integrate our go-to-market activities under one master brand — Korn Ferry. As a result, the Company discontinued the use of all sub-brands and changed its name, effective January 1, 2019, to “Korn Ferry.” Two of the Company’s sub-brands, Hay Group and Lominger came to Korn Ferry through acquisitions. In connection with the accounting for these acquisitions, $106.6 million of the purchase price was allocated to indefinite-lived tradename intangible assets. As a result of the decision to discontinue their use, the Company took a one-time, non-cash write-off of tradenames of $106.6 million in fiscal 2019.
The Company currently operates through three global segments. See Note 11—Segments,is included in the Notes to our Consolidated Financial Statements in this Annual Report on Form 10-K, for additional discussion of the Company’s global segments. RPO & Professional Search segment.
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)impairment charges). For fiscal 2017,2022, Adjusted EBITDA includedexcluded $7.9 million of integration/acquisition costs, a deferred revenue adjustment related to$7.4 million impairment of right-of-use assets and a previous acquisition, reflecting revenue that Advisory would have realized if not for business combination accounting that required 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.$1.9 million impairment of fixed assets. For fiscal 20192021, Adjusted EBITDA excluded $30.7 million of restructuring charges and 2018, management no longer had adjusted fee revenue.$0.7 million of integration/acquisition costs. For fiscal 2020, Adjusted EBITDA excluded $58.6 million of restructuring charges, $12.2 million of integration/acquisition costs and $1.8 million of separation costs.
3029
EBITDA,Consolidated and the subtotals of Executive Search Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. Theymeasures and have limitations as analytical tools,tools. They should not be viewed as a substitute for financial information determined in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. In addition, they may not necessarily be comparable to non-GAAP performance measures that may be presented by other companies.
Management believes the presentation of these non-GAAP financial measures provides meaningful supplemental information regarding Korn Ferry’s performance by excluding certain charges, items of income and other items that may not be indicative of Korn Ferry’s ongoing operating results. The use of these non-GAAP financial measures facilitates comparisons to Korn Ferry’s historical performance and the identification of operating trends that may otherwise be distorted by the factors discussed above. Korn Ferry includes these non-GAAP financial measures because management believes it is useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn Ferry’s ongoing operations and financial and operational decision-making. The accounting policies for the reportable segments are the same as those described in the summary of significant accounting policies in the accompanying consolidated financial statements, except that the above noted items are excluded from EBITDA to arrive at Adjusted EBITDA. Management further believes that Adjusted 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; rather, it is an adjustment for a short period of time provides better comparability between fiscal 2017 and subsequent 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.
Fee revenue was $1,926.0$2,626.7 million during fiscal 2019,2022, an increase of $158.8$816.7 million, or 9%45.1%, compared to $1,767.2$1,810.0 million in fiscal 2018,2021, with increases in fee revenue across all lines of business primarily due to the increasing relevance of the Company’s solutions and the acquisition of companies in all segments. During fiscal 2019, we recorded operating income of $140.8 million with the Executive Search, AdvisoryRPO and RPO & Professional Search segments contributing $179.1Segment. Exchange rates unfavorably impacted fee revenue by $2.8 million $5.6 million (net of $106.6 million impairment charge previously discussed) and $50.9 million, respectively, offset by Corporate expenses of $94.8 million.during fiscal 2022 compared to fiscal 2021. Net income attributable to Korn Ferry decreasedincreased by $31.1$211.9 million during fiscal 20192022 to $102.7$326.4 million from $133.8$114.5 million in fiscal 2018.2021. Adjusted EBITDA was $311.0$538.9 million, an increase of $33$252.6 million during fiscal 2019,2022, from Adjusted EBITDA of $278.0$286.3 million in the year-ago period.fiscal 2021. During fiscal 2019,2022, the Executive Search, Advisory and RPO & Professional, Search segmentsConsulting, and Digital lines of business contributed $193.8$257.6 million, $151.0$165.1 million, $116.1 million, and $54.4$110.1 million, respectively, offset by Corporate expenses net of other income of $88.2$110.0 million.
Our cash, cash equivalents and marketable securities increased by $109.2$114.0 million to $767.1$1,211.1 million at April 30, 2019,2022, compared to $657.9$1,097.1 million at April 30, 2018.2021. This increase was mainly due to proceedscash flows from operations as a result of cost savings initiatives that were put in place in fiscal 2021, partially offset by cash paid for the acquisitions of The Lucas Group and Patina Solutions net of cash acquired, repurchases of our Revolvercommon stock in the open market, the negative effect of $226.9 millionexchange rate changes on cash and cash provided by operating activities, offset by annual bonuses earned in fiscal 2018 and paid during fiscal 2019, sign-on and retention payments, $238.9 million in principal payments on our term loan, $46.7 million in payments for the purchaseequivalents, purchases of property and equipment, $37.4 million in stock repurchases ininterest payments on the open market, $20.7 million paid in tax withholding on restricted stock vestings4.625% Senior Unsecured Notes due 2027 (the “Notes”) and $23.5 million in dividends paid to stockholders during fiscal 2019.2022. As of April 30, 2019,2022, we held marketable securities to settle obligations under our Executive Capital Accumulation Plan (“ECAP”) with a cost value of $135.4$164.2 million and a fair value of $140.8$168.7 million. Our vested obligations for which these assets were held in trust totaled $122.3$160.8 million as of April 30, 20192022 and our unvested obligations totaled $24.6$24.0 million.
Our working capital increased by $130.1$38.6 million to $585.9$775.7 million in fiscal 2019.2022. 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 our debt obligations and dividend payments under our dividend policy in the next twelve months. We had $420.2$645.3 million and $646.0 million available for borrowing under our Revolver (as defined herein) at April 30, 2019.2022 and 2021, respectively. As of April 30, 2018, 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, 20192022 and 2018,2021, there was $2.9$4.7 million and $4.0 million of standby letters of credit issued, respectively, under our long-term debt arrangements. We had a total of $8.5$10.0 million and $7.4$11.0 million of standby letters of credits with other financial institutions as of April 30, 20192022 and 2018,2021, respectively.
Our Annual Report on Form 10-K for the year ended April 30,2021 includes a discussion and analysis of our financial condition and results of operations for the year ended April 30, 2021 in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
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
30
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. Substantially all fee revenue is derived from talent and organizational consulting services and digital sales, stand-alone or as part of a solution, 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 product services, RPO, eitherstand-alone or as part of a solution.
Revenue is recognized when control of the goods and services areis 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”):, Revenue from Contracts with Customers: 1) identify the contract with a customer; 2) identify the performance obligation(s) in the contract; 3) determine the transaction price; 4) allocate the transaction price to the separate performance obligation(s); and 5) recognize revenue when (or as) each performance obligation is satisfied.
Consulting fee revenue is primarily recognized as services are rendered, measured by total hours incurred as a percentage of total estimated hours at completion. It is possible that updated estimates for consulting engagements may vary from initial estimates with such updates being recognized in the period of determination. Depending on the timing of billings and services rendered, we accrue or defer revenue as appropriate.
Digital revenue is generated from IP platforms enabling large-scale, technology-based talent programs for pay, talent development, engagement, and assessment and is consumed directly by an end user or indirectly through a consulting engagement. Revenue is recognized as services are delivered and we have a legally enforceable right to payment. Revenue also comes from the sale of our proprietary IP subscriptions, which are considered symbolic IP due to the dynamic nature of the content. As a result, revenue is recognized over the term of the contract. Functional IP licenses grant customers the right to use IP content via the delivery of a flat file. Because the IP content license has significant stand-alone functionality, revenue is recognized upon delivery and when an enforceable right to payment exists. Revenue for tangible and digital products sold by the Company, such as books and digital files, is recognized when these products are shipped.
Fee revenue from executiveExecutive Search and non-executive professional searchProfessional Search activities is generally one-third of the estimated first year compensation of the placed candidate plus a percentage of the fee to cover indirect engagement related expenses. In addition to the search retainer, an uptick fee is billed when the actual compensation awarded by the client for a placement is higher than the estimated compensation. In the aggregate, upticks have been a relatively consistent percentage of the original estimated fee; therefore, 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 over the course of a search and when it is legally entitled to payment as outlined in the billing terms of the contract. Any revenues associated with services that are provided on a contingent basis are recognized once the contingency is resolved as this is when control is transferred to the customer. These assumptions determine the timing of revenue recognition for the reported period.
RPO feerevenue 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, measured by total hours incurred to the total estimated hours at completion. It is possible that updated estimates for consulting engagements may vary from initial estimates with such updates being recognized in the period of determination. Depending on the timing of billings and services rendered, we accrue or defer revenue as appropriate.
Product revenue is generated 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 dynamic nature of the content and, as a result, revenue is recognized over the term of the contract. Functional IP licenses grant customers the right to use IP content via delivery of a flat file. Because the IP content license has significant stand-alone functionality, revenue is recognized upon delivery and when an enforceable right to payment exists. 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 a legally enforceable right to payment. Tangible/digital products sold by us mainly consist of books and digital files covering a variety of topics including performance management, team effectiveness, and coaching and development. We recognize revenue for our products when sold or shipped, as is the case for books.
Annual Performance-Related Bonuses. 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 AdvisoryConsulting, Digital and RPO & Professional Search consultants), the level of engagements referred by a consultant in one line of business to a different line of business, our performance including profitability, competitive forces and future economic conditions and their impact on our results. At the end of each fiscal year, annual performance relatedperformance-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 relatedperformance-related bonus liability and adjust the carrying amount of the liability recorded on the consolidated balance sheets and report any changes in the estimate in current operations. Because annual performance-based bonuses are communicated and paid only after we report our 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
31
significantly impact the liability and related cost on our consolidated balance sheets and statements 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, other intangible assets, share-based payments, leases 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 when performing the quantitative test is determined utilizing (1) a discounted cash flow analysis based on forecasted 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) 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 goodwillperform an annual impairment in conjunction with our annual goodwilltest each year as of January 31, or more frequently if impairment assessmentindicators arise. The qualitative test performed as of January 31, 2019.2022 did not indicate any impairment, and therefore there was no need to perform a quantitative test. 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. Asas a result, no impairment charge was recognized. There was also no indication of potential impairment during the fourth quarter of fiscal 2019through April 30, 2022 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 |
| ▪ | An economic climate that significantly differs from our future profitability assumptions in timing or degree; |
| ▪ | The deterioration of the labor markets; |
| ▪ | Volatility in equity and debt markets; and |
| ▪ | Competition and disruption in our core business. |
3332
Results of Operations
The following table summarizes the results of our operations as a percentage of fee revenue:
(Numbers may not total exactly due to rounding)
|
| Year Ended April 30, |
| |||||||||
| 2019 |
|
| 2018 |
|
| 2017 |
| ||||
Fee revenue |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Reimbursed out-of-pocket engagement expenses |
|
| 2.5 |
|
|
| 3.0 |
|
|
| 3.6 |
|
Total revenue |
|
| 102.5 |
|
|
| 103.0 |
|
|
| 103.6 |
|
Compensation and benefits |
|
| 68.1 |
|
|
| 67.9 |
|
|
| 68.0 |
|
General and administrative expenses (1) |
|
| 18.3 |
|
|
| 13.4 |
|
|
| 14.5 |
|
Reimbursed expenses |
|
| 2.5 |
|
|
| 3.0 |
|
|
| 3.6 |
|
Cost of services |
|
| 3.9 |
|
|
| 4.2 |
|
|
| 4.6 |
|
Depreciation and amortization |
|
| 2.4 |
|
|
| 2.7 |
|
|
| 3.0 |
|
Restructuring charges, net |
|
| — |
|
|
| — |
|
|
| 2.2 |
|
Operating income |
|
| 7.3 |
|
|
| 11.8 |
|
|
| 7.7 |
|
Net income |
|
| 5.4 | % |
|
| 7.7 | % |
|
| 5.6 | % |
Net income attributable to Korn Ferry |
|
| 5.3 | % |
|
| 7.6 | % |
|
| 5.4 | % |
|
|
|
| Year Ended April 30, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Fee revenue |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Reimbursed out-of-pocket engagement expenses |
|
| 0.6 |
|
|
| 0.5 |
|
|
| 2.3 |
|
Total revenue |
|
| 100.6 |
|
|
| 100.5 |
|
|
| 102.3 |
|
Compensation and benefits |
|
| 66.3 |
|
|
| 71.7 |
|
|
| 67.2 |
|
General and administrative expenses |
|
| 9.0 |
|
|
| 10.6 |
|
|
| 13.4 |
|
Reimbursed expenses |
|
| 0.6 |
|
|
| 0.5 |
|
|
| 2.3 |
|
Cost of services |
|
| 4.4 |
|
|
| 4.0 |
|
|
| 4.4 |
|
Depreciation and amortization |
|
| 2.4 |
|
|
| 3.4 |
|
|
| 2.9 |
|
Restructuring charges, net |
|
| - |
|
|
| 1.7 |
|
|
| 3.0 |
|
Operating income |
|
| 17.9 |
|
|
| 8.6 |
|
|
| 9.1 |
|
Net income |
|
| 12.6 | % |
|
| 6.4 | % |
|
| 5.5 | % |
Net income attributable to Korn Ferry |
|
| 12.4 | % |
|
| 6.3 | % |
|
| 5.4 | % |
The following tables summarize the results of our operations by segment:operations:
(Numbers may not total exactly due to rounding)
|
| Year Ended April 30, |
|
| Year Ended April 30, |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||||||||||||
|
| Dollars |
|
| % |
|
| Dollars |
|
| % |
|
| Dollars |
|
| % |
|
| Dollars |
|
| % |
|
| Dollars |
|
| % |
|
| Dollars |
|
| % |
| ||||||||||||
|
| (dollars in thousands) |
|
| (dollars in thousands) |
| ||||||||||||||||||||||||||||||||||||||||||
Fee revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting |
| $ | 650,204 |
|
|
| 24.8 | % |
| $ | 515,844 |
|
|
| 28.5 | % |
|
| 543,095 |
|
|
| 28.1 | % | ||||||||||||||||||||||||
Digital |
|
| 349,025 |
|
|
| 13.3 |
|
|
| 287,306 |
|
|
| 15.9 |
|
|
| 292,366 |
|
|
| 15.1 |
| ||||||||||||||||||||||||
Executive Search: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 455,826 |
|
|
| 23.7 | % |
| $ | 408,098 |
|
|
| 23.1 | % |
| $ | 356,625 |
|
|
| 22.8 | % |
|
| 605,704 |
|
|
| 23.1 |
|
|
| 397,275 |
|
|
| 21.9 |
|
|
| 434,624 |
|
|
| 22.5 |
|
EMEA |
|
| 182,829 |
|
|
| 9.5 |
|
|
| 173,725 |
|
|
| 9.8 |
|
|
| 146,506 |
|
|
| 9.4 |
|
|
| 182,192 |
|
|
| 6.9 |
|
|
| 138,954 |
|
|
| 7.7 |
|
|
| 170,314 |
|
|
| 8.8 |
|
Asia Pacific |
|
| 104,291 |
|
|
| 5.4 |
|
|
| 96,595 |
|
|
| 5.5 |
|
|
| 80,169 |
|
|
| 5.1 |
|
|
| 118,596 |
|
|
| 4.5 |
|
|
| 83,306 |
|
|
| 4.6 |
|
|
| 98,132 |
|
|
| 5.1 |
|
Latin America |
|
| 31,896 |
|
|
| 1.7 |
|
|
| 30,624 |
|
|
| 1.7 |
|
|
| 34,376 |
|
|
| 2.2 |
|
|
| 29,069 |
|
|
| 1.1 |
|
|
| 17,500 |
|
|
| 1.0 |
|
|
| 29,400 |
|
|
| 1.5 |
|
Total Executive Search |
|
| 774,842 |
|
|
| 40.2 |
|
|
| 709,042 |
|
|
| 40.1 |
|
|
| 617,676 |
|
|
| 39.5 |
|
|
| 935,561 |
|
|
| 35.6 |
|
|
| 637,035 |
|
|
| 35.2 |
|
|
| 732,470 |
|
|
| 37.9 |
|
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 |
|
|
| 691,928 |
|
|
| 26.3 |
|
|
| 369,862 |
|
|
| 20.4 |
|
|
| 364,801 |
|
|
| 18.9 |
|
Total fee revenue |
|
| 1,926,033 |
|
|
| 100.0 | % |
|
| 1,767,217 |
|
|
| 100.0 | % |
|
| 1,565,521 |
|
|
| 100.0 | % |
|
| 2,626,718 |
|
|
| 100.0 | % |
|
| 1,810,047 |
|
|
| 100.0 | % |
|
| 1,932,732 |
|
|
| 100.0 | % |
Reimbursed out-of-pocket engagement expense |
|
| 47,829 |
|
|
|
|
|
|
| 52,302 |
|
|
|
|
|
|
| 56,148 |
|
|
|
|
|
|
| 16,737 |
|
|
|
|
|
|
| 9,899 |
|
|
|
|
|
|
| 44,598 |
|
|
|
|
|
Total revenue |
| $ | 1,973,862 |
|
|
|
|
|
| $ | 1,819,519 |
|
|
|
|
|
| $ | 1,621,669 |
|
|
|
|
|
| $ | 2,643,455 |
|
|
|
|
|
| $ | 1,819,946 |
|
|
|
|
|
| $ | 1,977,330 |
| �� |
|
|
|
In the tables that follow, the Company presents a subtotal for Executive Search Adjusted EBITDA and a single percentage for Executive Search Adjusted EBITDA margin, which reflects the aggregate of all of the individual Executive Search Regions. These figures are non-GAAP financial measures and are presented as they are consistent with the Company’s lines of business and are financial metrics used by the Company’s investor base.
33
|
| Year Ended April 30, 2022 |
| |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Executive Search |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Consulting |
|
| Digital |
|
| North America |
|
| EMEA |
|
| Asia Pacific |
|
| Latin America |
|
| Subtotal |
|
| RPO & Professional Search |
|
| Corporate |
|
| Consolidated |
| ||||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||||||||||
Fee revenue |
| $ | 650,204 |
|
| $ | 349,025 |
|
| $ | 605,704 |
|
| $ | 182,192 |
|
| $ | 118,596 |
|
| $ | 29,069 |
|
| $ | 935,561 |
|
| $ | 691,928 |
|
| $ | — |
|
| $ | 2,626,718 |
|
Total revenue |
| $ | 654,199 |
|
| $ | 349,437 |
|
| $ | 609,258 |
|
| $ | 182,866 |
|
| $ | 118,705 |
|
| $ | 29,079 |
|
| $ | 939,908 |
|
| $ | 699,911 |
|
| $ | — |
|
| $ | 2,643,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Korn Ferry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 326,360 |
|
Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,485 |
|
Other loss, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 11,880 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| �� |
|
|
|
|
|
|
|
|
|
|
| 25,293 |
|
Income tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 102,056 |
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 470,074 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 63,521 |
|
Other loss, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (11,880 | ) |
Integration/acquisition costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7,906 |
|
Impairment of fixed assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,915 |
|
Impairment of right of use assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7,392 |
|
Adjusted EBITDA |
| $ | 116,108 |
|
| $ | 110,050 |
|
| $ | 181,615 |
|
| $ | 31,804 |
|
| $ | 35,105 |
|
| $ | 9,089 |
|
| $ | 257,613 |
|
| $ | 165,141 |
|
| $ | (109,984 | ) |
| $ | 538,928 |
|
Adjusted EBITDA margin |
|
| 17.9 | % |
|
| 31.5 | % |
|
| 30.0 | % |
|
| 17.5 | % |
|
| 29.6 | % |
|
| 31.3 | % |
|
| 27.5 | % |
|
| 23.9 | % |
|
|
|
|
|
| 20.5 | % |
|
| Year Ended April 30, |
| |||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||
|
| Dollars |
|
| Margin(1) |
|
| Dollars |
|
| Margin(1) |
|
| Dollars |
|
| Margin(1) |
| ||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Search: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 120,754 |
|
|
| 26.5 | % |
| $ | 100,397 |
|
|
| 24.6 | % |
| $ | 81,621 |
|
|
| 22.9 | % |
EMEA |
|
| 29,974 |
|
|
| 16.4 |
|
|
| 26,768 |
|
|
| 15.4 |
|
|
| 27,854 |
|
|
| 19.0 |
|
Asia Pacific |
|
| 24,364 |
|
|
| 23.4 |
|
|
| 18,425 |
|
|
| 19.1 |
|
|
| 8,580 |
|
|
| 10.7 |
|
Latin America |
|
| 3,998 |
|
|
| 12.5 |
|
|
| 4,022 |
|
|
| 13.1 |
|
|
| 6,268 |
|
|
| 18.2 |
|
Total Executive Search |
|
| 179,090 |
|
|
| 23.1 |
|
|
| 149,612 |
|
|
| 21.1 |
|
|
| 124,323 |
|
|
| 20.1 |
|
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 |
|
| (94,765 | ) |
|
|
|
|
|
| (81,097 | ) |
|
|
|
|
|
| (81,459 | ) |
|
|
|
|
Total operating income |
| $ | 140,826 |
|
|
| 7.3 | % |
| $ | 208,446 |
|
|
| 11.8 | % |
| $ | 120,288 |
|
|
| 7.7 | % |
|
| Year Ended April 30, 2021 |
| |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Executive Search |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Consulting |
|
| Digital |
|
| North America |
|
| EMEA |
|
| Asia Pacific |
|
| Latin America |
|
| Subtotal |
|
| RPO & Professional Search |
|
| Corporate |
|
| Consolidated |
| ||||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||||||||||
Fee revenue |
| $ | 515,844 |
|
| $ | 287,306 |
|
| $ | 397,275 |
|
| $ | 138,954 |
|
| $ | 83,306 |
|
| $ | 17,500 |
|
| $ | 637,035 |
|
| $ | 369,862 |
|
| $ | — |
|
| $ | 1,810,047 |
|
Total revenue |
| $ | 517,046 |
|
| $ | 287,780 |
|
| $ | 399,104 |
|
| $ | 139,213 |
|
| $ | 83,463 |
|
| $ | 17,500 |
|
| $ | 639,280 |
|
| $ | 375,840 |
|
| $ | — |
|
| $ | 1,819,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Korn Ferry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 114,454 |
|
Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,108 |
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (37,194 | ) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 29,278 |
|
Income tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 48,138 |
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 155,784 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 61,845 |
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 37,194 |
|
Integration/acquisition costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 737 |
|
Restructuring charges, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 30,732 |
|
Adjusted EBITDA |
| $ | 81,522 |
|
| $ | 86,095 |
|
| $ | 98,099 |
|
| $ | 11,742 |
|
| $ | 16,676 |
|
| $ | 1,289 |
|
| $ | 127,806 |
|
| $ | 69,411 |
|
| $ | (78,542 | ) |
| $ | 286,292 |
|
Adjusted EBITDA margin |
|
| 15.8 | % |
|
| 30.0 | % |
|
| 24.7 | % |
|
| 8.5 | % |
|
| 20.0 | % |
|
| 7.4 | % |
|
| 20.1 | % |
|
| 18.8 | % |
|
|
|
|
|
| 15.8 | % |
|
|
|
| Year Ended April 30, 2020 |
| |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Executive Search |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Consulting |
|
| Digital |
|
| North America |
|
| EMEA |
|
| Asia Pacific |
|
| Latin America |
|
| Subtotal |
|
| RPO & Professional Search |
|
| Corporate |
|
| Consolidated |
| ||||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||||||||||
Fee revenue |
| $ | 543,095 |
|
| $ | 292,366 |
|
| $ | 434,624 |
|
| $ | 170,314 |
|
| $ | 98,132 |
|
| $ | 29,400 |
|
| $ | 732,470 |
|
| $ | 364,801 |
|
| $ | — |
|
| $ | 1,932,732 |
|
Total revenue |
| $ | 557,255 |
|
| $ | 294,261 |
|
| $ | 447,528 |
|
| $ | 172,978 |
|
| $ | 99,209 |
|
| $ | 29,493 |
|
| $ | 749,208 |
|
| $ | 376,606 |
|
| $ | — |
|
| $ | 1,977,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Korn Ferry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 104,946 |
|
Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,071 |
|
Other loss, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,879 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 22,184 |
|
Income tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 43,945 |
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 176,025 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 55,311 |
|
Other loss, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,879 | ) |
Integration/acquisition costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12,152 |
|
Restructuring charges, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 58,559 |
|
Separation costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,783 |
|
Adjusted EBITDA |
| $ | 61,092 |
|
| $ | 83,073 |
|
| $ | 120,725 |
|
| $ | 31,067 |
|
| $ | 22,885 |
|
| $ | 6,402 |
|
| $ | 181,079 |
|
| $ | 60,168 |
|
| $ | (84,461 | ) |
| $ | 300,951 |
|
Adjusted EBITDA margin |
|
| 11.2 | % |
|
| 28.4 | % |
|
| 27.8 | % |
|
| 18.2 | % |
|
| 23.3 | % |
|
| 21.8 | % |
|
| 24.7 | % |
|
| 16.5 | % |
|
|
|
|
|
| 15.6 | % |
34
|
| Year Ended April 30, 2019 |
| |||||||||||||||||||||||||||||||||
|
| Executive Search |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| North America |
|
| EMEA |
|
| Asia Pacific |
|
| Latin America |
|
| Subtotal |
|
| Advisory |
|
| RPO & Professional Search |
|
| Corporate |
|
| Consolidated |
| |||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||||||
Fee revenue |
| $ | 455,826 |
|
| $ | 182,829 |
|
| $ | 104,291 |
|
| $ | 31,896 |
|
| $ | 774,842 |
|
| $ | 821,048 |
|
| $ | 330,143 |
|
| $ | — |
|
| $ | 1,926,033 |
|
Total revenue |
| $ | 469,743 |
|
| $ | 186,131 |
|
| $ | 105,543 |
|
| $ | 31,960 |
|
| $ | 793,377 |
|
| $ | 838,620 |
|
| $ | 341,865 |
|
| $ | — |
|
| $ | 1,973,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Korn Ferry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 102,651 |
|
Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,145 |
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (10,094 | ) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 16,891 |
|
Equity in earnings of unconsolidated subsidiaries, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (311 | ) |
Income tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 29,544 |
|
Operating income (loss) |
| $ | 120,754 |
|
| $ | 29,974 |
|
| $ | 24,364 |
|
| $ | 3,998 |
|
| $ | 179,090 |
|
| $ | 5,617 |
|
| $ | 50,884 |
|
| $ | (94,765 | ) |
| $ | 140,826 |
|
Depreciation and amortization |
|
| 3,890 |
|
|
| 1,254 |
|
|
| 1,428 |
|
|
| 410 |
|
|
| 6,982 |
|
|
| 29,057 |
|
|
| 3,255 |
|
|
| 7,195 |
|
|
| 46,489 |
|
Other income (loss), net |
|
| 6,388 |
|
|
| 432 |
|
|
| 281 |
|
|
| 322 |
|
|
| 7,423 |
|
|
| 3,198 |
|
|
| 268 |
|
|
| (795 | ) |
|
| 10,094 |
|
Equity in earnings of unconsolidated subsidiaries, net |
|
| 311 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 311 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 311 |
|
EBITDA |
|
| 131,343 |
|
|
| 31,660 |
|
|
| 26,073 |
|
|
| 4,730 |
|
|
| 193,806 |
|
|
| 37,872 |
|
|
| 54,407 |
|
|
| (88,365 | ) |
|
| 197,720 |
|
Integration/acquisition costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,559 |
|
|
| — |
|
|
| 187 |
|
|
| 6,746 |
|
Tradename write-offs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 106,555 |
|
|
| — |
|
|
| — |
|
|
| 106,555 |
|
Adjusted EBITDA |
| $ | 131,343 |
|
| $ | 31,660 |
|
| $ | 26,073 |
|
| $ | 4,730 |
|
| $ | 193,806 |
|
| $ | 150,986 |
|
| $ | 54,407 |
|
| $ | (88,178 | ) |
| $ | 311,021 |
|
Operating margin |
|
| 26.5 | % |
|
| 16.4 | % |
|
| 23.4 | % |
|
| 12.5 | % |
|
| 23.1 | % |
|
| 0.7 | % |
|
| 15.4 | % |
|
|
|
|
|
| 7.3 | % |
Adjusted EBITDA margin |
|
| 28.8 | % |
|
| 17.3 | % |
|
| 25.0 | % |
|
| 14.8 | % |
|
| 25.0 | % |
|
| 18.4 | % |
|
| 16.5 | % |
|
|
|
|
|
| 16.1 | % |
|
| 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 |
|
Operating margin |
|
| 24.6 | % |
|
| 15.4 | % |
|
| 19.1 | % |
|
| 13.1 | % |
|
| 21.1 | % |
|
| 12.8 | % |
|
| 14.4 | % |
|
|
|
|
|
| 11.8 | % |
Adjusted EBITDA margin |
|
| 25.8 | % |
|
| 16.5 | % |
|
| 21.2 | % |
|
| 15.2 | % |
|
| 22.5 | % |
|
| 18.3 | % |
|
| 15.6 | % |
|
|
|
|
|
| 15.7 | % |
35
| 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 20192022 Compared to Fiscal 20182021
Fee Revenue
Fee Revenue. Fee revenue increased by $158.8$816.7 million, or 9%45.1%, to $1,926.0$2,626.7 million in fiscal 20192022 compared to $1,767.2$1,810.0 million in fiscal 2018.2021. Exchange rates unfavorably impacted fee revenue by $48.3$2.8 million, in fiscal 2022 compared to fiscal 2021. The higher fee revenue was attributable to increases in all lines of business primarily due to an increase in new business driven by the increased relevance of the Company’s solutions and the acquisition of companies in the RPO & Professional Search. Further, COVID-19 had adversely impacted demand for the Company’s services on a worldwide basis in fiscal 2021.
Consulting. Consulting reported fee revenue of $650.2 million in fiscal 2022, an increase of $134.4 million, or 3%26%, compared to $515.8 million in fiscal 2019 compared to the year-ago period.2021. The increase in fee revenue was attributablepartially driven by our Organizational Strategy work in organization and job redesign, people strategy and culture transformation. In addition, our diversity, equity & inclusion (“DE&I”) business remained strong in fiscal 2022 as we helped clients move the needle on their diversity efforts. Also, greater expectations for organizations to organicbe a force for good in society more broadly has been increasing demand for our environmental and social governance (“ESG”) and sustainability offerings. Leadership Development continues to focus on the importance of increasing employee engagement through coaching and structured leadership workshops. Assessment and Succession increased as clients rely on Korn Ferry’s robust data, science and IP to fuel leadership and scaled workforce transformations. Finally, growth in Total Rewards was fueled by global compensation and retention challenges associated with labor market dislocation; merger & acquisition and IPO activity; and increased focus on executive pay and governance issues, all solution areas.of which increased pressure to offer higher and more competitive compensation. Exchange rates unfavorably impacted fee revenue by $2.8 million, or 1%, compared to fiscal 2021.
Executive Search. Executive SearchDigital. Digital reported fee revenue of $774.8$349.0 million in fiscal 2022, an increase of $65.8$61.7 million, or 9%21%, compared to $287.3 million in fiscal 20192021. The increase in fee revenue was primarily due to Professional Development where we targeted new offerings and partnerships in fiscal 2022 to meet the growing need of companies focusing on sales effectiveness. We had double digit increases in fee revenue across our other solutions focusing on assessment, total rewards and organizational strategy as companies focused on retaining and rewarding key talent to reduce levels of attrition from dislocation in the labor markets. Exchange rates unfavorably impacted fee revenue by $1.8 million, or 1%, compared to $709.0fiscal 2021.
Executive Search North America. Executive Search North America reported fee revenue of $605.7 million in the year-ago period. As detailed below, Executive Searchfiscal 2022, an increase of $208.4 million, or 52%, compared to $397.3 million in fiscal 2021. Exchange rates favorably impacted fee revenue by $1.3 million in fiscal 2022 compared to fiscal 2021. North America’s fee revenue was higher in all regions in fiscal 2019 as compared to fiscal 2018. The higher fee revenue in Executive Search was mainly due to a 6%35% increase in the number of engagements billed and a 5%12% increase in the weighted-average fees billed per engagement (calculated using local currency) in fiscal 20192022 compared to the year-ago period.fiscal 2021.
Executive Search EMEA. Executive Search EMEA reported fee revenue of $182.2 million in fiscal 2022, an increase of $43.2 million, or 31%, compared to $139.0 million in fiscal 2021. Exchange rates unfavorably impacted fee revenue by $14.8$0.5 million or 2%, in fiscal 2019 as2022 compared to the year-ago period.
North America reported fee revenue of $455.8 million, anfiscal 2021. The 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%15% increase in the number of engagements billed and a 3%14% increase in the weighted-average fees billed per engagement (calculated using local currency) in fiscal 20192022 compared to the year-ago period. Technology, industrial and financial services were the main sectors contributing to the increase in fee revenue in fiscal 2019 as compared to the year-ago period. The effect of exchange rates on fee revenue was minimal in fiscal 2019 as compared to the year-ago period.
EMEA reported fee revenue of $182.8 million, an increase of $9.1 million, or 5%, in fiscal 2019 compared to $173.7 million in fiscal 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 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. 2021.The performance in the United Kingdom, Germany,France, the United Arab Emirates and FranceBelgium were the primary contributors to the increase in fee revenue in fiscal 20192022 compared to the year-ago period. In termsfiscal 2021, driving $31.0 million 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.increased revenue.
Executive Search Asia Pacific. Executive Search Asia Pacific reported fee revenue of $104.3$118.6 million in fiscal 2022, an increase of $7.7$35.3 million, or 8%42%, in fiscal 2019 compared to $96.6$83.3 million in fiscal 2018.2021. Exchange rates unfavorablyfavorably impacted fee revenue by $3.6$0.6 million, or 4%1%, in fiscal 2019,2022 compared to the year-ago period.fiscal 2021. The increase in fee revenue was due to a 10%27% increase in the number of engagements billed and a 2%an 11% increase in the weighted-average fees billed per engagement (calculated using local currency) in fiscal 20192022 compared to the year-ago period.fiscal 2021. The performance in Hong Kong, Australia, Singapore,India, China and New ZealandSingapore were the primary contributors to the increase in fee revenue in fiscal 20192022 compared to fiscal 2021, contributing $28.8 million of increased fee revenue.
Executive Search Latin America. Executive Search Latin America reported fee revenue of $29.1 million in fiscal 2022, an increase of $11.6 million, or 66%, compared to $17.5 million in fiscal 2021. Exchange rates favorably impacted fee revenue by $0.2 million, or 1%, in fiscal 2022 compared to fiscal 2021. The increase in fee revenue was due to a 34% increase in the year-ago period. Technology, education/non-profit, consumer goods,number of engagements billed and financial servicesa 22% increase in the weighted-average fees billed per engagement (calculated using local currency) in fiscal 2022 compared to fiscal 2021. The performance in Mexico, Brazil and Chile were the main sectors contributingprimary contributors to the increase in fee revenue in fiscal 2019 as2022 compared to the year-ago period.fiscal 2021, driving $9.4 million of increased revenue.
Latin AmericaRPO & Professional Search. RPO & Professional Search reported fee revenue of $31.9$691.9 million in fiscal 2022, an increase of $1.3$322.0 million, or 4%87%, in fiscal 2019 compared to $30.6$369.9 million in fiscal 2018.2021. Exchange rates unfavorablyfavorably impacted fee revenue by $4.6$0.2 million or 15%, in fiscal 2019, compared to the year-ago period.fiscal 2021. The increase in fee revenue was due to higher fee revenue in Peru, Colombia
35
Professional Search of $166.2 million and BrazilRPO of $155.8 million due to wider adoption of RPO services in the market. The increase in Professional Search is due to an 86% increase in engagements billed and a 21% increase in the weighted-average fees billed per engagement in fiscal 2019,2022 compared to the year-ago period. Consumer goods and financial services were the main sectors contributingfiscal 2021. The increase in Professional Search was also due to the increase inacquisition of The Lucas Group and Patina Solutions Group (“Acquisitions”), which contributed $69.3 million and $4.1 million of fee revenue, in fiscal 2019, compared to the year-ago period, partially offset by a decrease in life sciences/healthcare and industrial sectors.respectively.
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 $33.0 million and $23.9 million, respectively, drove the increase in fee revenue.
Compensation and Benefits
Compensation and benefits expense increased $112.1$443.6 million, or 9%,34% to $1,311.2$1,741.5 million in fiscal 20192022 from $1,199.1$1,297.9 million in fiscal 2018.2021. Exchange rates favorably impacted compensation and benefits by $29.6$0.3 million or 2%, in fiscal 20192022 compared to the year-ago period.fiscal 2021. The increase in compensation and benefits expense was primarily due to a 10% increaseincreases in average headcount, which contributed $41.4 million in higher salaries and related payroll taxes and a $13.5of $230.4 million, increase inperformance-related bonus expense of $160.3 million, amortization of long-term incentive awards. Also contributing to the increase was higher performance-related bonus expenseawards of $36.9$16.4 million, higher commission expenseemployer insurance of $5.5$13.8 million and an increase in the use of outside contractors of $5.5 million all$9.3 million. These increases were due to the needincrease in fee revenue combined with increases in overall profitability and average headcount. Also contributing to service higher fee revenues from increased business.compensation and benefit expense was an increase in commission expense of $28.5 million due to the Acquisitions, partially offset by a decrease in deferred compensation expenses of $30.7 million as a result of decreases in the fair value of participants’ accounts in fiscal 2022 compared to fiscal 2021. Compensation and benefits expense, as a percentage of fee revenue, was 68%decreased to 66% in both fiscal 2019 and 2018.2022 from 72% in fiscal 2021.
Executive SearchConsulting compensation and benefits expense increased by $33.8$90.5 million, or 7%25%, to $502.4$450.9 million in fiscal 2019 compared to $468.62022 from $360.4 million in fiscal 2018.2021. Exchange rates favorably impacted compensation and benefits by $9.4$1.2 million or 2%, in fiscal 20192022 compared to the year-ago period.fiscal 2021. The increase in compensation and benefits expense was primarily due to higherincreases in salaries and related payroll taxes of $48.9 million, performance-related bonus expense of $17.7$24.5 million, amortization of long-term incentive awards of $5.0 million and employer insurance of $2.7 million due to an increase in fee revenue combined with increases in overall profitability and average headcount in fiscal 2022 compared to fiscal 2021. Consulting compensation and benefits expense, as a percentage of fee revenue, decreased to 69% in fiscal 2022 from 70% in fiscal 2021.
Digital compensation and benefits expense increased by $31.1 million, or 21%, to $177.8 million in fiscal 2022 from $146.7 million in fiscal 2021. The impact of exchange rates was essentially flat in fiscal 2022 compared to fiscal 2021. The increase in compensation and benefits expense was primarily due to increases in performance-related bonus expense of $11.4 million, salaries and related payroll taxes of $7.9 million and commission expenses of $5.8 million in fiscal 2022 compared to fiscal 2021 as a result of an increase in fee revenue combined with increases in overall profitability and average headcount. Digital compensation and benefits expense, as a percentage of fee revenue, was 51% in both fiscal 2022 and fiscal 2021.
Executive Search North America compensation and benefits expense increased by $77.6 million, or 26%, to $377.1 million in fiscal 2022 compared to $299.5 million in fiscal 2021. Exchange rates unfavorably impacted compensation and benefits by $0.7 million in fiscal 2022 compared to fiscal 2021. The increase was primarily due to increases in performance-related bonus expense of $82.6 million and salaries and related payroll taxes of $24.6 million due to the increase in fee revenue. Also contributingrevenue combined with increases in overall profitability and average headcount in fiscal 2022 compared to fiscal 2021. The increases in compensation and benefit expense was partially offset by a decrease in the amounts owed under certain deferred compensation and retirement plans $35.4 million due to a decrease in the fair market value of the participants’ accounts in fiscal 2022 compared to fiscal 2021. Executive Search North America compensation and benefits expense, as a percentage of fee revenue, decreased to 62% in fiscal 2022 from 75% in fiscal 2021.
Executive Search EMEA compensation and benefits expense increased by $22.0 million, or 20%, to $133.1 million in fiscal 2022 compared to $111.1 million in fiscal 2021. Exchange rates favorably impacted compensation and benefits by $0.5 million in fiscal 2022 compared to fiscal 2021. The increase was a 5% increase in average headcount, which contributed $13.0 million inprimarily due to higher salaries and related payroll taxes of $12.6 million and aperformance-related bonus expense of $8.2 million in fiscal 2022 compared to fiscal 2021 due to the increase in amortizationfee revenue combined with an increase in overall profitability. Executive Search EMEA compensation and benefits expense, as a percentage of long-term incentive awardsfee revenue, decreased to 73% in fiscal 20192022 from 80% in fiscal 2021.
Executive Search Asia Pacific compensation and benefits expense increased by $14.0 million, or 24%, to $72.3 million in fiscal 2022 compared to $58.3 million in fiscal 2021. Exchange rates unfavorably impacted compensation and benefits by $0.4 million, or 1%, in fiscal 2022 compared to fiscal 2021. The increase was primarily due to increases in performance-related bonus expense of $10.2 million and salaries and related payroll taxes of $6.2 million in fiscal 2022 compared to fiscal 2021 due to an increase in fee revenue combined with an increase overall profitability. Executive Search Asia Pacific compensation and benefits expense, as a percentage of fee revenue, decreased to 61% in fiscal 2022 from 70% in fiscal 2021.
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Executive Search Latin America compensation and benefits expense increased by $4.3 million, or 30%, to $18.4 million in fiscal 2022 compared to $14.1 million in fiscal 2021. Exchange rates unfavorably impacted compensation and benefits by $0.3 million, or 2%, in fiscal 2022 compared to fiscal 2021. The increase was primarily due to higher salaries and related payroll taxes of $2.0 million and performance-related bonus expense of $1.4 million in fiscal 2022 compared to fiscal 2021 due to an increase in fee revenue combined with an increase in overall profitability. Executive Search Latin America compensation and benefits expense, as a percentage of fee revenue, decreased to 63% in fiscal 2022 from 80% in fiscal 2021.
RPO & Professional Search compensation and benefits expense increased by $187.4 million, or 71%, to $452.0 million in fiscal 2022 from $264.6 million in fiscal 2021. The impact of exchange rates was essentially flat in fiscal 2022 compared to fiscal 2021. The increase was due to higher salaries and related payroll taxes of $122.1 million, performance-related bonus expense of $17.6 million, employer insurance of $8.4 million and the year-ago period. Executiveuse of outside contractors of $5.0 million due to the increase in fee revenue combined with increases in overall profitability and average headcount in fiscal 2022 compared to fiscal 2021. Also contributing to the increase in compensation and benefit was an increase in commission expenses of $22.7 million and integration and acquisition costs of $1.9 million driven by the Acquisitions. RPO & Professional Search compensation and benefits expense, as a percentage of fee revenue, decreased to 65% in fiscal 20192022 from 66%72% in fiscal 2018.
Advisory compensation and benefits expense increased by $26.8 million, or 5%, to $524.1 million in fiscal 2019 from $497.3 million in fiscal 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 due to an increase in amortization of long-term incentive awards of $4.1 million and $2.4 million more in salaries and related payroll taxes resulting 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, increased to 64% in fiscal 2019 from 63% in the year-ago period.
RPO & Professional Search compensation and benefits expense increased by $41.4 million, or 21%, to $234.6 million in fiscal 2019 from $193.2 million in fiscal 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 32% increase in the average headcount in fiscal 2019 compared to 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 the RPO business. Also contributing to the increase in compensation and benefits was a higher performance-related bonus expense of $10.7 million. RPO & Professional Search compensation and benefits expense, as a percentage of fee revenue, was 71% in both fiscal 2019 and 2018.2021.
Corporate compensation and benefits expense increased by $10.1$16.5 million, or 25%38%, to $50.1$59.7 million in fiscal 20192022 from $40.0$43.2 million in fiscal 2018.2021. The increase of $7.2 million was primarily due to higher performance-related bonus expense,the changes in cash surrender value (“CSV”) of the company-owned life insurance (“COLI”) contracts due to lower death benefits recognized in fiscal 2022 compared to fiscal 2021. Also contributing to the increase was higher salaries and related payroll taxes of $6.0 million and performance-related bonus expense of $4.2 million due to an increase in the use of outside contractors, higher stock-based compensation expenseconsolidated fee revenue, combined with increases in overall profitability and an increase in amortization of long-term incentive awards of $2.0 million, $2.2 million, $1.1 million, $0.9 million and $0.6 million, respectively,average headcount in fiscal 20192022 compared to the year-ago period. The rest of the increase was due to a change in the cash surrender value (“CSV”) of COLI that increased compensation and benefits expense by $1.6 million in fiscal 2019 compared to the year-ago period.2021.
General and Administrative Expenses
General and administrative expenses increased $114.6$45.5 million, or 48%24%, to $352.0$237.3 million in fiscal 20192022 compared to $237.4$191.8 million in fiscal 2018.2021. Exchange rates favorably impacted general and administrative expenses by $8.3$0.9 million or 3%, in fiscal 20192022 compared to the year-ago period.fiscal 2021. The increase in general and administrative expenses was primarily due to the write-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$14.0 million, which contributed to the increase in fee revenue and new business in fiscal 2022, as well as an increase in premise and office expense of $1.2$6.9 million, in fiscal 2019 as compared tobad debt expense of $5.8 million and legal and other professional fees of $5.3 million. In addition the year-ago period.Company recorded impairment charges associated with the reduction of the Company’s real estate footprint of $9.3 million and integration and acquisition costs of $6.0 million incurred with the acquisition of The Lucas Group that closed on November 1, 2021 and Patina Solutions Group that closed on April 1, 2022. General and administrative expenses, as a percentage of fee revenue, was 18%decreased to 9% in fiscal 2019 as2022 from 11% in fiscal 2021.
Consulting general and administrative expenses increased by $2.9 million, or 6%, to $51.5 million in fiscal 2022 compared to 13%$48.6 million in fiscal 2021. The increase in general and administrative expenses was primarily due to impairment charges associated with the year-ago period. Excludingreduction of the tradename write-offs,Company’s real estate footprint of $2.8 million in fiscal 2022. Consulting general and administrative expenses, as a percentage of fee revenue, decreased to 8% in fiscal 2022 from 9% in fiscal 2021.
Digital general and administrative expenses increased by $1.9 million, or 7%, to $31.0 million in fiscal 2022 compared to $29.1 million in fiscal 2021. The increase in general and administrative expenses was primarily due to impairment charges associated with the reduction of the Company’s real estate footprint of $1.5 million in fiscal 2022. Digital general and administrative expenses, as a percentage of fee revenue, decreased to 9% in fiscal 2022 from 10% in fiscal 2021.
Executive Search North America general and administrative expenses increased by $3.9 million, or 14%, to $30.8 million in fiscal 2022 from $26.9 million in fiscal 2021. The increase in general and administrative expenses was primarily due to increases in business development expenses of $2.4 million and bad debt expense of $0.7 million. Executive Search North America general and administrative expenses, as a percentage of fee revenue, was 13%5% in fiscal 2019.2022 compared to 7% in fiscal 2021.
Executive Search EMEA general and administrative expenses increased by $4.4$2.0 million, or 6%13%, to $82.1$18.0 million in fiscal 20192022 from $77.7$16.0 million in fiscal 2018.2021. The increase in general and administrative expenses was mainlyprimarily due to $1.8impairment charges associated with the reduction of the Company’s real estate footprint of $1.1 million more in premise and office expense and an increasethe impact of $0.9foreign currency with foreign exchange losses of $0.7 million in legal and other professional expenses. Also contributingfiscal 2022 compared to the increase were increases to travel-related expenses and marketing and business development expensesforeign currency gains of $1.3$0.3 million and $0.7 million, respectively, in order to support the higher fee revenues generated in fiscal 2019 as compared to the year-ago period.2021. Executive Search EMEA general and administrative expenses, as a percentage of fee revenue was 11%10% in both fiscal 2019 and 2018.2022 compared to 12% in fiscal 2021.
AdvisoryExecutive Search Asia Pacific general and administrative expenses increased by $105.9$2.4 million, or 108%28%, to $204.3$11.0 million in fiscal 2019 compared to $98.42022 from $8.6 million in the year-ago period.fiscal 2021. The increase in general and administrative expenses was mainlyprimarily due to the write-offhigher bad debt expense of tradenames of $106.6$1.0 million in fiscal 20192022 compared to the year-ago period. Advisoryfiscal 2021. Executive Search
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Asia Pacific general and administrative expenses, as a percentage of fee revenue, was 25%9% in fiscal 2019 as2022 compared to 13%10% in the year-ago period. Excluding the tradename write-offs,fiscal 2021.
Executive Search Latin America general and administrative expenses decreased by $1.3 million, or 59%, to $0.9 million in fiscal 2022 from $2.2 million in fiscal 2021. The decrease in general and administrative expenses was primarily due to lower premise and office expenses of $1.4 million in fiscal 2022 compared to fiscal 2021. Executive Search Latin America general and administrative expenses, as a percentage of fee revenue, was 3% in fiscal 2022 compared to 12% in fiscal 2019.2021.
RPO & Professional Search general and administrative expenses increased by $1.4$15.8 million, or 5%64%, to $28.1$40.6 million in fiscal 20192022 from $26.7$24.8 million in fiscal 2018.2021. The increase in general and administrative expenses was primarily due primarily to increasesan increase in premise and office expense $5.3 million, higher bad debt expense of $1.1$3.7 million, in fiscal 2019 compared toimpairment charges associated with the year-ago period.reduction of the Company’s real estate footprint of $3.9 million and integration and acquisition costs associated with the Acquisitions of $1.8 million. RPO & Professional Search general and administrative expenses, as a percentage of fee revenue, was 9%6% in fiscal 20192022 compared to 10%7% in the year-ago period.fiscal 2021.
Corporate general and administrative expenses increased by $2.9$18.0 million, or 8%51%, to $37.5$53.5 million in fiscal 20192022 compared to $34.6$35.5 million in fiscal 2018.2021. The increase in general and administrative expenses was primarily due primarily to increaseshigher marketing expense of $7.2 million, integration and acquisition costs of $4.2 million incurred with the Acquisitions in fiscal 2022, legal and other professional expenses and software licensesfees of $2.2$3.8 million and $1.7an increase of $1.5 million respectively,in charitable contributions in fiscal 20192022 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 2018.2021.
Cost of Services Expense
Cost of services expense consists primarily of non-billable contractor and product costs related to the delivery of various services and products, primarily in RPO & Professional Search, Consulting and Advisory.Digital. Cost of services expense was $75.5$114.4 million in fiscal 20192022 compared to $73.7$72.0 million in fiscal 2018.2021. The increase was due to an increase in fee revenue and the Acquisitions. Cost of services expense, as a percentage of fee revenue, was 4% in both fiscal 20192022 and 2018.fiscal 2021.
Depreciation and Amortization Expenses
Depreciation and amortization expenses were $46.5 million, a decrease of $2.1 million, or 4%, in fiscal 2019 compared to $48.6$63.5 million in fiscal 2018. The decrease was due2022, an increase of $1.7 million, or 3%, compared to lower amortization expense associated with intangible assets as some of our intangible assets became fully amortized.
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Operating income was $140.8 million, a decrease of $67.6$61.8 million in fiscal 2019 compared to $208.4 million in fiscal 2018.2021. The decrease in operating income was primarily driven by the write-off of tradenames of $106.6 million, an increase of $112.1 million in compensation and benefits expense, and $8.0 million more in general and administrative expenses (excluding write-off of tradenames), offset by higher fee revenue of $158.8 million.
Executive Search operating income increased by $29.5 million, or 20%, to $179.1 million in fiscal 2019 compared to $149.6 million in fiscal 2018. The increase in Executive Search operating income was driven by an increase in fee revenue of $65.8 million, offset by increases in compensation and benefits expense and general and administrative expenses of $33.8 million and $4.4 million, respectively. Executive Search operating income, as a percentage of fee revenue, was 23% and 21% in fiscal 2019 and 2018, respectively.
Advisory operating income was $5.6 million, a decrease of $94.9 million, or 94% in fiscal 2019 compared to $100.5 million in fiscal 2018. The change was primarily due to the write-offtechnology investments made in the current and prior year in software for our Digital business and the Acquisitions.
Restructuring Charges, Net
There were no restructuring charges, net during fiscal 2022. In April 2020, we implemented a restructuring plan in response to the uncertainty caused by COVID-19 that resulted in reductions in our workforce in the fourth quarter of tradenamesfiscal 2020. We continued the implementation of $106.6 million and an increase of $26.8 million in compensation and benefits expensethis plan in fiscal 2019 compared to the year-ago period, offset by higher fee revenue of $36.0 million2021 and a decrease in depreciation and amortization expense of $2.5 million. Advisory operating income, as a percentageresult recorded restructuring charges, net of fee revenue was 1%$30.7 million of severance costs 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 2019.2021.
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, cost of services expense and general and administrative expenses of $41.4 million, $2.4 million and $1.4 million, respectively. RPO & Professional Search operating income, as a percentage of fee revenue, was 15% in fiscal 2019 compared to 14% in the year-ago period.
Net Income AttributableCompensation and Benefits
Compensation and benefits expense increased $443.6 million, or 34% to Korn Ferry
Net income attributable to Korn Ferry decreased by $31.1 million to $102.7$1,741.5 million in fiscal 2019 compared $133.82022 from $1,297.9 million in fiscal 2018.2021. Exchange rates favorably impacted compensation and benefits by $0.3 million in fiscal 2022 compared to fiscal 2021. The decrease was primarily driven by higher operating expenses of $221.9 million mainly due to the tradename write-off of $106.6 million and higherincrease in compensation and benefits expense was primarily due to increases in salaries and related payroll taxes of $112.1$230.4 million, performance-related bonus expense of $160.3 million, amortization of long-term incentive awards of $16.4 million, employer insurance of $13.8 million and the use of outside contractors of $9.3 million. These increases were due to the increase in fee revenue combined with increases in overall profitability and average headcount. Also contributing to higher compensation and benefit expense was an increase in commission expense of $28.5 million due to the Acquisitions, partially offset by higher totala decrease in deferred compensation expenses of $30.7 million as a result of decreases in the fair value of participants’ accounts in fiscal 2022 compared to fiscal 2021. Compensation and benefits expense, as a percentage of fee revenue, decreased to 66% in fiscal 2022 from 72% in fiscal 2021.
Consulting compensation and benefits expense increased by $90.5 million, or 25%, to $450.9 million in fiscal 2022 from $360.4 million in fiscal 2021. Exchange rates favorably impacted compensation and benefits by $1.2 million in fiscal 2022 compared to fiscal 2021. The increase in compensation and benefits expense was primarily due to increases in salaries and related payroll taxes of $154.4$48.9 million, performance-related bonus expense of $24.5 million, amortization of long-term incentive awards of $5.0 million and a lower income tax provisionemployer insurance of $40.6$2.7 million due to an increase in fee revenue combined with increases in overall profitability and average headcount in fiscal 2022 compared to fiscal 2021. Consulting compensation and benefits expense, as a percentage of fee revenue, decreased to 69% in fiscal 2022 from 70% in fiscal 2021.
Digital compensation and benefits expense increased by $31.1 million, or 21%, to $177.8 million in fiscal 2022 from $146.7 million in fiscal 2021. The impact of exchange rates was essentially flat in fiscal 2022 compared to fiscal 2021. The increase in compensation and benefits expense was primarily due to increases in performance-related bonus expense of $11.4 million, salaries and related payroll taxes of $7.9 million and commission expenses of $5.8 million in fiscal 2022 compared to fiscal 2021 as a result of an increase in fee revenue combined with increases in overall profitability and average headcount. Digital compensation and benefits expense, as a percentage of fee revenue, was 51% in both fiscal 2022 and fiscal 2021.
Executive Search North America compensation and benefits expense increased by $77.6 million, or 26%, to $377.1 million in fiscal 2022 compared to $299.5 million in fiscal 2021. Exchange rates unfavorably impacted compensation and benefits by $0.7 million in fiscal 2022 compared to fiscal 2021. The increase was primarily due to increases in performance-related bonus expense of $82.6 million and salaries and related payroll taxes of $24.6 million due to the year-ago period. Net income attributableincrease in fee revenue combined with increases in overall profitability and average headcount in fiscal 2022 compared to Korn Ferry,fiscal 2021. The increases in compensation and benefit expense was partially offset by a decrease in the amounts owed under certain deferred compensation and retirement plans $35.4 million due to a decrease in the fair market value of the participants’ accounts in fiscal 2022 compared to fiscal 2021. Executive Search North America compensation and benefits expense, as a percentage of fee revenue, decreased to 62% in fiscal 2022 from 75% in fiscal 2021.
Executive Search EMEA compensation and benefits expense increased by $22.0 million, or 20%, to $133.1 million in fiscal 2022 compared to $111.1 million in fiscal 2021. Exchange rates favorably impacted compensation and benefits by $0.5 million in fiscal 2022 compared to fiscal 2021. The increase was primarily due to higher salaries and related payroll taxes of $12.6 million and performance-related bonus expense of $8.2 million in fiscal 2022 compared to fiscal 2021 due to the increase in fee revenue combined with an increase in overall profitability. Executive Search EMEA compensation and benefits expense, as a percentage of fee revenue, decreased to 73% in fiscal 2022 from 80% in fiscal 2021.
Executive Search Asia Pacific compensation and benefits expense increased by $14.0 million, or 24%, to $72.3 million in fiscal 2022 compared to $58.3 million in fiscal 2021. Exchange rates unfavorably impacted compensation and benefits by $0.4 million, or 1%, in fiscal 2022 compared to fiscal 2021. The increase was primarily due to increases in performance-related bonus expense of $10.2 million and salaries and related payroll taxes of $6.2 million in fiscal 2022 compared to fiscal 2021 due to an increase in fee revenue combined with an increase overall profitability. Executive Search Asia Pacific compensation and benefits expense, as a percentage of fee revenue, decreased to 61% in fiscal 2022 from 70% in fiscal 2021.
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Executive Search Latin America compensation and benefits expense increased by $4.3 million, or 30%, to $18.4 million in fiscal 2022 compared to $14.1 million in fiscal 2021. Exchange rates unfavorably impacted compensation and benefits by $0.3 million, or 2%, in fiscal 2022 compared to fiscal 2021. The increase was primarily due to higher salaries and related payroll taxes of $2.0 million and performance-related bonus expense of $1.4 million in fiscal 2022 compared to fiscal 2021 due to an increase in fee revenue combined with an increase in overall profitability. Executive Search Latin America compensation and benefits expense, as a percentage of fee revenue, decreased to 63% in fiscal 2022 from 80% in fiscal 2021.
RPO & Professional Search compensation and benefits expense increased by $187.4 million, or 71%, to $452.0 million in fiscal 2022 from $264.6 million in fiscal 2021. The impact of exchange rates was essentially flat in fiscal 2022 compared to fiscal 2021. The increase was due to higher salaries and related payroll taxes of $122.1 million, performance-related bonus expense of $17.6 million, employer insurance of $8.4 million and the use of outside contractors of $5.0 million due to the increase in fee revenue combined with increases in overall profitability and average headcount in fiscal 2022 compared to fiscal 2021. Also contributing to the increase in compensation and benefit was an increase in commission expenses of $22.7 million and integration and acquisition costs of $1.9 million driven by the Acquisitions. RPO & Professional Search compensation and benefits expense, as a percentage of fee revenue, decreased to 65% in fiscal 2022 from 72% in fiscal 2021.
Corporate compensation and benefits expense increased by $16.5 million, or 38%, to $59.7 million in fiscal 2022 from $43.2 million in fiscal 2021. The increase of $7.2 million was due to the changes in cash surrender value (“CSV”) of the company-owned life insurance (“COLI”) contracts due to lower death benefits recognized in fiscal 2022 compared to fiscal 2021. Also contributing to the increase was higher salaries and related payroll taxes of $6.0 million and performance-related bonus expense of $4.2 million due to an increase in consolidated fee revenue, combined with increases in overall profitability and average headcount in fiscal 2022 compared to fiscal 2021.
General and Administrative Expenses
General and administrative expenses increased $45.5 million, or 24%, to $237.3 million in fiscal 2022 compared to $191.8 million in fiscal 2021. Exchange rates favorably impacted general and administrative expenses by $0.9 million in fiscal 2022 compared to fiscal 2021. The increase in general and administrative expenses was primarily due to higher marketing and business development expenses of $14.0 million, which contributed to the increase in fee revenue and new business in fiscal 2022, as well as an increase in premise and office expense of $6.9 million, bad debt expense of $5.8 million and legal and other professional fees of $5.3 million. In addition the Company recorded impairment charges associated with the reduction of the Company’s real estate footprint of $9.3 million and integration and acquisition costs of $6.0 million incurred with the acquisition of The Lucas Group that closed on November 1, 2021 and Patina Solutions Group that closed on April 1, 2022. General and administrative expenses, as a percentage of fee revenue, decreased to 9% in fiscal 2022 from 11% in fiscal 2021.
Consulting general and administrative expenses increased by $2.9 million, or 6%, to $51.5 million in fiscal 2022 compared to $48.6 million in fiscal 2021. The increase in general and administrative expenses was primarily due to impairment charges associated with the reduction of the Company’s real estate footprint of $2.8 million in fiscal 2022. Consulting general and administrative expenses, as a percentage of fee revenue, decreased to 8% in fiscal 2022 from 9% in fiscal 2021.
Digital general and administrative expenses increased by $1.9 million, or 7%, to $31.0 million in fiscal 2022 compared to $29.1 million in fiscal 2021. The increase in general and administrative expenses was primarily due to impairment charges associated with the reduction of the Company’s real estate footprint of $1.5 million in fiscal 2022. Digital general and administrative expenses, as a percentage of fee revenue, decreased to 9% in fiscal 2022 from 10% in fiscal 2021.
Executive Search North America general and administrative expenses increased by $3.9 million, or 14%, to $30.8 million in fiscal 2022 from $26.9 million in fiscal 2021. The increase in general and administrative expenses was primarily due to increases in business development expenses of $2.4 million and bad debt expense of $0.7 million. Executive Search North America general and administrative expenses, as a percentage of fee revenue, was 5% in fiscal 20192022 compared to 8%7% in the year-ago period.fiscal 2021.
Adjusted EBITDA
Adjusted EBITDAExecutive Search EMEA general and administrative expenses increased by $33.0$2.0 million, or 13%, to $311.0$18.0 million in fiscal 2019 compared to $278.02022 from $16.0 million in fiscal 2018. This2021. The increase was driven by higher fee revenue of $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,was primarily due to changes inimpairment charges associated with the fair valuereduction of our marketable securitiesthe Company’s real estate footprint of $1.1 million and the impact of foreign currency with foreign exchange losses of $0.7 million in fiscal 20192022 compared to the year-ago period. Adjusted EBITDA,foreign currency gains of $0.3 million in fiscal 2021. Executive Search EMEA general and administrative expenses, as a percentage of fee revenue was 16%10% in both fiscal 2019 and 2018.2022 compared to 12% in fiscal 2021.
Executive Search Adjusted EBITDAAsia Pacific general and administrative expenses increased by $34.5$2.4 million, or 22%28%, to $193.8$11.0 million in fiscal 2019 compared to $159.32022 from $8.6 million in fiscal 2018.2021. 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 fair value of our marketable securities in fiscal 2019 compared to the year-ago period, offset by increases of $33.8 million in compensation and benefits expense, $4.4 million in general and administrative expenses.expenses was primarily due to higher bad debt expense of $1.0 million in fiscal 2022 compared to fiscal 2021. Executive Search Adjusted EBITDA,
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Asia Pacific general and administrative expenses, as a percentage of fee revenue, was 25%9% in fiscal 2019 as2022 compared to 22%10% in the year-ago period.fiscal 2021.
Advisory Adjusted EBITDA was $151.0 million, an increase of $7.5Executive Search Latin America general and administrative expenses decreased by $1.3 million, or 5%59%, in fiscal 2019 compared to $143.5$0.9 million in fiscal 2018. The increase was driven by higher fee revenue of $36.0 million, offset by increases of $29.42022 from $2.2 million in compensationfiscal 2021. The decrease in general and benefits expense (excluding integration costs)administrative expenses was primarily due to lower premise and office expenses of $1.4 million in fiscal 20192022 compared to the year-ago period. Advisory Adjusted EBITDA,fiscal 2021. Executive Search Latin America general and administrative expenses, as a percentage of fee revenue, was 18%3% in both fiscal 2019 and 2018.2022 compared to 12% in fiscal 2021.
RPO & Professional Search Adjusted EBITDA was $54.4 million, an increase of $11.8general and administrative expenses increased by $15.8 million, or 28%64%, in fiscal 2019 compared to $42.6$40.6 million in fiscal 2018.2022 from $24.8 million in fiscal 2021. The increase was driven by higher fee revenue of $56.9 million, offset by increases 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 was primarily due to an increase in fiscal 2019 compared topremise and office expense $5.3 million, higher bad debt expense of $3.7 million, impairment charges associated with the year-ago period.reduction of the Company’s real estate footprint of $3.9 million and integration and acquisition costs associated with the Acquisitions of $1.8 million. RPO & Professional Search Adjusted EBITDA,general and administrative expenses, as a percentage of fee revenue, was 16%6% in both fiscal 20192022 compared to 7% in fiscal 2021.
Corporate general and 2018.
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Other income, net was $10.1administrative expenses increased by $18.0 million, or 51%, to $53.5 million in the fiscal 20192022 compared to $11.1$35.5 million in the year-ago period.fiscal 2021. The decreaseincrease in general and administrative expenses was primarily due to smaller gains inhigher marketing expense of $7.2 million, integration and acquisition costs of $4.2 million incurred with the fair value of our marketable securitiesAcquisitions in fiscal 20192022, legal and other professional fees of $3.8 million and an increase of $1.5 million in charitable contributions in fiscal 2022 compared to the year-ago period.fiscal 2021.
InterestCost of Services Expense Net
InterestCost of services expense netconsists primarily relates to our credit agreementof contractor and borrowings under our COLI policies, which was partially offset by interest earned on cash and cash equivalent balances. Interest expense, net was $16.9 million in the fiscal 2019 compared to $13.8 million in the year-ago period.
Income Tax Provision
The provision for income tax was $29.5 million in the fiscal 2019 compared to $70.1 million in the year-ago period. This reflects a 22% and 34% effective tax rate for fiscal 2019 and 2018, respectively. The difference in the effective tax rate is primarily dueproduct costs related to the enactmentdelivery of the 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 vestedvarious services and products, primarily in fiscal 2019.
Net Income Attributable to Noncontrolling Interest
Net income attributable to noncontrolling interest represents the portionRPO & Professional Search, Consulting and Digital. Cost 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. Net income attributable to noncontrolling interestservices expense was $2.1 million in both fiscal 2019 and 2018.
Fiscal 2018 Compared to Fiscal 2017
Fee Revenue
Fee Revenue. Fee revenue went up by $201.7 million, or 13%, to $1,767.2$114.4 million in fiscal 20182022 compared to $1,565.5$72.0 million in fiscal 2017. Exchange rates favorably impacted fee revenue by $35.3 million, or 2%, in fiscal 2018 compared to the year-ago period.2021. The higher fee revenueincrease was attributable to organic growth in all lines of business.
Executive Search. Executive Search reported fee revenue of $709.0 million, an increase of $91.3 million, or 15%, in fiscal 2018 compared to $617.7 million in the year-ago period. As detailed below, Executive Search fee revenue was higher in North America, EMEA and Asia Pacific, partially offset by lower fee revenue in the Latin America region in fiscal 2018 as compared to fiscal 2017. The higher fee revenue in Executive Search was mainly due to a 9% 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. Exchange rates favorably impacted fee revenue by $12.3 million, or 2%, in fiscal 2018, compared to the year-ago period.
North America reported fee revenue of $408.1 million, an increase of $51.5 million, or 14%, in fiscal 2018 compared to $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 2017. 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 was due toand the Acquisitions. Cost of services expense, as a 10% increase in the numberpercentage 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, was 4% in both fiscal 2022 and fiscal 2021.
Depreciation and Amortization Expenses
Depreciation and amortization expenses were $63.5 million 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,2022, 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 an 8% increase in the weighted-average fees billed per engagement (calculated using local currency) in fiscal 2018 compared to the year-ago period. The performance in China, Australia, Singapore, and Japan were the primary contributors to the increase in fee revenue in fiscal 2018 compared to the year-ago period, partially offset by a decrease in fee revenue in 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$1.7 million, or 3%, compared to the year-ago period.
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Latin America reported fee revenue of $30.6 million, a decrease of $3.8 million, or 11%, in fiscal 2018 compared to $34.4$61.8 million in fiscal 2017.2021. The decrease in fee revenueincrease was primarily due to lower fee revenuethe technology investments made in Mexicothe current and prior year in software for our Digital business and the Acquisitions.
Restructuring Charges, Net
There were no restructuring charges, net during fiscal 2022. In April 2020, we implemented a restructuring plan in response to the uncertainty caused by COVID-19 that resulted in reductions in our workforce in the fourth quarter of fiscal 2020. We continued the implementation of this plan in fiscal 2018, compared to the year-ago period, partially offset by higher fee revenue in Argentina. Financial services2021 and consumer goods were the main sectors contributing to the decline in fee revenueas a result recorded restructuring charges, net of $30.7 million of severance costs in fiscal 2018, compared to the year-ago period. The effect of exchange rates on fee revenue was minimal.2021.
Advisory. Advisory reported fee revenue of $785.0 million, an increase of $60.8 million, or 8%, in fiscal 2018 compared to $724.2 million in fiscal 2017. 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 remaining increase of $18.0 million generated by our products business.
RPO & Professional Search. RPO & Professional Search reported fee revenue of $273.2 million, an increase of $49.5 million, or 22%, in fiscal 2018 compared to $223.7 million in fiscal 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 favorably impacted fee revenue by $5.6 million, or 3%, compared to the year-ago period.
Compensation and Benefits
Compensation and benefits expense increased $133.4$443.6 million, or 13%,34% to $1,199.1$1,741.5 million in fiscal 20182022 from $1,065.7$1,297.9 million in fiscal 2017.2021. Exchange rates unfavorablyfavorably impacted compensation and benefits expenses by $23.0$0.3 million or 2%, in fiscal 20182022 compared to the year-ago period.fiscal 2021. The increase in compensation and benefits was primarily due to a 9% increase in the average consultant headcount, which contributed $80.4 million in higher salaries and related payroll taxes, $9.4 million more in expenses associated with our deferred compensation and 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 rest of the change was due to $40.8 million increase in performance-related bonus expense mainly due to the increase in fee revenue and $11.3 million increase in amortization of long term incentive awards, offset by a $9.8 million decrease in integration costs and $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 decreased compensation and benefits expense in fiscal 2018 compared to fiscal 2017 due to larger increases in the market value of the underlying investments due to market changes. 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). Compensation and benefits expense, as a percentage of fee revenue, was 68% in both fiscal 2018 and 2017.
Executive Search compensation and benefits expense increased by $59.6 million, or 15%, to $468.6 million in fiscal 2018 compared to $409.0 million in fiscal 2017. The increase was primarily due to higher salary cost and related payroll taxes of $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 increase in performance related bonus expense was due to a 15% increase in fee revenue in fiscal 2018 compared to the year-ago period. Executive Search compensation and benefits expense, as a percentage of fee revenue, was 66% in both fiscal 2018 and 2017.
Advisory compensation and benefits expense increased $35.3 million, or 8%, to $497.3 million in fiscal 2018 from $462.0 million in fiscal 2017. The change was primarily due to increases in salaries and related payroll taxes of $25.3$230.4 million, performance-related bonus expense of $160.3 million, amortization of long-term incentive awards of $16.4 million, employer insurance of $13.8 million and $4.6 millionthe use of outside contractors of $9.3 million. These increases were due to the increase in expenses associatedfee revenue combined with ourincreases in overall profitability and average headcount. Also contributing to higher compensation and benefit expense was an increase in commission expense of $28.5 million due to the Acquisitions, partially offset by a decrease in deferred compensation and retirement plans (includes the increasesexpenses of $30.7 million as a result of decreases in the fair value of participants’ accounts). Also contributingaccounts in fiscal 2022 compared to thefiscal 2021. Compensation and benefits expense, as a percentage of fee revenue, decreased to 66% in fiscal 2022 from 72% in fiscal 2021.
Consulting compensation and benefits expense increased by $90.5 million, or 25%, to $450.9 million in fiscal 2022 from $360.4 million in fiscal 2021. Exchange rates favorably impacted compensation and benefits by $1.2 million in fiscal 2022 compared to fiscal 2021. The increase in compensation and benefits expense was primarily due to increases in salaries and related payroll taxes of $48.9 million, performance-related bonus expense of $24.5 million, amortization of long-term incentive awards of $5.0 million and employer insurance of $2.7 million due to an increase in fee revenue combined with increases in overall profitability and average headcount in fiscal 2022 compared to fiscal 2021. Consulting compensation and benefits expense, as a percentage of $10.5fee revenue, decreased to 69% in fiscal 2022 from 70% in fiscal 2021.
Digital compensation and benefits expense increased by $31.1 million, or 21%, to $177.8 million in performance relatedfiscal 2022 from $146.7 million in fiscal 2021. The impact of exchange rates was essentially flat in fiscal 2022 compared to fiscal 2021. The increase in compensation and benefits expense was primarily due to increases in performance-related bonus expense of $11.4 million, salaries and $2.8related payroll taxes of $7.9 million moreand commission expenses of $5.8 million in employer insurance costs, offset by a decrease in integration costs of $6.3 millionfiscal 2022 compared to year-ago period. Advisoryfiscal 2021 as a result of an increase in fee revenue combined with increases in overall profitability and average headcount. Digital compensation and benefits expense, as a percentage of fee revenue, was 51% in both fiscal 2022 and fiscal 2021.
Executive Search North America compensation and benefits expense increased by $77.6 million, or 26%, to $377.1 million in fiscal 2022 compared to $299.5 million in fiscal 2021. Exchange rates unfavorably impacted compensation and benefits by $0.7 million in fiscal 2022 compared to fiscal 2021. The increase was primarily due to increases in performance-related bonus expense of $82.6 million and salaries and related payroll taxes of $24.6 million due to the increase in fee revenue combined with increases in overall profitability and average headcount in fiscal 2022 compared to fiscal 2021. The increases in compensation and benefit expense was partially offset by a decrease in the amounts owed under certain deferred compensation and retirement plans $35.4 million due to a decrease in the fair market value of the participants’ accounts in fiscal 2022 compared to fiscal 2021. Executive Search North America compensation and benefits expense, as a percentage of fee revenue, decreased to 62% in fiscal 2022 from 75% in fiscal 2021.
Executive Search EMEA compensation and benefits expense increased by $22.0 million, or 20%, to $133.1 million in fiscal 2022 compared to $111.1 million in fiscal 2021. Exchange rates favorably impacted compensation and benefits by $0.5 million in fiscal 2022 compared to fiscal 2021. The increase was primarily due to higher salaries and related payroll taxes of $12.6 million and performance-related bonus expense of $8.2 million in fiscal 2022 compared to fiscal 2021 due to the increase in fee revenue combined with an increase in overall profitability. Executive Search EMEA compensation and benefits expense, as a percentage of fee revenue, decreased to 73% in fiscal 2022 from 80% in fiscal 2021.
Executive Search Asia Pacific compensation and benefits expense increased by $14.0 million, or 24%, to $72.3 million in fiscal 2022 compared to $58.3 million in fiscal 2021. Exchange rates unfavorably impacted compensation and benefits by $0.4 million, or 1%, in fiscal 2022 compared to fiscal 2021. The increase was primarily due to increases in performance-related bonus expense of $10.2 million and salaries and related payroll taxes of $6.2 million in fiscal 2022 compared to fiscal 2021 due to an increase in fee revenue combined with an increase overall profitability. Executive Search Asia Pacific compensation and benefits expense, as a percentage of fee revenue, decreased to 61% in fiscal 2022 from 70% in fiscal 2021.
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Executive Search Latin America compensation and benefits expense increased by $4.3 million, or 30%, to $18.4 million in fiscal 2022 compared to $14.1 million in fiscal 2021. Exchange rates unfavorably impacted compensation and benefits by $0.3 million, or 2%, in fiscal 2022 compared to fiscal 2021. The increase was primarily due to higher salaries and related payroll taxes of $2.0 million and performance-related bonus expense of $1.4 million in fiscal 2022 compared to fiscal 2021 due to an increase in fee revenue combined with an increase in overall profitability. Executive Search Latin America compensation and benefits expense, as a percentage of fee revenue, decreased to 63% in fiscal 2018 compared to 64%2022 from 80% in the year-ago period.fiscal 2021.
RPO & Professional Search compensation and benefits expense increased $38.4by $187.4 million, or 25%71%, to $193.2$452.0 million in fiscal 20182022 from $154.8$264.6 million in fiscal 2017.2021. The impact of exchange rates was essentially flat in fiscal 2022 compared to fiscal 2021. The increase was due to higher salaries and related payroll taxes of $26.8$122.1 million, performance-related bonus expense of $17.6 million, employer insurance of $8.4 million and the use of outside contractors of $5.0 million due to a 20%the increase in thefee revenue combined with increases in overall profitability and average headcount in fiscal 20182022 compared to the year-ago period. The higher average headcount was primarily driven by the need to service an increase in fee revenue in both the professional search and RPO businesses.fiscal 2021. Also contributing to the increase in compensation and benefits expensebenefit was an increase in commission expenses of $11.3$22.7 million in performance related bonus expense due to a 22% increase in fee revenue in fiscal 2018 compared toand integration and acquisition costs of $1.9 million driven by the year-ago period.Acquisitions. RPO & Professional Search compensation and benefits expense, as a percentage of fee revenue, was 71%decreased to 65% in fiscal 2018 compared to 69%2022 from 72% in the year-ago period.fiscal 2021.
Corporate compensation and benefits expense was $40.0increased by $16.5 million, or 38%, to $59.7 million in fiscal 2018 as compared to $39.92022 from $43.2 million in fiscal 2017.2021. The increase of $7.2 million was due to the changes in cash surrender value (“CSV”) of the company-owned life insurance (“COLI”) contracts due to lower death benefits recognized in fiscal 2022 compared to fiscal 2021. Also contributing to the increase was higher salaries and related payroll taxes of $6.0 million and performance-related bonus expense of $4.2 million due to an increase in consolidated fee revenue, combined with increases in overall profitability and average headcount in fiscal 2022 compared to fiscal 2021.
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General and Administrative Expenses
General and administrative expenses increased $11.2$45.5 million, or 5%24%, to $237.4$237.3 million in fiscal 20182022 compared to $226.2$191.8 million in fiscal 2017.2021. Exchange rates favorably impacted general and administrative expenses by $0.9 million in fiscal 2022 compared to fiscal 2021. The increase in general and administrative expenses was primarily due to increaseshigher marketing and business development expenses of $6.2$14.0 million, which contributed to the increase in fee revenue and $2.2new business in fiscal 2022, as well as an increase in premise and office expense of $6.9 million, inbad debt expense of $5.8 million and legal and other professional fees and premise and office expenses, respectively, offset by a decline of $3.8 million in integration costs during fiscal 2018 compared to$5.3 million. In addition the year-ago period. The restCompany recorded impairment charges associated with the reduction of the change was primarily due to generating foreign exchange lossCompany’s real estate footprint of $3.3$9.3 million during fiscal 2018 compared to a foreign exchange gainand integration and acquisition costs of $0.3$6.0 million in fiscal 2017.incurred with the acquisition of The Lucas Group that closed on November 1, 2021 and Patina Solutions Group that closed on April 1, 2022. General and administrative expenses, as a percentage of fee revenue, was 13%decreased to 9% in fiscal 2018 compared to 14%2022 from 11% in fiscal 2017. Exchange rates unfavorably impacted general and administrative expenses by $3.7 million, or 2%, during fiscal 2018 compared to the year-ago period.2021.
Executive SearchConsulting general and administrative expenses increased $8.0by $2.9 million, or 11%6%, to $77.7$51.5 million in fiscal 2018 from $69.72022 compared to $48.6 million in fiscal 2017. General2021. The increase in general and administrative expenses was primarily due to impairment charges associated with the reduction of the Company’s real estate footprint of $2.8 million in fiscal 2022. Consulting general and administrative expenses, as a percentage of fee revenue, decreased to 8% in fiscal 2022 from 9% in fiscal 2021.
Digital general and administrative expenses increased by $1.9 million, or 7%, to $31.0 million in fiscal 2022 compared to $29.1 million in fiscal 2021. The increase in general and administrative expenses was primarily due to generating foreign exchange lossesimpairment charges associated with the reduction of $1.2the Company’s real estate footprint of $1.5 million duringin fiscal 2018 compared2022. Digital general and administrative expenses, as a percentage of fee revenue, decreased to a foreign exchange gain of $1.39% in fiscal 2022 from 10% in fiscal 2021.
Executive Search North America general and administrative expenses increased by $3.9 million, during the year-ago period and anor 14%, to $30.8 million in fiscal 2022 from $26.9 million in fiscal 2021. The increase in legalgeneral and other professional fees of $0.9 million. The rest of the changeadministrative expenses was primarily due to an increaseincreases 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, $0.7of $2.4 million increase in premise and office expenses, and an increase in bad debt expense of $0.6$0.7 million. Executive Search North America general and administrative expenses, as a percentage of fee revenue, was 11%5% in both fiscal 2018 and 2017.2022 compared to 7% in fiscal 2021.
AdvisoryExecutive Search EMEA general and administrative expenses increased $1.3by $2.0 million, or 13%, to $98.4$18.0 million in fiscal 2018 compared to $97.12022 from $16.0 million in the year-ago period. Generalfiscal 2021. The increase in general and administrative expenses increasedwas primarily due to a foreign exchange lossimpairment charges associated with the reduction of the Company’s real estate footprint of $1.1 million during fiscal 2018 compared to aand the impact of foreign currency with foreign exchange gainlosses of $0.2$0.7 million in fiscal 2017. Advisory2022 compared to foreign currency gains of $0.3 million in fiscal 2021. Executive Search EMEA general and administrative expenses, as a percentage of fee revenue was 13%10% in both fiscal 20182022 compared to 12% in fiscal 2021.
Executive Search Asia Pacific general and 2017.administrative expenses increased by $2.4 million, or 28%, to $11.0 million in fiscal 2022 from $8.6 million in fiscal 2021. The increase in general and administrative expenses was primarily due to higher bad debt expense of $1.0 million in fiscal 2022 compared to fiscal 2021. Executive Search
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Asia Pacific general and administrative expenses, as a percentage of fee revenue, was 9% in fiscal 2022 compared to 10% in fiscal 2021.
Executive Search Latin America general and administrative expenses decreased by $1.3 million, or 59%, to $0.9 million in fiscal 2022 from $2.2 million in fiscal 2021. The decrease in general and administrative expenses was primarily due to lower premise and office expenses of $1.4 million in fiscal 2022 compared to fiscal 2021. Executive Search Latin America general and administrative expenses, as a percentage of fee revenue, was 3% in fiscal 2022 compared to 12% in fiscal 2021.
RPO & Professional Search general and administrative expenses increased $2.8by $15.8 million, or 12%64%, to $26.7$40.6 million in fiscal 20182022 from $23.9$24.8 million in fiscal 2017.2021. The increase in general and administrative expenses was primarily due primarily to increasesan increase in premise and office expenses,expense $5.3 million, higher bad debt expense and legal and other professional fees of $1.2$3.7 million, $1.0impairment charges associated with the reduction of the Company’s real estate footprint of $3.9 million and $0.4 million, respectively, in fiscal 2018 compared tointegration and acquisition costs associated with the year-ago period.Acquisitions of $1.8 million. RPO & Professional Search general and administrative expenses, as a percentage of fee revenue, was 10%6% in fiscal 20182022 compared to 11%7% in fiscal 2017.2021.
Corporate general and administrative expenses decreased $0.9increased by $18.0 million, or 3%51%, to $34.6$53.5 million in fiscal 20182022 compared to $35.5 million in fiscal 2017.2021. The decreaseincrease in general and administrative expenses was primarily due to a decreasehigher marketing expense of $7.2 million, integration and acquisition costs of $4.2 million in integration costs associatedincurred with the Legacy Hay acquisition and $0.8 millionAcquisitions in business development expenses, offset by an increase infiscal 2022, legal and other professional fees of $4.3$3.8 million duringand an increase of $1.5 million in charitable contributions in fiscal 20182022 compared to fiscal 2017.2021.
Cost of Services Expense
Cost of services expense consists primarily of non-billable contractor and product costs related to the delivery of various services and products, primarily in RPO & Professional Search, Consulting and Advisory.Digital. Cost of services expense was $73.7$114.4 million in fiscal 20182022 compared to $71.5$72.0 million in fiscal 2017.2021. The increase was due to an increase in fee revenue and the Acquisitions. Cost of services expense, as a percentage of fee revenue, was 4% in both fiscal 2018 as compared to 5% in the year-ago period.2022 and fiscal 2021.
Depreciation and Amortization Expenses
Depreciation and amortization expenses were $48.6$63.5 million in fiscal 2022, an increase of $1.3$1.7 million, or 3%, compared to $61.8 million in fiscal 2018 compared to $47.3 million in fiscal 2017.2021. The increase relateswas primarily due to the technology investments made in the current and prior year in software for our Digital business and computer equipment, in addition to increases in leasehold improvements and furniture and fixtures.the Acquisitions.
Restructuring Charges, Net
The CompanyThere were no restructuring charges, net during fiscal 2022. In April 2020, we implemented a restructuring plan in response to the uncertainty caused by COVID-19 that resulted in reductions in our workforce in the fourth quarter of fiscal 2020. We continued the implementation of the fiscal 2016 restructuringthis plan in fiscal 2017 in order to integrate the Advisory entities that were acquired in fiscal 2016 by eliminating redundant positions2021 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. Fiscal 2018 restructuring charges were minimal.
Operating Income
Operating income was $208.4 million, an increase of $88.1 million, in fiscal 2018 as compared to $120.3 million in fiscal 2017. This increase in operating income resulted from higher fee revenue of $201.7 million and a decrease inresult recorded restructuring charges, net of $34.5$30.7 million offset by increases of $133.4 million in compensation and benefits expense, $11.2 million in general and administrative expenses, $2.2 million in cost of services expense, and $1.3 million in depreciation and amortization expenses.
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Executive Search operating income increased $25.3 million, or 20%, to $149.6 millionseverance costs in fiscal 2018 as compared to $124.3 million in fiscal 2017. The increase in Executive Search operating income was driven by increases in higher fee revenue of $91.3 million and a decrease in restructuring charges, net of $4.3 million, offset by increases in compensation and benefits expense, general and administrative expenses, cost of services expense and depreciation and 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 2018 as compared to 20% in the year-ago period.2021.
Advisory operating income was $100.5 million, an increase of $53.1 million, or 112%, in fiscal 2018 as compared to operating income of $47.4 million in fiscal 2017. The increase was primarily driven by an increase in fee revenue of $60.8 million and a decrease in restructuring charges, net of $29.9 million, offset by an increase of $35.3 million in compensation and benefits expense, $1.8 million in cost of services expense, and $1.3 million in general and administrative expenses in fiscal 2018 compared to the year-ago period. Advisory operating income, as a percentage of fee revenue, was 13% in fiscal 2018 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 $30.0 million in fiscal 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 increased by $49.6$211.9 million to $133.8$326.4 million in fiscal 20182022 compared to $84.2$114.5 million in fiscal 2017.2021. The increase in net income attributable to Korn Ferry was due to higher totaldriven by the increase in fee revenue of $197.8$816.7 million, which was driven by the factors discussed above, and restructuring charges, net of $30.7 million incurred in fiscal 2021. This was partially offset by increases in compensation and benefits expense of $443.6 million, cost of services expense of $42.4 million associated with the higher operating expenseslevels of $109.6business demand, a higher income tax provision of $54.0 million and general and an increase in income tax provisionadministrative expenses of $41.0 million partially$45.5 million. The rest of the change is due to the enactmentother loss, net of the Tax Act$11.9 million in fiscal 2022 compared to the year-ago period.other income, net of $37.2 million in fiscal 2021. Net income attributable to Korn Ferry, as a percentage of fee revenue, was 8%12% in fiscal 20182022 as compared to 5%6% in the year-ago period.fiscal 2021.
Adjusted EBITDA
Adjusted EBITDA increased by $38.7$252.6 million or 16% to $278.0$538.9 million in fiscal 2018 as2022 compared to $239.3$286.3 million in fiscal 2017. This2021. The increase in Adjusted EBITDA was driven by higher adjustedthe increase in fee revenue, of $198.1 million,partially offset by increases of $143.2 million in compensation and benefits expense (excluding integrationintegration/acquisition costs), $14.9 million incost of services expense, and general and administrative expenses (excluding integration costs)integration/acquisition 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 16% in fiscal 2018 compared to 15% in the year-ago period.
Executive Search Adjusted EBITDA increased $21.8 million, or 16%, to $159.3 million in fiscal 2018 as compared to $137.5 million in fiscal 2017. The increase was driven by higher fee revenue of $91.3 million, offset by increases of $59.6 million in compensation and benefits expense, $8.0 million in general and administrative expenses, and an increase in cost of services expense of $1.6 million during fiscal 2018 compared to the year-ago period. Executive Searchimpairment charges). Adjusted EBITDA, as a percentage of fee revenue, was 22%21% and 16% in both fiscal 20182022 and 2017.2021.
AdvisoryConsulting Adjusted EBITDA was $143.5$116.1 million in fiscal 2022, an increase of $13.7$34.6 million, or 11%42%, compared to $81.5 million in fiscal 20182021. The increase in Adjusted EBITDA was driven by higher fee revenue in the segment, as well as cost savings realized from work being conducted virtually. These changes were partially offset by increases in compensation and benefits expense and cost of services expense. Consulting Adjusted EBITDA, as a percentage of fee revenue, was 18% in fiscal 2022 compared to 16% in fiscal 2021.
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Digital Adjusted EBITDA was $110.1 million in fiscal 2022, an increase of $24.0 million, or 28%, compared to $86.1 million in fiscal 2021. The increase in Adjusted EBITDA was mainly driven by the increase in fee revenue in the segment, as well as cost savings realized from work being conducted virtually. These changes were partially offset by increases in compensation and benefits expense (excluding integration/acquisition costs) and cost of services expense in fiscal 2022 compared to fiscal 2021. Digital Adjusted EBITDA, as a percentage of fee revenue, was 32% in fiscal 2022 as compared to $129.830% in fiscal 2021.
Executive Search North America Adjusted EBITDA increased by $83.5 million, or 85%, to $181.6 million in fiscal 2017.2022 compared to $98.1 million in fiscal 2021. The increase was driven by higher adjusted fee revenue of $57.3 million,in the segment, partially offset by increases of $41.6 millionan increase in compensation and benefits expense (excluding integration costs), $0.9 million inand 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. Advisoryexpenses. Executive Search North America Adjusted EBITDA, as a percentage of adjusted fee revenue, was 18%30% in both fiscal 20182022 compared to 25% in fiscal 2021.
Executive Search EMEA Adjusted EBITDA increased by $20.1 million, or 172%, to $31.8 million in fiscal 2022 compared to $11.7 million in fiscal 2021. The increase in Adjusted EBITDA was driven by higher fee revenue in the segment, partially offset by increases in compensation and 2017.benefits expense and general and administrative expenses (excluding impairment charges). Executive Search EMEA Adjusted EBITDA, as a percentage of fee revenue, was 17% in fiscal 2022 compared to 8% in fiscal 2021.
Executive Search Asia Pacific Adjusted EBITDA increased by $18.4 million, or 110%, to $35.1 million in fiscal 2022 compared to $16.7 million in fiscal 2021. The increase in Adjusted EBITDA was driven by higher fee revenue in the segment, partially offset by increases in the compensation and benefits expense and general and administrative expenses. Executive Search Asia Pacific Adjusted EBITDA, as a percentage of fee revenue, was 30% in fiscal 2022 compared to 20% in fiscal 2021.
Executive Search Latin America Adjusted EBITDA increased by $7.8 million to $9.1 million in fiscal 2022 compared to $1.3 million in fiscal 2021. The increase in Adjusted EBITDA was driven by higher fee revenue in the segment, partially offset by an increase in compensation and benefit expense. Executive Search Latin America Adjusted EBITDA, as a percentage of fee revenue, was 31% in fiscal 2022 compared to 7% in fiscal 2021.
RPO & Professional Search Adjusted EBITDA was $42.6$165.1 million in fiscal 2018,2022, an increase of $9.8$95.7 million, or 30%138%, as compared to $32.8$69.4 million in fiscal 2017.2021. The increase in Adjusted EBITDA was mainly driven by higher fee revenue of $49.5 million,in the segment, partially offset by increases of $38.4 million in compensation and benefits expense (excluding integration/acquisition costs), cost of services expense, and $2.8 million in general and administrative expenses during fiscal 2018 compared to the year-ago period.(excluding impairment charges and integration and acquisition costs). RPO & Professional Search Adjusted EBITDA, as a percentage of fee revenue, was 16%24% in fiscal 20182022 compared to 15%19% in the year-ago period.fiscal 2021.
Other (Loss) Income (Loss), Net,
Other income,loss, net was $11.1$11.9 million in fiscal 2018 as2022 compared to $10.3other income, net of $37.2 million in fiscal 2017.2021. The increasedifference was primarily due to a smaller amount of losses associated with our deferred compensation and retirement plans, offset by the change infrom the fair value of our marketable securities where there was a smaller gain duringin fiscal 20182022 compared to the year-ago period.
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Interest (Expense) Income, Netgains in fiscal 2021.
Interest (expense) income,Expense, Net
Interest expense, net primarily relates to our term loan facilityNotes issued in December 2019 and borrowings under our COLI policies, which wasare partially offset by interest earned on cash and cash equivalent balances. Interest expense, net was $13.8$25.3 million in fiscal 2018 as2022 compared to $14.6$29.3 million in fiscal 2017.2021. Interest expense, net decreased due to interest income earned on the death benefits received from our COLI policies in fiscal 2022 and lower interest expense on borrowings under our COLI policies in fiscal 2022 compared to fiscal 2021 due to the lower amount of borrowings outstanding.
Income Tax Provision
The provision for income tax was $70.1$102.1 million in fiscal 20182022 compared to $29.1$48.1 million in the year-ago period.fiscal 2021. This reflects a 34% and 25%24% effective tax rate for fiscal 20182022 compared to a 29% effective tax rate for fiscal 2021. In addition to the impact of U.S. state income taxes and 2017, respectively. Injurisdictional mix of earnings, which generally create variability in our effective tax rate over time, the lower effective tax rate in fiscal 20182022 was partially attributable to a tax benefit recorded in connection with tax credits claimed in the current year for eligible research and development expenditures. The fiscal 2021 effective tax rate was significantly impactedhigher due to a tax expense recorded for withholding taxes on intercompany dividends that are not eligible for credit and a shortfall recorded in connection with stock-based awards that vested in fiscal 2021. The shortfall is the amount by which the December 22, 2017 enactmentCompany’s tax deduction for these awards, based on the fair market value of the Tax Act as a resultawards on the date of which, Korn Ferryvesting, is less than the expense recorded in the Company’s financial statements over the awards’ vesting period. Conversely, the Company recorded a provisional tax charge of $18.4 million as a 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.for a windfall in connection with stock-based awards that vested in fiscal 2022.
39
Net Income Attributable to Noncontrolling Interest
Net income attributable to noncontrolling 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.income. Net income attributable to noncontrolling interest forwas $4.5 million and $1.1 million in fiscal 20182022 and 2017 was $2.1 million compared to $3.1 million,fiscal 2021, respectively.
Liquidity and Capital Resources
The Company and its Board of Directors endorse a balanced approach to capital allocation. The Company’s long-term priority is to invest in growth initiatives, such as the hiring of consultants, the continued development of IP and derivative products and services, and the investment in synergistic, accretive merger and acquisition transactions that earn a return that is superior to the Company'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” 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 Amended Credit Agreement (defined below) as well as using excess cash to repay the Notes.
On April 1, 2022, we completed the acquisition of Patina Solutions Group for $42.9 million, net of cash acquired. We believe Patina Solutions Group contributes a substantial interim executive solutions expertise across multiple industry verticals as well as offers ideal solutions for today’s nomadic labor market. Patina Solutions Group’s vast network of C-suite, top-tier, and professional interim talent spans functional areas of expertise such as finance, operations, legal, human resources, IT and more. This combination presents real, tangible opportunity for Korn Ferry and our clients looking for the right talent, who are highly agile, with specialized skills and expertise, to help them drive superior performance, including on an interim basis. Patina Solutions Group offers.
On November 1, 2021, we completed the acquisition of The Lucas Group for $90.9 million, net of cash acquired. The Lucas Group contributes a substantial professional search and interim expertise that is expected to enhance our search portfolio. The Lucas Group is a professional search and interim staffing firm, targeting middle market businesses. The addition of The Lucas Group to Korn Ferry’s broader talent acquisition portfolio – spanning Executive Search, RPO & Professional Search – is expected to accelerate our ability to capture additional share of this significant market.
On December 16, 2019, we completed a private placement of the Notes with a $400 million principal amount pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The Notes were issued with a $4.5 million discount and will mature December 15, 2027, with interest payable semi-annually in arrears on June 15 and December 15 of each year, that commenced on June 15, 2020. The Notes represent senior unsecured obligations that rank equally in right of payment to all existing and future senior unsecured indebtedness. We may redeem the Notes prior to maturity, subject to certain limitations and premiums defined in the indenture governing the Notes. The Notes are guaranteed by each of our existing and future wholly owned domestic subsidiaries to the extent such subsidiaries guarantee our obligations under the Credit Agreement (defined below). The indenture governing the Notes requires that, upon the occurrence of both a Change of Control and a Rating Decline (each as defined in the indenture), we shall make an offer to purchase all of the Notes at 101% of their principal amount, and accrued and unpaid interest. We used the proceeds from the offering of the Notes to repay $276.9 million outstanding under our prior revolving credit facility (the “Prior Credit Agreement”) and to pay expenses and fees in connection therewith. As of April 30, 2022, the fair value of the Notes was $379.5 million, which is based on borrowing rates currently required of notes with similar terms, maturity and credit risk.
40
On December 19, 2018,16, 2019, we also entered into a senior secured $650.0 million Amended and Restated Credit Agreementcredit agreement (the “Credit Agreement”) with a syndicate of banks and Wells Fargo Bank of America, National Association as administrative agent to among other things, provide for enhanced financial flexibility. See Note 10—11—Long-Term Debtfor a description of the Credit Agreement. We drew down $226.9had a total of $645.3 million on the Revolver (defined below) and used the proceeds to pay-off the term loan that was outstanding as of December 19, 2018. We have $420.2$646.0 million available under the Revolverour $650.0 million five-year senior secured revolving credit facility (the “Revolver”) after the draw down$4.7 million and after $2.9$4.0 million of standby letters of credit werehad been issued as of April 30, 2019. We had $2.9 million in standby letters of credit issued under our long-term debt arrangements as of April 30, 20192022 and 2018,2021, respectively. We had a total of $8.5$10.0 million and $7.4$11.0 million of standby letters of credits with other financial institutions as of April 30, 20192022 and 2018,2021, respectively. The standby letters of credits were generally issued as a result of entering into office premise leases.
As partOne June 24, 2022, we entered into an Amendment to the Credit Agreement (as amended by the Amendment, the “Amended Credit Agreement”) with the lenders party thereto and Bank of America, National Association as administrative agent, to, among other things, extend the existing maturity date and provide for a new delayed draw term loan facility. The Amended Credit Agreement provides for five-year senior secured credit facilities in an aggregate amount of $1,150 million comprised of a previous acquisition,$650.0 million revolving credit facility and a $500 million delayed draw term loan facility. The Amended Credit Agreement also provides that, under certain circumstances, the Company committedmay incur term loans or increase the aggregate principal amount of revolving commitments by an aggregate amount of up to $250 million. See Note 18—Subsequent Events – Credit Facility for a $40 million retention pool for certain employeesfurther description of the previous acquired company subject to certain circumstances. The balance was paid in full as of January 31, 2019.Amended Credit Agreement.
TheOn December 8, 2014, the 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. On June 21, 2021, the Board of Directors increased the quarterly dividend to $0.12 per share. On June 21, 2022, the Board of Directors approved a 25% increase in the quarterly dividend, which increased the quarterly dividend to $0.15 per share. The Amended Credit Agreement permits us to pay dividends to our stockholders and make share repurchases so long as there is no default under the Amended Credit Agreement, our total funded debt to adjusted EBITDA ratio (as set forth in the Amended Credit Agreement, the “consolidated net leverage ratio”) is no greater than 5.00 to 1.00, and we are in pro forma compliance with our financial covenant. Furthermore, our Notes allow us to pay $25 million of dividends per fiscal year with no restrictions plus an unlimited amount of dividends so long as our consolidated total leverage ratio is not greater than 3.50 to 1.00, and there is no default under the indenture governing the Notes. 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 March 6, 2019,June 21, 2022, our Board of Directors approved an increase to the share repurchase program of approximately $200$300 million, which bringsat the time brought our available capacity to repurchase shares in the open market or privately negotiated transactions to approximately $250$318 million. The Company repurchased approximately $37.4$98.8 million and $33.1$30.4 million of the Company’s stock during fiscal 20192022 and 2018,2021, respectively. Any decision to continue to execute 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. The 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 Adjusted EBITDA, is no greater than 3.25 to 1.00, and our pro forma domestic liquidity is at least $50 million, including the revolving credit commitment minus amounts outstanding on the Revolver, issued letters of credit and swing loans.
44
Our performance is subject to the general level of economic activity in the geographic regions and the industries we service. We believe, based on current economic conditions, that our cash on hand and funds from operations and the Amended Credit Agreement will be sufficient to meet anticipated working capital, capital expenditures, general corporate requirements, repayment of the debt repayments, share repurchases and dividend payments under our dividend policy during the next twelve12 months. However, if the national or global economy, credit market conditions and/or labor markets were to deteriorate in the future, such changes could 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 facilityadditional borrowings under the Amended Credit Agreement to meet our capital needs and/or discontinue our share repurchases and dividend policy.
Cash and cash equivalents and marketable securities were $767.1$1,211.1 million and $657.9$1,097.1 million as of April 30, 20192022 and 2018,2021, respectively. Net of amounts held in trust for deferred compensation plans and accrued bonuses, cash and cash equivalents and marketable securities were $382.1$605.4 million and $312.4$642.1 million at April 30, 20192022 and 2018,2021, respectively. As of April 30, 20192022 and 2018,2021, we held $267.0$416.7 million and $207.6$382.8 million, respectively of cash and cash equivalents and marketable securities in foreign locations, net of amounts held in trust for deferred compensation plans and to pay fiscal 2019 annualaccrued bonuses.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.funds and investments in commercial paper, corporate notes/bonds and U.S. Treasury and Agency securities. The primary objectiveobjectives of our investment in mutual funds isare to meet the obligations under certain of our deferred compensation plans.plans, while the commercial paper, corporate notes/bonds and U.S. Treasury and Agency securities are available for general corporate purposes.
41
As of April 30, 20192022 and 2018,2021, marketable securities of $140.8$233.0 million and $246.4 million, respectively, included equity securities of $168.7 million (net of gross unrealized gains of $6.3$10.7 million and gross unrealized losses of $1.0$6.1 million) and $137.1$175.6 million (net of gross unrealized gains of $11.0$30.0 million and gross unrealized losses of $1.0$0.1 million), respectively, and were held in trust for settlement of our obligations under certain deferred compensation plans, of which $132.5$158.7 million and $122.8$166.5 million, respectively, are classified as non-current. These marketable securities were held to satisfy vested obligations totaling $122.3$160.8 million and $118.2$157.3 million as of April 30, 20192022 and 2018,2021, respectively. Unvested obligations under the deferred compensation plans totaled $24.6$24.0 million and $29.5$26.5 million as of April 30, 20192022 and 2018,2021, respectively.
The net increase in our working capital of $130.1$38.6 million as of April 30, 20192022 compared to April 30, 20182021 is primarily attributable to increasesincreases in cash and cash equivalents and accounts receivable and a decrease in the current portion of our long-term debt,receivables, partially offset by an increaseincreases in compensation and benefits payable.payable and other accrued liabilities. Cash and cash equivalents increased primarily due to cash from operations, partially offset by the Acquisitions, purchase of property and equipment, repurchase of common stock and dividends issued to shareholders. The increase in cash and cash equivalents isaccounts receivable was due to cash provided by operations. Accounts receivable and compensationhigher revenue in the fourth quarter of fiscal 2022 compared to fiscal 2021. Compensation and benefits payable increased due to a $158.8 million increase in fee revenue and higher average headcount. The decrease in the current portion of our long-term debt isperformance-related bonus liability as a result of higher fee revenue while the amount withdrawn on the Revolverincrease in other accrued liabilities was due to pay off the prior term loan.higher levels of new business. Cash provided by operating activities was $258.8$501.7 million in fiscal 2019,2022, an increase of $39.7$250.3 million, compared to $219.1$251.4 million in fiscal 2018.2021.
Cash used in investing activities was $69.5$184.3 million in fiscal 20192022 compared to $44.8$61.4 million in fiscal 2018.2021. An increase in cash used in investing activities was primarily due to $133.8 million in cash paid for the Acquisitions, an increase in premiums paid under our COLI contracts and higher cash used for the purchasespurchase of property and equipment of $18.3 million and a decrease in proceeds received from life insurance policies of $15.3 million. This was partially offset by an increase in theof proceeds received from sales/maturitiessales of marketable securities netfor $22.8 million and a decrease in purchase of cash used to purchase marketable securities for $21.5 million in fiscal 20192022 compared to the year-ago period.fiscal 2021.
Cash used in financing activities was $64.6$137.4 million in fiscal 20192022 compared to $77.3cash used in financing activities of $66.9 million in fiscal 2018.2021. The decreaseincrease in cash used in financing activities was primarily due to $226.9 million in proceeds received from the Credit Agreement and borrowings of $31.9 million from our COLI contracts, partially offset by an increase in payments made onrepurchases of shares of the term loanCompany’s common stock of $218.3$65.9 million and increases in fiscal 2022 compared to fiscal 2021, higher cash used to repurchase shares of common stock to satisfy tax withholding requirements upon the vesting of restricted stock of $16.9$18.5 million in fiscal 2022 compared to $5.0 million in fiscal 2021 and an increase of $4.3 million in shares repurchased under the stock repurchase program and an increase individends paid to our shareholders. This was partially offset by less payments made on life insurance policy loans of $4.8$12.1 million in fiscal 20192022 compared to the year-ago period.fiscal 2021.
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 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, 2019:2022:
|
|
|
|
|
| Payments Due in: |
|
|
|
|
|
| Payments Due in: |
| ||||||||||||||||||||||||||||||||||
|
| Note (1) |
|
| Total |
|
| Less Than 1 Year |
|
| 1-3 Years |
|
| 3-5 Years |
|
| More Than 5 Years |
|
| Note (1) |
|
| Total |
|
| Less Than 1 Year |
|
| 1-3 Years |
|
| 3-5 Years |
|
| More Than 5 Years |
| ||||||||||||
|
|
|
|
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
| ||||||||||||||||||||||||||||||||||
Operating lease commitments |
|
| 14 |
|
| $ | 300,737 |
|
| $ | 55,351 |
|
| $ | 98,032 |
|
| $ | 72,590 |
|
| $ | 74,764 |
|
|
| 15 |
|
| $ | 222,862 |
|
| $ | 55,890 |
|
| $ | 87,643 |
|
| $ | 55,345 |
|
| $ | 23,984 |
|
Finance lease commitments |
|
| 15 |
|
|
| 2,835 |
|
|
| 1,115 |
|
|
| 1,299 |
|
|
| 421 |
|
|
| — |
| ||||||||||||||||||||||||
Accrued restructuring charges |
|
| 13 |
|
|
| 1,502 |
|
|
| 1,001 |
|
|
| — |
|
|
| — |
|
|
| 501 |
| ||||||||||||||||||||||||
Interest payments on COLI loans (2) |
|
| 10 |
|
|
| 49,265 |
|
|
| 5,237 |
|
|
| 10,469 |
|
|
| 10,435 |
|
|
| 23,124 |
|
|
| 11 |
|
|
| 35,855 |
|
|
| 4,421 |
|
|
| 8,832 |
|
|
| 8,621 |
|
|
| 13,981 |
|
Long-term debt |
|
| 10 |
|
|
| 226,875 |
|
|
| — |
|
|
| — |
|
|
| 226,875 |
|
|
| — |
|
|
| 11 |
|
|
| 400,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 400,000 |
|
Estimated interest on long-term debt (3) |
|
| — |
|
|
| 39,854 |
|
|
| 8,611 |
|
|
| 17,174 |
|
|
| 14,069 |
|
|
| — |
|
|
| 11 |
|
|
| 111,000 |
|
|
| 18,500 |
|
|
| 37,000 |
|
|
| 37,000 |
|
|
| 18,500 |
|
Total |
|
|
|
|
| $ | 616,731 |
|
| $ | 69,199 |
|
| $ | 125,675 |
|
| $ | 323,969 |
|
| $ | 97,888 |
|
|
|
|
|
| $ | 774,054 |
|
| $ | 80,927 |
|
| $ | 134,774 |
|
| $ | 101,387 |
|
| $ | 456,966 |
|
(1) | See the corresponding Note in the accompanying consolidated financial statements in Item 15. |
(2) | 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 |
(3) | Interest |
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. The obligations related to these employee benefit plans
42
are described in Note 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—17—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
We 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, 20192022 and 2018,2021, we held contracts with gross CSVcash surrender value (“CSV”) of $219.2$263.2 million and $186.8$241.3 million, respectively. Total outstanding borrowings against the CSV of COLI contracts were $93.2$79.8 million and $66.7$80.0 million as of April 30, 20192022 and 2018,2021, respectively. Such borrowings do not require annual principal repayments, bear interest primarily at variable rates and are secured by the CSV of COLI contracts. At April 30, 20192022 and 2018,2021, the net cash value of these policies was $126.0$183.3 million and $120.1$161.3 million, respectively. Total death benefits payable, net of loans under COLI contracts, were $223.6$449.3 million and $226.0$443.9 million at April 30, 20192022 and 2018,2021, respectively.
Long-Term Debt
On December 19, 2018,Other than the factors discussed in this section, we entered into the Credit Agreement to among other things, provide for enhanced financial flexibility. The Credit Agreement provides for, among other things: (a) a $650.0 million five-year senior secured revolving credit facility (the “Revolver”) and (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 the pro forma domestic liquidity is at least $50.0 million. We drew down $226.9 million on the Revolver and used the proceeds to pay-off the term loan that was outstanding as of December 19, 2018. The pay-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 amortized over the life of 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 Agreement 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 Adjusted 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 Revolver, based upon the 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.
46
The Revolver matures on December 19, 2023 and any unpaid principal balance is payable on this 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). As of April 30, 2019, $226.9 million was outstanding under the Revolver compared to $238.9 million as of April 30, 2018, under the previous 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 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 charged varies with market conditions and the 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, 2019, 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 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 previous revolver. We had a total of $122.1 million available under the previous revolver after $2.9 million of standby letters of credit were issued as of April 30, 2018. We had a total of $8.5 million and $7.4 million of standby letters of credits with other financial institutions as of April 30, 2019 and 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.resources as of April 30, 2022.
Accounting Developments
Recently Adopted Accounting Standards
In May 2014, March 2020, the Financial Accounting Standards Board (“FASB”(the “FASB”) issued Accounting Standards Codificationguidance on Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional expedients and exceptions to the guidance on contract modifications and hedge accounting related to the expected market transition from the London Interbank Offered Rate (“ASC”LIBOR”) 606, which superseded revenue recognition requirements regarding contracts with customersand other interbank offered rates to transfer goods or services or for the transfer of nonfinancial assets. Underalternative rates. Entities can elect to adopt this guidance entities are requiredas of any date within an interim period that includes or is subsequent 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 exchangeMarch 12, 2020 and can adopt it 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 whennew contracts and how revenue is recognized. The new guidance became effective for fiscal years and interim periods within those annual years beginning aftercontract modifications entered into through December 15, 2017.31, 2022. We adopted ASC 606this guidance in our fiscal year beginning May 1, 2018 using2021 and we elected to apply 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 comparative 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 adoption, we 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 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 IP content fulfills the performance obligation, and revenue is recognized upon delivery and when an enforceable right to 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 afterprospectively through December 15, 2017 and were adopted by us effective May 1, 2018.12, 2022. The adoption of this guidance did not have ana material 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 the 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,October 2021, the FASB issued guidance onan amendment in accounting for leasescontract assets and contract liabilities from contracts with customers, which clarifies that generally requires all leases to be recognized on the consolidated balance sheet.an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. The provisionsamendment of the guidance arethis standard becomes effective forin fiscal years beginning after December 15, 2018 and early adoption is permitted. We plan to adopt this guidance in fiscal year beginning May 1, 2019.2022. The provisions of the guidance are toamendment should be applied using a modified retrospective approach. On July 30, 2018, the FASB issued an amendmentprospectively to business combinations that allows entities to apply the provisions atoccur after 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.date. We will adopt this guidance in our fiscal year beginning May 1, 2020. The adoption2023. We are currently evaluating the impact of this accounting guidance isbut do not anticipated toanticipate that it will have a material impact on the consolidated financial statements.
In January 2017, the FASB issued guidance simplifying the test for goodwill impairment. The new guidance simplifies the test for goodwill impairment by removing Step 2 from the goodwill impairment test. Companies will now perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value not to exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments of this standard are effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted for goodwill impairment tests performed after January 1, 2017. We are evaluating the adoption timeline and the effects that the standard will have on the consolidated financial statements.
In August 2017, the FASB issued guidance amending and simplifying accounting for hedging activities. The new guidance will refine and expand strategies that qualify for hedge accounting and simplify the application of hedge accounting in certain situations. The amendments of this standard are effective for fiscal years beginning after December 15, 2018. We will adopt this guidance in its fiscal year beginning May 1, 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 averagedaily rates of exchange during the reporting period. Resulting translation adjustments are reported as a component of accumulated other comprehensive loss, net on our consolidated balance sheets.
Transactions denominated in a currency other than the reporting entity’s functional currency may give rise to foreign currency gains or losses that impact our results of operations. Historically, we have not realized significant foreign currency gains or losses on such transactions. During fiscal 20192022, 2021 and 2018,2020, we recorded foreign currency losses of $1.7$1.2 million, $2.7 million and $3.3$4.1 million, respectively, in general and administrative expenses in the consolidated statements of income. During fiscal 2017, we recorded foreign currency gains of $0.3 million in general and administrative expenses in 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, Pound Sterling, Euro, Canadian Dollar, Euro, Pound Sterling,Singapore Dollar, Brazilian Real, Mexican Peso, Danish Krone, Swiss Franc, Brazilian Real, Singapore DollarKorean Won and Mexican Peso.South African Rand. Based on balances exposed to fluctuation in exchange rates between these currencies as of April 30, 2019,2022, a 10% increase or decrease equally in the value of these currencies could result in a foreign exchange gain or loss of $11.3$13.0 million. We have a program that primarily utilizes foreign currency forward contracts to offset the risks associated with the effects of certain foreign currency exposures. These foreign currency forward contracts are neither used for trading purposes nor are they designated as hedging
43
instruments pursuant to ASCAccounting Standards Codification 815, Derivatives and Hedging.
49
Our exposure to interest rate risk is limited to our Revolver, and borrowings against the CSV of COLI contracts.contracts and to a lesser extent our fixed income debt securities. As of April 30, 2019,2022 and 2021, there was $226.9 millionwere no amounts outstanding under the Revolver. At our option, loans issued under the Credit Agreement 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 Amended Credit Agreement may fluctuate between LIBOR Term Secured Overnight Financing Rate (“SOFR”) plus 1.25%a SOFR adjustment of 0.10%, plus 1.125% per annum to LIBOR plus 2.00% per annum, in the case of LIBORSOFR borrowings (or between the alternate base rate plus 0.25%0.125% 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 Amended 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%0.175% to 0.35%0.300% per annum on the average daily unused amount of the Revolver, based upon our consolidated net leverage ratio at such time, a ticking fee of 0.20% per annum on the actual daily unused portion of the Delayed Draw Facility during the availability period of the Delayed Draw Facility, and fees relating to the issuance of letters of credit. A 100-basis point increase in LIBOR rates would have increased our interest expense by approximately $2.3 million for fiscal 2019. During fiscal 2019, 2020, the average interest rate on the revolver loancurrent and previous term loans was 3.50%3.34%.
To mitigate this interest rate risk, we entered into an interest rate swap contract with an initial notional amount of $129.8 million to hedge the variability to changes in cash flows attributable to interest rate risks caused by changes in interest rates related to our variable rate debt. We have designated the swap as a cash flow hedge. As of April 30, 2019 the notional amount was $106.6 million. The interest rate swap agreement matures on June 15, 2021 and locks the interest rates on a portion of our outstanding debt at 1.919%, exclusive of the credit spread on the debt.
We had $93.2$79.8 million and $66.7$80.0 million of borrowings against the CSV of COLI contracts as of April 30, 20192022 and 2018,2021, 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—Quarterly Results, in the Notes to our Consolidated Financial Statements in this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. 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.were effective as of April 30, 2022.
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.
None.
Item 9C. Disclosures Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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44
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, ifwhen applicable, “Delinquent Section 16(a) Reports” and elsewhere in our
“Delinquent20192022 Proxy Statement and is incorporated herein by reference. The information under the heading “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” 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 at http://ir.kornferry.com. We intend toIf, or when, applicable we will 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 20192022 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 20192022 Proxy Statement and is incorporated herein by reference.
Item 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 20192022 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this Item will be included under the captions “Fees Paid to Ernst & Young LLP,”LLP” and “Audit Committee Pre-Approval Policies and Procedures,” and elsewhere in our 20192022 Proxy Statement, and is incorporated herein by reference.
5145
Item 15. Exhibits and Financial Statement Schedules
Financial Statements.
a) | The following documents are filed as part of this report: |
1. | Index to Financial Statements: | Page |
| See Consolidated Financial Statements included as part of this Annual Report on Form | F-1 |
2. | Index to | |
All schedules have been omitted |
| |
3. | Index to Exhibits: | |
See exhibits listed under Part (b) below. | 46 |
Exhibits:
b) | Exhibits: |
Exhibit Number |
| Description |
2.1+ |
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3.1+ |
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3.2+ |
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4.3+ | ||
10.1*+ |
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10.2*+ |
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10.3*+ |
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10.4*+ |
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10.5*+ |
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10.6*+ |
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10.7*+ |
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10.8*+ |
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10.11*+ |
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10.12*+ |
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10.13*+ |
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10.22*+ | ||
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10.26*+ | ||
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10.28*+ | ||
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10.34*+ | ||
10.35*+ | ||
10.36*+ | ||
10.37*+ | ||
10.38*+ | ||
10.39*+ | ||
10.40*+ | ||
10.41*+ | ||
10.42*+ | ||
10.43 | ||
21.1 |
| |
23.1 |
| Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. |
24.1 |
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|
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| Chief Executive Officer Certification pursuant to Rule 13a-14(a) under the Exchange Act. | |
31.2 |
| Chief Financial Officer Certification pursuant to Rule 13a-14(a) under the Exchange Act. |
32.1 |
| |
101.INS |
| Inline XBRL Instance |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 | This cover page from the Company’s Annual Report on Form 10-K for the year ended April 30, 2022, had been formatted in Inline XBRL and included as Exhibit 101. |
* | Management contract, compensatory plan or arrangement. |
+ | Incorporated herein by reference. |
None
5448
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 Ferry
By: /s/ Robert P. Rozek
Robert P. Rozek
Executive Vice President, Chief Financial Officer and Chief Corporate Officer
Date: June 28, 20192022
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 |
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/s/ CHRISTINA A. GOLD Christina A. Gold |
| Chairman of the Board and Director |
| June 28, |
/s/ GARY D. BURNISON Gary D. Burnison |
| President & Chief Executive Officer (Principal Executive Officer) and Director |
| June 28, |
/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, |
/s/ DOYLE N. BENEBY Doyle N. Beneby | Director | June 28, 2022 | ||
/s/ LAURA BISHOP Laura Bishop | Director | June 28, 2022 | ||
/s/ JERRY LEAMON Jerry Leamon | Director | June 28, 2022 | ||
/s/ ANGEL MARTINEZ Angel Martinez | Director | June 28, 2022 | ||
/s/ DEBRA J. PERRY Debra J. Perry | Director | June 28, 2022 | ||
/s/ LORI ROBINSON Lori Robinson | Director | June 28, 2022 | ||
/s/ GEORGE T. SHAHEEN George T. Shaheen |
| Director |
| June 28, |
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5549
KORN FERRY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 20192022
Page
Management’s Report on Internal Control over Financial Reporting | F-2 |
F-3 | |
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) | F-4 |
Consolidated Balance Sheets as of April 30, |
|
Consolidated Statements of Income for the years ended April 30, |
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Consolidated Statements of Cash Flows for the years ended April 30, |
|
F-10 | |
Notes to Consolidated Financial Statements |
|
F-1
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Korn Ferry (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, 20192022 based on criteria established in Internal 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, 2019.2022.
Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s financial statements for the year ended April 30, 20192022 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, 2019,2022, a copy of which is included in this Annual Report on Form 10-K.
June 28, 20192022
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Stockholders and Board of Directors of Korn Ferry:
Opinion on Internal Control over Financial Reporting
We have audited Korn Ferry and subsidiaries’ internal control over financial reporting as of April 30, 2019,2022, based on criteria established in Internal 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, 2019,2022, 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 Company as of April 30, 20192022 and 2018,2021, 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, 20192022 and the related notes and the financial statement schedule listed in the index at Item 15(a) and our report dated June 28, 20192022 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 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, 20192022
F-3
REPORT OF INDEPENDENTINDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Korn Ferry: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, 20192022 and 2018,2021, 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, 20192022 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, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 30, 20192022 and 2018,2021, and the results of theirits operations and theirits cash flows for each of the three years in the period ended April 30, 2019,2022, 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 Company's internal control over financial reporting as of April 30, 2019,2022, 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, 20192022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements 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 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, 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 regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue recognition | ||
Description of the Matter | As described in Note 1 to the consolidated financial statements, the Company recognizes revenue when control of the goods and services are transferred to the customer. Revenue recognition includes management estimates of uptick fee variable consideration for Search engagements and estimates of the total hours at completion used to recognize revenue as services are rendered under Consulting contracts. Auditing revenue recognition was complex due to the volume of transactions within the various revenue streams with each revenue stream representing a different pattern of revenue recognition. Auditing revenue recognition also incorporates testing the underlying data supporting management estimates mentioned above that are used in recognizing revenues under Search and Consulting contracts. |
F-4
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s processes and controls related to the recognition of each revenue stream, including, among others, controls over management review of contractual terms, management’s determination of when control of goods and services are transferred to customers as well as management’s review of the accuracy and completeness of underlying data used in the estimates mentioned above. Our audit procedures included, among others, testing a sample of contracts to determine whether terms that may affect revenue recognition were identified and properly considered, performance obligations were appropriately identified in the Company’s evaluation of the accounting for the contracts and revenue was recognized when control of the goods or services is transferred to the customer. In addition, we tested management estimates mentioned above. For Search contracts, we compared the estimates of uptick fee revenues to historical actual data for a portfolio of similar contracts. For Consulting contracts, we compared the data used in the estimate of the total hours at completion to time reports for work completed to date, recalculated the percentage of completion and assessed the reasonableness of management’s estimates to complete based on an understanding of the current status of the contracts. We also performed analysis over contracts completed during the year to determine whether there are significant changes in the estimate from initiation to completion of contracts. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 20022002.
Los Angeles, California
June 28, 20192022
F-4F-5
KORN FERRY AND SUBSIDIARIES
|
| April 30, |
|
| April 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (in thousands, except per share data) |
|
| (in thousands, except per share data) |
| ||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 626,360 |
|
| $ | 520,848 |
|
| $ | 978,070 |
|
| $ | 850,778 |
|
Marketable securities |
|
| 8,288 |
|
|
| 14,293 |
|
|
| 57,244 |
|
|
| 63,667 |
|
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 |
| ||||||||
Receivables due from clients, net of allowance for doubtful accounts of $36,384 and $29,324 at April 30, 2022 and 2021, respectively |
|
| 590,260 |
|
|
| 448,733 |
| ||||||||
Income taxes and other receivables |
|
| 26,767 |
|
|
| 29,089 |
|
|
| 31,884 |
|
|
| 40,024 |
|
Unearned compensation |
|
| 42,003 |
|
|
| 37,333 |
|
|
| 60,749 |
|
|
| 53,206 |
|
Prepaid expenses and other assets |
|
| 28,535 |
|
|
| 27,700 |
|
|
| 41,763 |
|
|
| 30,724 |
|
Total current assets |
|
| 1,136,810 |
|
|
| 1,014,259 |
|
|
| 1,759,970 |
|
|
| 1,487,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, non-current |
|
| 132,463 |
|
|
| 122,792 |
|
|
| 175,783 |
|
|
| 182,692 |
|
Property and equipment, net |
|
| 131,505 |
|
|
| 119,901 |
|
|
| 138,172 |
|
|
| 131,778 |
|
Cash surrender value of company owned life insurance policies, net of loans |
|
| 126,000 |
|
|
| 120,087 |
| ||||||||
Operating lease right-of-use assets, net |
|
| 167,734 |
|
|
| 174,121 |
| ||||||||
Cash surrender value of company-owned life insurance policies, net of loans |
|
| 183,308 |
|
|
| 161,295 |
| ||||||||
Deferred income taxes |
|
| 43,220 |
|
|
| 25,520 |
|
|
| 84,712 |
|
|
| 73,106 |
|
Goodwill |
|
| 578,298 |
|
|
| 584,222 |
|
|
| 725,592 |
|
|
| 626,669 |
|
Intangible assets, net |
|
| 82,948 |
|
|
| 203,216 |
|
|
| 89,770 |
|
|
| 92,949 |
|
Unearned compensation, non-current |
|
| 80,924 |
|
|
| 78,295 |
|
|
| 118,238 |
|
|
| 102,356 |
|
Investments and other assets |
|
| 22,684 |
|
|
| 19,622 |
|
|
| 21,267 |
|
|
| 24,428 |
|
Total assets |
| $ | 2,334,852 |
|
| $ | 2,287,914 |
|
| $ | 3,464,546 |
|
| $ | 3,056,526 |
|
|
|
|
|
|
|
|
|
| ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 39,156 |
|
| $ | 35,196 |
|
| $ | 50,932 |
|
| $ | 44,993 |
|
Income taxes payable |
|
| 21,145 |
|
|
| 23,034 |
|
|
| 34,450 |
|
|
| 23,041 |
|
Compensation and benefits payable |
|
| 328,610 |
|
|
| 304,980 |
|
|
| 547,826 |
|
|
| 394,606 |
|
Current portion of long-term debt |
|
| — |
|
|
| 24,911 |
| ||||||||
Operating lease liability, current |
|
| 48,609 |
|
|
| 47,986 |
| ||||||||
Other accrued liabilities |
|
| 162,047 |
|
|
| 170,339 |
|
|
| 302,408 |
|
|
| 239,444 |
|
Total current liabilities |
|
| 550,958 |
|
|
| 558,460 |
|
|
| 984,225 |
|
|
| 750,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation and other retirement plans |
|
| 257,635 |
|
|
| 227,729 |
|
|
| 357,175 |
|
|
| 346,455 |
|
Operating lease liability, non-current |
|
| 151,212 |
|
|
| 155,998 |
| ||||||||
Long-term debt |
|
| 222,878 |
|
|
| 211,311 |
|
|
| 395,477 |
|
|
| 394,794 |
|
Deferred tax liabilities |
|
| 1,103 |
|
|
| 9,105 |
|
|
| 2,715 |
|
|
| 3,832 |
|
Other liabilities |
|
| 58,891 |
|
|
| 61,694 |
|
|
| 24,153 |
|
|
| 36,602 |
|
Total liabilities |
|
| 1,091,465 |
|
|
| 1,068,299 |
|
|
| 1,914,957 |
|
|
| 1,687,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
| ||||||||
Common stock: $0.01 par value, 150,000 shares authorized, 75,409 and 74,915 shares issued and 53,190 and 54,008 shares outstanding at April 30, 2022 and 2021, respectively |
|
| 502,008 |
|
|
| 583,260 |
| ||||||||
Retained earnings |
|
| 660,845 |
|
|
| 572,800 |
|
|
| 1,134,523 |
|
|
| 834,949 |
|
Accumulated other comprehensive loss, net |
|
| (76,652 | ) |
|
| (40,135 | ) |
|
| (92,185 | ) |
|
| (51,820 | ) |
Total Korn Ferry stockholders' equity |
|
| 1,240,656 |
|
|
| 1,216,607 |
|
|
| 1,544,346 |
|
|
| 1,366,389 |
|
Noncontrolling interest |
|
| 2,731 |
|
|
| 3,008 |
|
|
| 5,243 |
|
|
| 2,386 |
|
Total stockholders' equity |
|
| 1,243,387 |
|
|
| 1,219,615 |
|
|
| 1,549,589 |
|
|
| 1,368,775 |
|
Total liabilities and stockholders' equity |
| $ | 2,334,852 |
|
| $ | 2,287,914 |
|
| $ | 3,464,546 |
|
| $ | 3,056,526 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5F-6
CONSOLIDATED STATEMENTS OF INCOME
|
| Year Ended April 30, |
|
| Year Ended April 30, |
| ||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (in thousands, except per share data) |
|
| (in thousands, except per share data) |
| ||||||||||||||||||
Fee revenue |
| $ | 1,926,033 |
|
| $ | 1,767,217 |
|
| $ | 1,565,521 |
|
| $ | 2,626,718 |
|
| $ | 1,810,047 |
|
| $ | 1,932,732 |
|
Reimbursed out-of-pocket engagement expenses |
|
| 47,829 |
|
|
| 52,302 |
|
|
| 56,148 |
|
|
| 16,737 |
|
|
| 9,899 |
|
|
| 44,598 |
|
Total revenue |
|
| 1,973,862 |
|
|
| 1,819,519 |
|
|
| 1,621,669 |
|
|
| 2,643,455 |
|
|
| 1,819,946 |
|
|
| 1,977,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
|
| 1,311,240 |
|
|
| 1,199,057 |
|
|
| 1,065,659 |
|
|
| 1,741,452 |
|
|
| 1,297,880 |
|
|
| 1,297,994 |
|
General and administrative expenses |
|
| 351,991 |
|
|
| 237,390 |
|
|
| 226,232 |
|
|
| 237,272 |
|
|
| 191,776 |
|
|
| 258,957 |
|
Reimbursed expenses |
|
| 47,829 |
|
|
| 52,302 |
|
|
| 56,148 |
|
|
| 16,737 |
|
|
| 9,899 |
|
|
| 44,598 |
|
Cost of services |
|
| 75,487 |
|
|
| 73,658 |
|
|
| 71,482 |
|
|
| 114,399 |
|
|
| 72,030 |
|
|
| 85,886 |
|
Depreciation and amortization |
|
| 46,489 |
|
|
| 48,588 |
|
|
| 47,260 |
|
|
| 63,521 |
|
|
| 61,845 |
|
|
| 55,311 |
|
Restructuring charges, net |
|
| — |
|
|
| 78 |
|
|
| 34,600 |
|
|
| — |
|
|
| 30,732 |
|
|
| 58,559 |
|
Total operating expenses |
|
| 1,833,036 |
|
|
| 1,611,073 |
|
|
| 1,501,381 |
|
|
| 2,173,381 |
|
|
| 1,664,162 |
|
|
| 1,801,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
| 140,826 |
|
|
| 208,446 |
|
|
| 120,288 |
|
|
| 470,074 |
|
|
| 155,784 |
|
|
| 176,025 |
|
Other income, net |
|
| 10,094 |
|
|
| 11,119 |
|
|
| 10,328 |
| ||||||||||||
Other (loss) income, net |
|
| (11,880 | ) |
|
| 37,194 |
|
|
| (2,879 | ) | ||||||||||||
Interest expense, net |
|
| (16,891 | ) |
|
| (13,832 | ) |
|
| (14,607 | ) |
|
| (25,293 | ) |
|
| (29,278 | ) |
|
| (22,184 | ) |
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 before provision for income taxes |
|
| 432,901 |
|
|
| 163,700 |
|
|
| 150,962 |
| ||||||||||||
Income tax provision |
|
| 29,544 |
|
|
| 70,133 |
|
|
| 29,104 |
|
|
| 102,056 |
|
|
| 48,138 |
|
| �� | 43,945 |
|
Net income |
|
| 104,796 |
|
|
| 135,897 |
|
|
| 87,238 |
|
|
| 330,845 |
|
|
| 115,562 |
|
|
| 107,017 |
|
Net income attributable to noncontrolling interest |
|
| (2,145 | ) |
|
| (2,118 | ) |
|
| (3,057 | ) |
|
| (4,485 | ) |
|
| (1,108 | ) |
|
| (2,071 | ) |
Net income attributable to Korn Ferry |
| $ | 102,651 |
|
| $ | 133,779 |
|
| $ | 84,181 |
|
| $ | 326,360 |
|
| $ | 114,454 |
|
| $ | 104,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share attributable to Korn Ferry: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 1.84 |
|
| $ | 2.39 |
|
| $ | 1.48 |
|
| $ | 6.04 |
|
| $ | 2.11 |
|
| $ | 1.91 |
|
Diluted |
| $ | 1.81 |
|
| $ | 2.35 |
|
| $ | 1.47 |
|
| $ | 5.98 |
|
| $ | 2.09 |
|
| $ | 1.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 55,311 |
|
|
| 55,426 |
|
|
| 56,205 |
|
|
| 52,807 |
|
|
| 52,928 |
|
|
| 54,342 |
|
Diluted |
|
| 56,096 |
|
|
| 56,254 |
|
|
| 56,900 |
|
|
| 53,401 |
|
|
| 53,405 |
|
|
| 54,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share: |
| $ | 0.40 |
|
| $ | 0.40 |
|
| $ | 0.40 |
|
| $ | 0.48 |
|
| $ | 0.40 |
|
| $ | 0.40 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6F-7
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
| Year Ended April 30, |
|
| Year Ended April 30, |
| ||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 104,796 |
|
| $ | 135,897 |
|
| $ | 87,238 |
|
| $ | 330,845 |
|
| $ | 115,562 |
|
| $ | 107,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
| (28,038 | ) |
|
| 22,900 |
|
|
| (19,266 | ) |
|
| (59,227 | ) |
|
| 50,069 |
|
|
| (23,764 | ) |
Deferred compensation and pension plan adjustments, net of tax |
|
| (5,369 | ) |
|
| 6,054 |
|
|
| 6,445 |
|
|
| 19,096 |
|
|
| 5,419 |
|
|
| (6,716 | ) |
Net unrealized (loss) gain on interest rate swap, net of tax |
|
| (1,080 | ) |
|
| 1,915 |
|
|
| (578 | ) | ||||||||||||
Net unrealized (loss) gain on marketable securities, net of tax |
|
| (410 | ) |
|
| (53 | ) |
|
| 34 |
| ||||||||||||
Net unrealized loss on interest rate swap, net of tax |
|
| — |
|
|
| — |
|
|
| (456 | ) | ||||||||||||
Comprehensive income |
|
| 70,309 |
|
|
| 166,766 |
|
|
| 73,839 |
|
|
| 290,304 |
|
|
| 170,997 |
|
|
| 76,115 |
|
Less: comprehensive income attributable to noncontrolling interest |
|
| (1,978 | ) |
|
| (2,058 | ) |
|
| (2,811 | ) |
|
| (4,309 | ) |
|
| (1,191 | ) |
|
| (1,689 | ) |
Comprehensive income attributable to Korn Ferry |
| $ | 68,331 |
|
| $ | 164,708 |
|
| $ | 71,028 |
|
| $ | 285,995 |
|
| $ | 169,806 |
|
| $ | 74,426 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-7F-8
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated Other |
|
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated Other |
|
| Total Korn Ferry |
|
|
|
|
|
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| Comprehensive |
|
| Korn Ferry |
|
|
|
|
|
| Total |
| Common Stock |
|
| Retained |
|
| Comprehensive |
|
| Stockholders' |
|
| Noncontrolling |
|
| Stockholders' |
| |||||||||||||
| Common Stock |
|
| Retained |
|
| (Loss) Income, |
|
| Stockholders' |
|
| Noncontrolling |
|
| Stockholder's |
| Shares |
|
| Amount |
|
| Earnings |
|
| Loss, Net |
|
| Equity |
|
| Interest |
|
| Equity |
| |||||||||||||||||
| Shares |
|
| Amount |
|
| Earnings |
|
| Net |
|
| Equity |
|
| Interest |
|
| Equity |
| (in thousands) |
| ||||||||||||||||||||||||||||||||
| (in thousands) |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at May 1, 2016 |
| 57,272 |
|
| $ | 702,098 |
|
| $ | 401,113 |
|
| $ | (57,911 | ) |
| $ | 1,045,300 |
|
| $ | 2,001 |
|
| $ | 1,047,301 |
| |||||||||||||||||||||||||||
Balance at May 1, 2019 |
| 56,431 |
|
| $ | 656,463 |
|
| $ | 660,845 |
|
| $ | (76,652 | ) |
| $ | 1,240,656 |
|
| $ | 2,731 |
|
| $ | 1,243,387 |
| |||||||||||||||||||||||||||
Net income |
| — |
|
|
| — |
|
|
| 84,181 |
|
|
| — |
|
|
| 84,181 |
|
|
| 3,057 |
|
|
| 87,238 |
|
| — |
|
|
| — |
|
|
| 104,946 |
|
|
| — |
|
|
| 104,946 |
|
|
| 2,071 |
|
|
| 107,017 |
|
Other comprehensive loss |
| — |
|
|
| — |
|
|
| — |
|
|
| (13,153 | ) |
|
| (13,153 | ) |
|
| (246 | ) |
|
| (13,399 | ) |
| — |
|
|
| — |
|
|
| — |
|
|
| (30,520 | ) |
|
| (30,520 | ) |
|
| (382 | ) |
|
| (30,902 | ) |
Dividends paid to shareholders |
| — |
|
|
| — |
|
|
| (23,318 | ) |
|
| — |
|
|
| (23,318 | ) |
|
| — |
|
|
| (23,318 | ) |
| — |
|
|
| — |
|
|
| (22,798 | ) |
|
| — |
|
|
| (22,798 | ) |
|
| — |
|
|
| (22,798 | ) |
Dividends paid to noncontrolling interest |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,203 | ) |
|
| (1,203 | ) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,110 | ) |
|
| (2,110 | ) |
Purchase of stock |
| (1,346 | ) |
|
| (33,579 | ) |
|
| — |
|
|
| — |
|
|
| (33,579 | ) |
|
| — |
|
|
| (33,579 | ) |
| (2,839 | ) |
|
| (101,439 | ) |
|
| — |
|
|
| — |
|
|
| (101,439 | ) |
|
| — |
|
|
| (101,439 | ) |
Issuance of stock |
| 1,012 |
|
|
| 5,886 |
|
|
| — |
|
|
| — |
|
|
| 5,886 |
|
|
| — |
|
|
| 5,886 |
|
| 858 |
|
|
| 9,041 |
|
|
| — |
|
|
| — |
|
|
| 9,041 |
|
|
| — |
|
|
| 9,041 |
|
Stock-based compensation |
| — |
|
|
| 18,045 |
|
|
| — |
|
|
| — |
|
|
| 18,045 |
|
|
| — |
|
|
| 18,045 |
|
| — |
|
|
| 21,495 |
|
|
| — |
|
|
| — |
|
|
| 21,495 |
|
|
| — |
|
|
| 21,495 |
|
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 |
| |||||||||||||||||||||||||||
Balance at April 30, 2020 |
| 54,450 |
|
|
| 585,560 |
|
|
| 742,993 |
|
|
| (107,172 | ) |
|
| 1,221,381 |
|
|
| 2,310 |
|
|
| 1,223,691 |
| |||||||||||||||||||||||||||
Net income |
| — |
|
|
| — |
|
|
| 133,779 |
|
|
| — |
|
|
| 133,779 |
|
|
| 2,118 |
|
|
| 135,897 |
|
| — |
|
|
| — |
|
|
| 114,454 |
|
|
| — |
|
|
| 114,454 |
|
|
| 1,108 |
|
|
| 115,562 |
|
Other comprehensive income (loss) |
| — |
|
|
| — |
|
|
| — |
|
|
| 30,929 |
|
|
| 30,929 |
|
|
| (60 | ) |
|
| 30,869 |
| |||||||||||||||||||||||||||
Other comprehensive income |
| — |
|
|
| — |
|
|
| — |
|
|
| 55,352 |
|
|
| 55,352 |
|
|
| 83 |
|
|
| 55,435 |
| |||||||||||||||||||||||||||
Dividends paid to shareholders |
| — |
|
|
| — |
|
|
| (22,955 | ) |
|
| — |
|
|
| (22,955 | ) |
|
| — |
|
|
| (22,955 | ) |
| — |
|
|
| — |
|
|
| (22,498 | ) |
|
| — |
|
|
| (22,498 | ) |
|
| — |
|
|
| (22,498 | ) |
Dividends paid to noncontrolling interest |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,659 | ) |
|
| (2,659 | ) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,115 | ) |
|
| (1,115 | ) |
Purchase of stock |
| (1,092 | ) |
|
| (36,865 | ) |
|
| — |
|
|
| — |
|
|
| (36,865 | ) |
|
| — |
|
|
| (36,865 | ) |
| (1,146 | ) |
|
| (35,376 | ) |
|
| — |
|
|
| — |
|
|
| (35,376 | ) |
|
| — |
|
|
| (35,376 | ) |
Issuance of stock |
| 671 |
|
|
| 7,998 |
|
|
| — |
|
|
| — |
|
|
| 7,998 |
|
|
| — |
|
|
| 7,998 |
|
| 704 |
|
|
| 6,560 |
|
|
| — |
|
|
| — |
|
|
| 6,560 |
|
|
| — |
|
|
| 6,560 |
|
Stock-based compensation |
| — |
|
|
| 20,282 |
|
|
| — |
|
|
| — |
|
|
| 20,282 |
|
|
| — |
|
|
| 20,282 |
|
| — |
|
|
| 26,516 |
|
|
| — |
|
|
| — |
|
|
| 26,516 |
|
|
| — |
|
|
| 26,516 |
|
Balance at April 30, 2018 |
| 56,517 |
|
|
| 683,942 |
|
|
| 572,800 |
|
|
| (40,135 | ) |
|
| 1,216,607 |
|
|
| 3,008 |
|
|
| 1,219,615 |
| |||||||||||||||||||||||||||
Balance at April 30, 2021 |
| 54,008 |
|
|
| 583,260 |
|
|
| 834,949 |
|
|
| (51,820 | ) |
|
| 1,366,389 |
|
|
| 2,386 |
|
|
| 1,368,775 |
| |||||||||||||||||||||||||||
Net income |
| — |
|
|
| — |
|
|
| 102,651 |
|
|
| — |
|
|
| 102,651 |
|
|
| 2,145 |
|
|
| 104,796 |
|
| — |
|
|
| — |
|
|
| 326,360 |
|
|
| — |
|
|
| 326,360 |
|
|
| 4,485 |
|
|
| 330,845 |
|
Other comprehensive loss |
| — |
|
|
| — |
|
|
| — |
|
|
| (34,320 | ) |
|
| (34,320 | ) |
|
| (167 | ) |
|
| (34,487 | ) |
| — |
|
|
| — |
|
|
| — |
|
|
| (40,365 | ) |
|
| (40,365 | ) |
|
| (176 | ) |
|
| (40,541 | ) |
Effect of adoption of accounting standards |
| — |
|
|
| — |
|
|
| 8,853 |
|
|
| (2,197 | ) |
|
| 6,656 |
|
|
| — |
|
|
| 6,656 |
| |||||||||||||||||||||||||||
Dividends paid to shareholders |
| — |
|
|
| — |
|
|
| (23,459 | ) |
|
| — |
|
|
| (23,459 | ) |
|
| — |
|
|
| (23,459 | ) |
| — |
|
|
| — |
|
|
| (26,786 | ) |
|
| — |
|
|
| (26,786 | ) |
|
| — |
|
|
| (26,786 | ) |
Dividends paid to noncontrolling interest |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,255 | ) |
|
| (2,255 | ) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,452 | ) |
|
| (1,452 | ) |
Purchase of stock |
| (1,166 | ) |
|
| (58,070 | ) |
|
| — |
|
|
| — |
|
|
| (58,070 | ) |
|
| — |
|
|
| (58,070 | ) |
| (1,743 | ) |
|
| (117,301 | ) |
|
| — |
|
|
| — |
|
|
| (117,301 | ) |
|
| — |
|
|
| (117,301 | ) |
Issuance of stock |
| 1,080 |
|
|
| 8,528 |
|
|
| — |
|
|
| — |
|
|
| 8,528 |
|
|
| — |
|
|
| 8,528 |
|
| 925 |
|
|
| 7,688 |
|
|
| — |
|
|
| — |
|
|
| 7,688 |
|
|
| — |
|
|
| 7,688 |
|
Stock-based compensation |
| — |
|
|
| 22,063 |
|
|
| — |
|
|
| — |
|
|
| 22,063 |
|
|
| — |
|
|
| 22,063 |
|
| — |
|
|
| 28,361 |
|
|
| — |
|
|
| — |
|
|
| 28,361 |
|
|
| — |
|
|
| 28,361 |
|
Balance at April 30, 2019 |
| 56,431 |
|
| $ | 656,463 |
|
| $ | 660,845 |
|
| $ | (76,652 | ) |
| $ | 1,240,656 |
|
| $ | 2,731 |
|
| $ | 1,243,387 |
| |||||||||||||||||||||||||||
Balance at April 30, 2022 |
| 53,190 |
|
| $ | 502,008 |
|
| $ | 1,134,523 |
|
| $ | (92,185 | ) |
| $ | 1,544,346 |
|
| $ | 5,243 |
|
| $ | 1,549,589 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-8F-9
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| Year Ended April 30, |
|
| Year Ended April 30, |
| ||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 104,796 |
|
| $ | 135,897 |
|
| $ | 87,238 |
|
| $ | 330,845 |
|
| $ | 115,562 |
|
| $ | 107,017 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 46,489 |
|
|
| 48,588 |
|
|
| 47,260 |
|
|
| 63,521 |
|
|
| 61,845 |
|
|
| 55,311 |
|
Stock-based compensation expense |
|
| 23,385 |
|
|
| 21,469 |
|
|
| 18,958 |
|
|
| 29,210 |
|
|
| 27,157 |
|
|
| 22,818 |
|
Impairment of tradenames |
|
| 106,555 |
|
|
| — |
|
|
| — |
| ||||||||||||
Impairment of right to use assets |
|
| 7,392 |
|
|
| — |
|
|
| 2,282 |
| ||||||||||||
Impairment of fixed assets |
|
| 1,915 |
|
|
| — |
|
|
| 372 |
| ||||||||||||
Provision for doubtful accounts |
|
| 14,260 |
|
|
| 13,675 |
|
|
| 12,987 |
|
|
| 21,552 |
|
|
| 15,763 |
|
|
| 14,644 |
|
Gain on cash surrender value of life insurance policies |
|
| (6,160 | ) |
|
| (7,776 | ) |
|
| (4,918 | ) |
|
| (5,819 | ) |
|
| (13,017 | ) |
|
| (6,551 | ) |
Gain on marketable securities |
|
| (8,134 | ) |
|
| (10,278 | ) |
|
| (10,842 | ) | ||||||||||||
Loss (gain) on marketable securities |
|
| 11,978 |
|
|
| (38,529 | ) |
|
| 2,066 |
| ||||||||||||
Deferred income taxes |
|
| (27,796 | ) |
|
| (6,564 | ) |
|
| 6,589 |
|
|
| (16,963 | ) |
|
| (14,140 | ) |
|
| (9,330 | ) |
Change in other assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation |
|
| 18,478 |
|
|
| 27,660 |
|
|
| 6,868 |
|
|
| 27,197 |
|
|
| 64,005 |
|
|
| 23,496 |
|
Receivables due from clients |
|
| (30,625 | ) |
|
| (53,357 | ) |
|
| (42,326 | ) |
|
| (138,627 | ) |
|
| (67,331 | ) |
|
| 34,152 |
|
Income taxes and other receivables |
|
| 1,409 |
|
|
| 2,093 |
|
|
| (10,177 | ) |
|
| 3,969 |
|
|
| 5,798 |
|
|
| (6,421 | ) |
Prepaid expenses and other assets |
|
| (148 | ) |
|
| (2,118 | ) |
|
| (1,796 | ) |
|
| (9,534 | ) |
|
| (3,902 | ) |
|
| (956 | ) |
Unearned compensation |
|
| (7,299 | ) |
|
| (42,742 | ) |
|
| (17,465 | ) |
|
| (23,425 | ) |
|
| (32,935 | ) |
|
| 300 |
|
Investment in unconsolidated subsidiaries |
|
| (311 | ) |
|
| (297 | ) |
|
| (333 | ) | ||||||||||||
Income taxes payable |
|
| 213 |
|
|
| 32,439 |
|
|
| 205 |
|
|
| 12,751 |
|
|
| (1,824 | ) |
|
| 1,246 |
|
Accounts payable and accrued liabilities |
|
| 28,398 |
|
|
| 66,081 |
|
|
| 5,420 |
|
|
| 191,447 |
|
|
| 122,687 |
|
|
| (6,011 | ) |
Other |
|
| (4,705 | ) |
|
| (5,645 | ) |
|
| 8,473 |
|
|
| (5,751 | ) |
|
| 10,294 |
|
|
| 1,914 |
|
Net cash provided by operating activities |
|
| 258,805 |
|
|
| 219,125 |
|
|
| 106,141 |
|
|
| 501,658 |
|
|
| 251,433 |
|
|
| 236,349 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (46,682 | ) |
|
| (42,000 | ) |
|
| (50,088 | ) |
|
| (49,406 | ) |
|
| (31,122 | ) |
|
| (41,460 | ) |
Purchase of marketable securities |
|
| (9,476 | ) |
|
| (9,462 | ) |
|
| (10,536 | ) |
|
| (82,015 | ) |
|
| (103,499 | ) |
|
| (83,563 | ) |
Proceeds from sales/maturities of marketable securities |
|
| 13,781 |
|
|
| 2,642 |
|
|
| 42,815 |
|
|
| 92,472 |
|
|
| 69,683 |
|
|
| 47,936 |
|
Cash paid for acquisitions, net of cash acquired |
|
| — |
|
|
| — |
|
|
| (2,880 | ) |
|
| (133,802 | ) |
|
| — |
|
|
| (108,602 | ) |
Premium on company-owned life insurance policies |
|
| (34,862 | ) |
|
| (1,614 | ) |
|
| (1,597 | ) |
|
| (15,218 | ) |
|
| (15,353 | ) |
|
| (15,699 | ) |
Proceeds from life insurance policies |
|
| 7,632 |
|
|
| 5,355 |
|
|
| 1,117 |
|
|
| 3,382 |
|
|
| 18,707 |
|
|
| 2,280 |
|
Dividends received from unconsolidated subsidiaries |
|
| 140 |
|
|
| 240 |
|
|
| 564 |
|
|
| 255 |
|
|
| 205 |
|
|
| 346 |
|
Net cash used in investing activities |
|
| (69,467 | ) |
|
| (44,839 | ) |
|
| (20,605 | ) |
|
| (184,332 | ) |
|
| (61,379 | ) |
|
| (198,762 | ) |
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 | ) |
|
| (96,258 | ) |
|
| (30,387 | ) |
|
| (92,446 | ) |
Payments of tax withholdings on restricted stock |
|
| (20,698 | ) |
|
| (3,794 | ) |
|
| (4,758 | ) |
|
| (18,532 | ) |
|
| (4,989 | ) |
|
| (8,993 | ) |
Proceeds from issuance of common stock upon exercise of employee stock options and in connection with an employee stock purchase plan |
|
| 6,919 |
|
|
| 5,706 |
|
|
| 7,684 |
| ||||||||||||
Payments on life insurance policy loans |
|
| (178 | ) |
|
| (12,279 | ) |
|
| (943 | ) | ||||||||||||
Principal payments on finance leases |
|
| (1,157 | ) |
|
| (1,324 | ) |
|
| (1,833 | ) | ||||||||||||
Dividends paid to shareholders |
|
| (26,786 | ) |
|
| (22,498 | ) |
|
| (22,798 | ) | ||||||||||||
Dividends paid to noncontrolling interest |
|
| (1,452 | ) |
|
| (1,115 | ) |
|
| (2,110 | ) | ||||||||||||
Proceeds from long term debt |
|
| — |
|
|
| — |
|
|
| 1,045,500 |
| ||||||||||||
Principal payments on long term debt |
|
| — |
|
|
| — |
|
|
| (876,875 | ) | ||||||||||||
Payment of debt issuance costs |
|
| — |
|
|
| — |
|
|
| (3,050 | ) | ||||||||||||
Payment of contingent consideration from acquisitions |
|
| (455 | ) |
|
| (485 | ) |
|
| (1,070 | ) |
|
| — |
|
|
| — |
|
|
| (455 | ) |
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 |
|
|
| (137,444 | ) |
|
| (66,886 | ) |
|
| 43,681 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| (19,201 | ) |
|
| 12,938 |
|
|
| (12,271 | ) |
|
| (52,590 | ) |
|
| 38,366 |
|
|
| (18,384 | ) |
Net increase in cash and cash equivalents |
|
| 105,512 |
|
|
| 109,966 |
|
|
| 137,630 |
|
|
| 127,292 |
|
|
| 161,534 |
|
|
| 62,884 |
|
Cash and cash equivalents at beginning of year |
|
| 520,848 |
|
|
| 410,882 |
|
|
| 273,252 |
|
|
| 850,778 |
|
|
| 689,244 |
|
|
| 626,360 |
|
Cash and cash equivalents at end of the period |
| $ | 626,360 |
|
| $ | 520,848 |
|
| $ | 410,882 |
|
| $ | 978,070 |
|
| $ | 850,778 |
|
| $ | 689,244 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used to pay interest |
| $ | 14,188 |
|
| $ | 11,946 |
|
| $ | 10,882 |
|
| $ | 24,607 |
|
| $ | 25,207 |
|
| $ | 12,526 |
|
Cash used to pay income taxes, net of refunds |
| $ | 58,408 |
|
| $ | 37,486 |
|
| $ | 32,458 |
|
| $ | 107,602 |
|
| $ | 55,317 |
|
| $ | 54,914 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-9F-10
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 20192022
1. Organization and Summary of Significant Accounting Policies
Nature of Business
On June 12, 2018, the Board of Directors of Korn Ferry, a Delaware corporation, (the “Company”) and its subsidiaries approved(the “Company”) is a plan (the “Plan”) to go to market under a single, master brand architecture and to simplify the Company’sglobal 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.”consulting firm. 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, forhelps clients predominantly in the consumer 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, Assessmentto drive superior performance. The Company works with organizations to design their structures, roles, and Succession, Leadership Development,responsibilities. The Company helps organizations hire the right people to bring their strategy to life and Rewardsadvise them on how to reward, develop, and Benefits, all underpinned bymotivate their people.
The Company is pursuing a comprehensive arraystrategy that will help Korn Ferry to focus on clients and collaborate intensively across the organization. This approach builds on the best of world-leading intellectual property, productsthe Company’s past and tools. RPO & Professional Searchgives the Company a clear path to the future with focused initiatives to increase its client and commercial impact. Korn Ferry is transforming how clients address their talent management needs. The Company has evolved from a global industry leader in high-impact talent acquisition solutions. Its portfoliomono-line to a diversified business, giving its consultants more frequent and expanded opportunities to engage with clients.
The Company has 7 reportable segments that operate through the following 4 lines of services includes global and regional Recruitment Process Outsourcing (“RPO”), project recruitment, individual professional search and consulting.business:
1. | Consulting aligns organization structure, culture, performance and people to drive sustainable growth by addressing four fundamental needs: Organizational Strategy, Assessment and Succession, Leadership and Professional Development and Total Rewards. This work is supported by a comprehensive range of some of the world’s leading intellectual property (“lP”) and data. The Consulting teams employ an integrated approach across core solutions each one strengthening our work and thinking in the next, to help clients execute their strategy in a digitally enabled world. |
2. | Digital delivers scalable tech-enabled solutions that identify the best structures, roles, capabilities and behaviors to drive businesses forward. Powered by the Korn Ferry Intelligence Cloud, the end-to-end system combines Korn Ferry proprietary data, client data and external market data to deliver clear insights with the training tools needed to align organizational structure with business strategy. |
3. | Executive Search helps organizations recruit board level, chief executive and other senior executive and general management talent to deliver lasting impact. Korn Ferry’s approach to placing talent brings together our research-based IP, proprietary assessments, and behavioral interviewing with our practical experience to determine the ideal organizational fit. Salary benchmarking then builds appropriate frameworks for compensation and retention. This business is managed and reported on a geographic basis and represents four of the Company’s reportable segments (Executive Search North America, Executive Search EMEA, Executive Search Asia Pacific and Executive Search Latin America). |
4. | Recruitment Process Outsourcing (“RPO”) & Professional Search focuses on delivering enterprise talent acquisition solutions to our clients, at the professional level. The Company leverages the power of people, process expertise, IP-enabled technology, and compensation information to do this. Transaction sizes range from single professional searches to team, department, line of business projects, and global outsource recruiting solutions. |
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.our different industries. 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 $0.1 million, $0.2 million and $0.6 million during fiscal 2019, 2018 and 2017, respectively.
The Company has control of a MexicoMexican subsidiary and consolidates the operations of this subsidiary. Noncontrolling interest, which represents the Mexico PartnersMexican partners’ 51% interest in the MexicoMexican subsidiary, is reflected on the Company’s consolidated financial statements.
F-11
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
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 or determinable. The most significant areas that require management’s judgment are revenue recognition, deferred compensation, annual performance-related bonuses, evaluation of the carrying value of receivables, goodwill and other intangible assets, share-based payments, leases and the recoverability of deferred income taxes.
F-10
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2019 (continued)
Substantially all fee revenue is derived from talent and organizational consulting services and digital sales, stand-alone or as part of a solution, 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, RPO, either stand-alonestand-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 StandardStandards Codification (“ASC”) 606 (“ASC 606”):, Revenue from Contracts with Customers: 1) identify the contract with a customer; 2) identify the performance obligation(s) in the contract; 3) determine the transaction price; 4) allocate the transaction price to the separate performance obligation(s); and 5) recognize revenue when (or as) each performance obligation is satisfied.
Consulting fee revenue is primarily recognized as services are rendered, measured by total hours incurred as a percentage of the total estimated hours at completion. It is possible that updated estimates for consulting engagements may vary from initial estimates with such updates being recognized in the period of determination. Depending on the timing of billings and services rendered, the Company accrues or defers revenue as appropriate.
Digital fee revenue is generated from IP platforms enabling large-scale, technology-based talent programs for pay, talent development, engagement, and assessment and is consumed directly by an end user or indirectly through a consulting engagement. Revenue is recognized as services are delivered and the Company has a legally enforceable right to payment. Revenue also comes from the sale of the Company’s proprietary IP subscriptions, which are considered symbolic IP due to the dynamic nature of the content. As a result, revenue is recognized over the term of the contract. Functional IP licenses grant customers the right to use IP content via the delivery of a flat file. Because the IP content license has significant stand-alone functionality, revenue is recognized upon delivery and when an enforceable right to payment exists. Revenue for tangible and digital products sold by the Company, such as books and digital files, is recognized when these products are shipped.
Fee revenue from executive and professional search activities is generally one-third of the estimated first-year cash compensation of the placed candidate, plus a percentage of the fee to cover indirect engagement-related expenses. In addition to the search retainer, an uptick fee is billed when the actual compensation awarded by the client for a placement is higher than the estimated compensation. In the aggregate, upticks have been a relatively consistent percentage of the original estimated fee; therefore, the Company estimates upticks using the expected value method based on historical data on a portfolio basis. In a standard search engagement, there is one performance obligation, which is the promise to undertake a search. The Company generally recognizes such revenue over the course of a search and when it is legally entitled to payment as outlined in the billing terms of the contract. Any revenues associated with services that are provided on a contingent basis are recognized once the contingency is resolved, as this is when control is transferred to the customer. These assumptions determine the timing of revenue recognition for the reported period.
RPO feerevenue 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, measured by total hours incurred to the total estimated hours at completion. It is possible that updated estimates for consulting engagements may vary from initial estimates, with such updates being recognized in the period of determination. Depending on the timing of billings and services rendered, the Company accrues or defers revenue as appropriate.F-12
Product revenue is generated 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 dynamic nature of the content and, as a result, revenue is recognized over the term of the contract. Functional IP licenses grant customers the right to use IP content via delivery of a flat file. Because the IP content license has significant stand-alone functionality, revenue is recognized upon delivery and when an enforceable right to payment exists. 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 a legally enforceable right to payment. Tangible/digital products sold by the Company mainly consist of books and digital files covering a variety of topics, including performance management, team effectiveness, and coaching and development. The Company recognizes revenue for its products when sold or shipped, as is the case for books.
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
Reimbursements
The Company incurs certain out-of-pocket expenses that are reimbursed by its clients, which are accounted for as revenue in the consolidated statements of income.
Allowance for Doubtful Accounts
An allowance is established for doubtful accounts by taking a charge to general and administrative expenses. The Company’s expected credit loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers’ trade accounts receivable. Due to the short-term nature of such receivables, the estimate of amount of the allowanceaccounts receivable that may not be collected is primarily based on historical loss experienceloss-rate experience. When required, the Company adjusts the loss-rate methodology to account for current conditions and assessment of the collectability of specific accounts, as well asreasonable and supportable expectations of future collections based upon trendseconomic and market conditions. The Company generally assesses future economic condition for a period of sixty to ninety days, which corresponds with the typecontractual life of work for which services are rendered.its accounts receivables. After the Company exhausts all collection efforts, the amount of the allowance is reduced for balances identifiedwritten off as uncollectible.
F-11
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2019 (continued)
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, 20192022 and 2018,2021, the Company’s investments in cash equivalents consisted of money market funds and commercial paper with initial maturity of less than 90 days for which market prices are readily available.
Marketable Securities
The Company currently has investments in marketable securities and mutual funds that are classified as either equity securities or available-for-sale debt securities. The classification of the investments in these marketable securities and mutual funds is assessed upon purchase and reassessed at each reporting period. These investments are recorded at fair value and are classified as marketable securities in the accompanying consolidated balance sheets.The investments that the Company may sell within the next 12 months are carried as current assets.
The Company invests in mutual funds (for which market prices are readily available) that are held in trust to satisfy obligations under the Company’s deferred compensation plans. Such investments are based uponclassified as equity securities and mirror the employees’ investment elections in their deemed accounts in the Executive Capital Accumulation Plan and similar plans in Asia Pacific and Canada (“ECAP”) from a pre-determined set of securities and the Company invests in marketable securities to mirror these elections. 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.securities. Realized gains (losses) on marketable securities are determined by specific identification. Interest is recognized on an accrual basis; dividends are recorded as earned on the ex-dividend date. Interest, dividend income and the changes in fair value in marketable securities are recorded in the accompanying consolidated statements of income in other (loss) income, net.
The Company also invests cash in excess of its daily operating requirements and capital needs primarily in marketable fixed income (debt) securities in accordance with the Company’s investment policy, which restricts the type of investments that can be made. The Company’s investment portfolio includes commercial paper, corporate notes/bonds and US Treasury and Agency securities as of April 30, 2022 and 2021. These marketable fixed income (debt)securities are classified as available-for-sale securities based on management’s decision, at the date such securities are acquired, not to hold these securities to maturity or actively trade them. The Company carries these marketable debt securities at fair value based on the market prices for these marketable debt securities or similar debt securities whose prices are readily available. The changes in fair values, net of applicable taxes, are recorded as unrealized gains or losses as a component of comprehensive income unless the change is due to credit loss. A credit loss is recorded in the statements of income in other (loss) income, net; any amount in excess of the credit loss is recorded as unrealized gains or losses as a component of comprehensive income. Generally, the amount of the loss is the difference between the cost or amortized cost and its then current fair value; a credit loss is the difference between the discounted expected future cash flows to be collected from the debt security and the cost or amortized cost of the debt security. During fiscal 2022, 2021 and 2020, 0 amount was recognized as a credit loss for the Company’s available for sales debt securities.
F-13
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
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, 20192022 and 2018,2021, 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 an interest rate swap.contracts. The carrying amount of cash, cash equivalents and accounts receivable approximates fair value due to the short-term maturity of these instruments. The fair values of marketable securities classified as equity securities are obtained from quoted market prices, and the fair values of marketable securities classified as available-for-sale and foreign currency forward contracts and 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 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 within stockholders’ equity and are amortized to interest expense over the term of the related debt.
Foreign Currency Forward Contracts Not Designated as Hedges
The Company has established a program that primarily utilizes foreign currency forward contracts to offset the risks associated with the effects of certain foreign currency exposures primarily originating from intercompany balances due to cross border work performed in the ordinary course of business. These foreign currency forward contracts are
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 ASC 815.815, Derivatives and Hedging. Accordingly, the fair value of these contracts is recorded as of the end of the reporting period in the accompanying consolidated balance sheets, while the change in fair value is recorded to the accompanying consolidated statements of income.
Business Acquisitions
Business acquisitions are accounted for under the acquisition method. The acquisition method requires the reporting entity to identify the acquirer, determine the acquisition date, recognize and measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity, and recognize and measure goodwill or a gain from the purchase. The acquiree’s results are included in the Company’s consolidated financial statements from the date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill, or if the fair value of the assets acquired exceeds the purchase price consideration, a bargain purchase gain is recorded. Adjustments to fair value assessments are generally recorded to goodwill over the measurement period (not longer than twelve12 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. During fiscal 2021, the Company recorded an adjustment of $2.6 million to increase goodwill as a result of additional tax liabilities from the Miller Heiman Group, Achieve Forum and Strategy Execution (the “Acquired Companies”) acquisition completed on November 1, 2019.
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and current and non-current operating lease liability, in the consolidated balance sheets. Finance leases are included in property and equipment, net, other accrued liabilities and other liabilities in the consolidated balance sheets.
F-14
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
ROU assets represent the Company's right to use an underlying asset for the lease term, and the lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term on the commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the periods in which they are incurred.
The Company has lease agreements with lease and non-lease components. For all leases with non-lease components the Company accounts for the lease and non-lease components as a single lease component.
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 seventen 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 CompanyImpairment of Long-Lived Assets
Long-lived assets include property, equipment, ROU assets and software developed or obtained for internal use. In accordance with ASC 360, Property, Plant and Equipment, management reviews the Company’s recorded long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying valueamount of an asset may not be fully recoverable. InEvents relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company determines the extent to which an asset may be impaired based upon its expectation of the asset’s future usability, as well as on a reasonable assurance that the future cash flows associated with the asset will be in excess of its carrying amount. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between fair value and the carrying value of the asset. During fiscal 2019, 20182022, the Company reduced its real estate footprint and 2017,as a result, the Company took an impairment charge of ROU assets of $7.4 million and an impairment of leasehold improvements and furniture and fixtures of $1.9 million, both recorded in the consolidated statements of income in general and administrative expenses. During fiscal 2020, the Company decided that it would exit 16 office leases as part of the integration of the Acquired Companies. This resulted in an impairment charge of the ROU asset of $2.3 million and impairment of leasehold improvements and furniture and fixtures of $0.4 million, both recorded in the consolidated statements of income in general and administrative expenses in the Digital reportable segment. During fiscal 2021, there were no such0 impairment charges recorded.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of assets acquired. The goodwillGoodwill is tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. Results of the annual qualitative impairment test compares the fair valueperformed as 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 ofJanuary 31, 2022, indicated that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. For each of these tests, the fair value of each of the Company’s reporting units is determined using a combination of valuation techniques, including a discounted cash flow methodology. To corroborate the discounted cash flow analysis performed at each reporting unit, a market approach is utilized using observable market data such as comparable companies in similar lines of business that are publicly traded or which are part of a public or private transaction (to the extent available). Results of the annual impairment test performed as of January 31, 2019, indicated that the fair value of each reporting unit exceeded its carrying amount and no reporting units were at risk of failing the impairment test. As a result, no0 impairment charge was recognized. There was also no indication of potential impairment during the fourth quarter of fiscal 20192022 that would have requiredrequire further testing.
Intangible assets primarily consist of customer lists, non-compete agreements, proprietary databases and IP. Intangible assets are recorded at their estimated fair value at the date of acquisition and are amortized in a pattern in which the asset is consumed if that pattern can be reliably determined, or using the straight-line method over their estimated useful lives, which range from 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. During fiscal 2018,The Company reviewed its intangible assets with indefinite lives were not amortized, but were reviewed annually forand noted 0 impairment or more frequently whenever events or changes in circumstances indicated that the fair value of the asset may be less than its carrying amount. Asas of April 30, 20192022, 2021 and 2018, there were no further indicators of impairment with respect to the Company’s intangible assets, with the exception of the intangible asset impairment charge discussed below.2020.
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
F-15
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
administrative and support personnel. The most significant portions of this expense are salaries and the amounts paid under the annual performance-related bonus plan to employees. The portion of the expense applicable to salaries is comprised of amounts earned by employees during a reporting period. The portion of the expenses applicable to annual performance-related bonuses refers to the Company’s annual employee performance-related bonus with respect to a fiscal year, the amount of which is communicated and paid to each eligible employee following the completion of the fiscal year.
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 searchExecutive Search consultants and revenue and other performance/profitability metrics for AdvisoryConsulting, Digital and RPO & Professional Search consultants), the level of engagements referred by a consultant in one line of business to a different line of business, and Company performance, including profitability, competitive forces and future economic conditions and their impact on the Company’s results. At the end of each fiscal year, annual performance relatedperformance-related bonuses take into account final individual consultant productivity (including referred work), Company/line of business results including profitability, the achievement of strategic objectives, the results of individual performance appraisals, and the current economic landscape. Accordingly, each quarter the Company reevaluates the assumptions used to estimate annual performance relatedperformance-related bonus liability and adjusts the carrying amount of the liability recorded on the consolidated balance sheet and reports any changes in the estimate in current operations.
Because annual performance-based bonuses are communicated and paid only after the Company reports its full fiscal year results, actual performance-based bonus payments may differ from the prior year’s estimate. Such changes in the bonus estimate historically have been immaterial and are recorded in current operations in the period in which they are determined. The performance-related bonus expense was $257.3$447.6 million, $220.4$287.3 million and $179.6$197.1 million for the years ended April 30, 2019, 20182022, 2021 and 2017,2020, 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”) of company-owned life insurance (“COLI”) contracts, amortization of stockstock-based 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 Worldwide Executive Benefit Plan (“WEB”) and the pension plan acquired under Legacy Hay Group, 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).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 incomeloss 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 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 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-year period. The amounts that are expected to be paid to employees over the
F-16
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
next 12 months are classified as a current liability included in compensation and benefits payable in the accompanying consolidated balance 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 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 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, 20192022 and 2018,2021, the Company held contracts with net CSV of $126.0$183.3 million and $120.1$161.3 million, respectively. If the issuing insurance companies were to become insolvent, the Company would be considered a general 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 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 and an Employee Stock Purchase Plan (“ESPP”). The Company recognizes compensation expense related to restricted stock units, restricted stock and the estimated fair value of stock purchases under the ESPP on a straight-line basis over the service period for the entire award.
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.loss. 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. During fiscal 20192022, 2021 and 2018,2020, the Company recorded foreign currency losses of $1.7$1.2 million, $2.7 million and $3.3$4.1 million respectively, in general and administrative expenses in the consolidated statements of income. During fiscal 2017, we recorded foreign currency gains of $0.3 million in general and administrative expenses in the consolidated statements of income.
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.
F-17
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
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-related interest and penalties within income tax expense.
Concentration of Credit Risk
Financial instruments that 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 and commercial papers while investments include mutual funds.funds, commercial papers, corporate notes/bonds and US Treasury and Agency securities. Investments are diversified throughout many industries and geographic regions. The Company conducts periodic reviews of its customers’ financial condition and customer payment practices to minimize collection risk on accounts receivable. At April 30, 20192022 and 2018,2021, 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 May 2014, March 2020, the Financial Accounting Standards Board (“FASB”(the “FASB”) issued ASC 606, which superseded revenue recognition requirements regarding contracts with customersguidance on Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional expedients and exceptions to transfer goods or services or for the transfer of nonfinancial assets. Underguidance on contract modifications and hedge accounting related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative rates. Entities can elect to adopt this guidance entities are requiredas of any date within an interim period that includes or is subsequent 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 exchangeMarch 12, 2020 and can adopt it 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 whennew contracts and how revenue is recognized. The new guidance became effective for fiscal years and interim periods within those annual years beginning aftercontract modifications entered into through December 15, 2017.31, 2022. The Company adopted ASC 606this guidance in its fiscal year beginning May 1, 2018 using the modified retrospective transition method with respect to those contracts still outstanding2021 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 recognized the cumulative effect of initially applying the new guidance as an adjustment to the opening balance of retained earnings. The comparative 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 adoption, the Company recorded an increaseelected to retained earnings of $6.7 million, net of tax as of May 1, 2018 due toapply 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 the service period. Previously, the Company recognized uptick revenue as the amount became fixed or determinable. Under the new standard, certain products are now considered Functional IP as delivery of IP content fulfills the performance obligation, and revenue is recognized upon delivery and when an enforceable right to payment exists. Previously these products were considered term licenses and revenue was recognized ratably over the contract term.
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 afterprospectively through December 15, 2017 and were adopted by the Company effective May 1, 2018.12, 2022. The adoption of this guidance did not have ana material 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 the 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,October 2021, the FASB issued guidance onan amendment in accounting for leasescontract assets and contract liabilities from contracts with customers, which clarifies that generally requires all leases to be recognized on the consolidated balance sheet.an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. The provisionsamendment of the guidance arethis standard becomes effective forin fiscal years beginning after December 15, 2018 and early adoption is permitted.2022. The Company plans to adopt this guidance in fiscal year beginning May 1, 2019. The provisions of the guidance are toamendment should be applied using a modified retrospective approach. On July 30, 2018, the FASB issued an amendmentprospectively to business combinations that allows entities to apply the provisions atoccur after 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.date. The Company will adopt this guidance in its fiscal year beginning May 1, 2020.2023. The adoptionCompany is currently evaluating the impact of this accounting guidance isbut does not anticipated toanticipate that it will 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 August 2017, the FASB issued guidance amending and simplifying accounting for hedging activities. The new guidance will refine and expand strategies that qualify for hedge accounting and simplify the application of hedge accounting in certain situations. The amendments of this standard are effective for fiscal years beginning after December 15, 2018. The Company will adopt this guidance in its fiscal year beginning May 1, 2019. The Company is 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. The Company will adopt this guidance in its fiscal year beginning May 1, 2020. The Company is currently evaluating the impact of adopting this guidance.
In 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 CodificationASC 260, Earnings Per Share, requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividends prior to vesting as a separate class of securities in calculating earnings per share. The Company has granted and expects to continue to grant to certain employees under its restricted stock agreements, grants that contain non-forfeitable rights to dividends. Such grants are considered participating securities. Therefore, the Company is required to apply the two-class method in calculating earnings per share. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. The dilutive effect of participating securities is calculated using the more dilutive of the treasury method or the two-class method.
F-18
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
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 2019, 20182022, 2021 and 2017,2020, restricted stock awards of 0.61.2 million shares, 0.61.3 million shares and 0.50.7 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive.
F-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 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (in thousands, except per share data) |
|
| (in thousands, except per share data) |
| ||||||||||||||||||
Net income attributable to Korn Ferry |
| $ | 102,651 |
|
| $ | 133,779 |
|
| $ | 84,181 |
|
| $ | 326,360 |
|
| $ | 114,454 |
|
| $ | 104,946 |
|
Less: distributed and undistributed earnings to nonvested restricted stockholders |
|
| 1,066 |
|
|
| 1,426 |
|
|
| 765 |
|
|
| 7,343 |
|
|
| 2,763 |
|
|
| 1,140 |
|
Basic net earnings attributable to common stockholders |
|
| 101,585 |
|
|
| 132,353 |
|
|
| 83,416 |
|
|
| 319,017 |
|
|
| 111,691 |
|
|
| 103,806 |
|
Add: undistributed earnings to nonvested restricted stockholders |
|
| 831 |
|
|
| 1,187 |
|
|
| 560 |
|
|
| 6,750 |
|
|
| 2,185 |
|
|
| 901 |
|
Less: reallocation of undistributed earnings to nonvested restricted stockholders |
|
| 820 |
|
|
| 1,169 |
|
|
| 553 |
|
|
| 6,676 |
|
|
| 2,165 |
|
|
| 894 |
|
Diluted net earnings attributable to common stockholders |
| $ | 101,596 |
|
| $ | 132,371 |
|
| $ | 83,423 |
|
| $ | 319,091 |
|
| $ | 111,711 |
|
| $ | 103,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average number of common shares outstanding |
|
| 55,311 |
|
|
| 55,426 |
|
|
| 56,205 |
|
|
| 52,807 |
|
|
| 52,928 |
|
|
| 54,342 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock |
|
| 750 |
|
|
| 822 |
|
|
| 646 |
|
|
| 580 |
|
|
| 476 |
|
|
| 367 |
|
ESPP |
|
| 34 |
|
|
| 5 |
|
|
| 24 |
|
|
| 14 |
|
|
| 1 |
|
|
| 58 |
|
Stock options |
|
| 1 |
|
|
| 1 |
|
|
| 25 |
| ||||||||||||
Diluted weighted-average number of common shares outstanding |
|
| 56,096 |
|
|
| 56,254 |
|
|
| 56,900 |
|
|
| 53,401 |
|
|
| 53,405 |
|
|
| 54,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
| $ | 1.84 |
|
| $ | 2.39 |
|
| $ | 1.48 |
|
| $ | 6.04 |
|
| $ | 2.11 |
|
| $ | 1.91 |
|
Diluted earnings per share |
| $ | 1.81 |
|
| $ | 2.35 |
|
| $ | 1.47 |
|
| $ | 5.98 |
|
| $ | 2.09 |
|
| $ | 1.90 |
|
3. Comprehensive Income
Comprehensive income 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 income (loss),loss, net of taxes, is recorded as a component of stockholders’ equity.
The components of accumulated other comprehensive (loss) incomeloss, net were as follows:
|
| April 30, |
|
| April 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Foreign currency translation adjustments |
| $ | (60,270 | ) |
| $ | (32,399 | ) |
| $ | (92,717 | ) |
| $ | (33,666 | ) |
Deferred compensation and pension plan adjustments, net of taxes |
|
| (16,838 | ) |
|
| (9,073 | ) |
|
| 961 |
|
|
| (18,135 | ) |
Interest rate swap unrealized gain, net of taxes |
|
| 456 |
|
|
| 1,337 |
| ||||||||
Marketable securities unrealized loss, net of tax |
|
| (429 | ) |
|
| (19 | ) | ||||||||
Accumulated other comprehensive loss, net |
| $ | (76,652 | ) |
| $ | (40,135 | ) |
| $ | (92,185 | ) |
| $ | (51,820 | ) |
F-20F-19
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 20192022 (continued)
The following table summarizes the changes in each component of accumulated other comprehensive (loss) income:loss, net:
|
| Foreign Currency Translation |
|
| Deferred Compensation and Pension Plan (1) |
|
| Unrealized (Losses) Gains on Interest Rate Swap (2) |
|
| Accumulated Other Comprehensive Income (Loss) |
| ||||
|
|
|
|
|
| (in thousands) |
|
|
|
|
| |||||
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 | ) |
Reclassification of realized net losses to net income |
|
| — |
|
|
| 1,861 |
|
|
| 57 |
|
|
| 1,918 |
|
Balance as of April 30, 2017 |
|
| (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 | ) |
|
| Foreign Currency Translation |
|
| Deferred Compensation and Pension Plan (1) |
|
| Unrealized Gains (Losses) on Marketable Securities (2) |
|
| Unrealized Gains on Interest Rate Swap (3) |
|
| Accumulated Other Comprehensive Loss |
| |||||
|
|
|
|
|
| (in thousands) |
|
|
|
|
| |||||||||
Balance as of May 1, 2019 |
| $ | (60,270 | ) |
| $ | (16,838 | ) |
| $ | — |
|
| $ | 456 |
|
| $ | (76,652 | ) |
Unrealized (losses) gains arising during the period |
|
| (23,382 | ) |
|
| (8,883 | ) |
|
| 37 |
|
|
| (678 | ) |
|
| (32,906 | ) |
Reclassification of realized net losses (gains) to net income |
|
| — |
|
|
| 2,167 |
|
|
| (3 | ) |
|
| 222 |
|
|
| 2,386 |
|
Balance as of April 30, 2020 |
|
| (83,652 | ) |
|
| (23,554 | ) |
|
| 34 |
|
|
| — |
|
|
| (107,172 | ) |
Unrealized gains (losses) arising during the period |
|
| 49,986 |
|
|
| 2,660 |
|
|
| (53 | ) |
|
| — |
|
|
| 52,593 |
|
Reclassification of realized net losses to net income |
|
| — |
|
|
| 2,759 |
|
|
| — |
|
|
| — |
|
|
| 2,759 |
|
Balance as of April 30, 2021 |
|
| (33,666 | ) |
|
| (18,135 | ) |
|
| (19 | ) |
|
| — |
|
|
| (51,820 | ) |
Unrealized (losses) gains arising during the period |
|
| (59,051 | ) |
|
| 17,747 |
|
|
| (411 | ) |
|
| — |
|
|
| (41,715 | ) |
Reclassification of realized net losses to net income |
|
| — |
|
|
| 1,349 |
|
|
| 1 |
|
|
| — |
|
|
| 1,350 |
|
Balance as of April 30, 2022 |
| $ | (92,717 | ) |
| $ | 961 |
|
| $ | (429 | ) |
| $ | — |
|
| $ | (92,185 | ) |
(1) | The tax effects on unrealized gains (losses) |
(2) | The tax effects on unrealized (losses) |
(3) | The tax |
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, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
|
| (in thousands) |
| |||||||||
Restricted stock |
| $ | 22,063 |
|
| $ | 20,282 |
|
| $ | 18,045 |
|
ESPP |
|
| 1,322 |
|
|
| 1,187 |
|
|
| 913 |
|
Total stock-based compensation expense, pre-tax |
|
| 23,385 |
|
|
| 21,469 |
|
|
| 18,958 |
|
Tax benefit from stock-based compensation expense |
|
| (5,155 | ) |
|
| (7,319 | ) |
|
| (4,756 | ) |
Total stock-based compensation expense, net of tax |
| $ | 18,230 |
|
| $ | 14,150 |
|
| $ | 14,202 |
|
|
| Year Ended April 30, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
|
| (in thousands) |
| |||||||||
Restricted stock |
| $ | 28,361 |
|
| $ | 26,516 |
|
| $ | 21,495 |
|
ESPP |
|
| 849 |
|
|
| 641 |
|
|
| 1,323 |
|
Total stock-based compensation expense |
| $ | 29,210 |
|
| $ | 27,157 |
|
| $ | 22,818 |
|
Stock Incentive Plan
At the Company’s 20162019 Annual Meeting of Stockholders, held on October 6, 2016,3, 2019, the Company’s stockholders approved an amendment and restatement to the Korn Ferry Amended and Restated 2008 Stock Incentive Plan (the 20162019 amendment and restatement being “The Thirdthe “Fourth A&R 2008 Plan”), which, among other things, increasedeliminated the fungible share counting provision and decreased the total number of shares underof the planCompany’s common stock available for stock-based awards by 5,500,000, increasing the current maximum number of2,141,807 shares, that may be issued under the plan to 11,200,000leaving 3,600,000 shares available for issuance, subject to certain changes in the Company’s capital structure and other extraordinary events. The ThirdFourth A&R 2008 Plan was also amended to generally require a minimum one-year vesting for all future awards and provides for the grant of awards to eligible participants, designated as either nonqualified or incentive stock options, restricted stock and restricted stock units, any of which may be performance-based orare 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-21F-20
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 20192022 (continued)
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, |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
|
|
|
|
| 2022 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||||||||
|
| 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 |
|
| 1,730 |
|
| $ | 33.45 |
|
|
| 1,581 |
|
| $ | 29.74 |
|
|
| 1,506 |
|
| $ | 34.12 |
|
|
| 2,370 |
|
| $ | 34.34 |
|
|
| 1,365 |
|
| $ | 44.59 |
|
|
| 1,460 |
|
| $ | 38.42 |
|
Granted |
|
| 671 |
|
| $ | 40.93 |
|
|
| 650 |
|
| $ | 37.60 |
|
|
| 852 |
|
| $ | 17.43 |
|
|
| 483 |
|
| $ | 65.05 |
|
|
| 1,606 |
|
| $ | 27.63 |
|
|
| 608 |
|
| $ | 38.38 |
|
Vested |
|
| (904 | ) |
| $ | 36.41 |
|
|
| (431 | ) |
| $ | 26.13 |
|
|
| (751 | ) |
| $ | 24.15 |
|
|
| (821 | ) |
| $ | 43.76 |
|
|
| (516 | ) |
| $ | 39.78 |
|
|
| (638 | ) |
| $ | 25.42 |
|
Forfeited |
|
| (37 | ) |
| $ | 32.26 |
|
|
| (70 | ) |
| $ | 33.26 |
|
|
| (26 | ) |
| $ | 26.80 |
|
|
| (52 | ) |
| $ | 34.30 |
|
|
| (85 | ) |
| $ | 22.35 |
|
|
| (65 | ) |
| $ | 33.48 |
|
Non-vested, end of year |
|
| 1,460 |
|
| $ | 38.42 |
|
|
| 1,730 |
|
| $ | 33.45 |
|
|
| 1,581 |
|
| $ | 29.74 |
|
|
| 1,980 |
|
| $ | 40.32 |
|
|
| 2,370 |
|
| $ | 34.34 |
|
|
| 1,365 |
|
| $ | 44.59 |
|
As of April 30, 2019,2022, there were 0.60.4 million shares outstanding relating to market-based restricted stock units with total unrecognized compensation totaling $11.0$9.3 million.
As of April 30, 2019,2022, there was $35.0$51.9 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 20192022 and 2018, 356,879 shares and 108,0892021, 271,794 shares of restricted stock totaling $20.7for $18.5 million and $3.8172,749 shares for $5.0 million, respectively, were repurchased by the Company, at the option of the employee, to pay for taxes related to the vesting of restricted stock.
Employee Stock PurchaseDeferred 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 Worldwide Executive Benefit Plan (“WEB”) and the pension plan acquired under Hay Group, 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 loss. The actuarial gains/losses included in accumulated other comprehensive loss 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 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, has an ESPP that, in accordance with Section 423 ofunder the Internal Revenue Code, allows eligibleECAP, makes discretionary contributions and such contributions may be granted to key 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 stockannually based on the last dayemployee’s performance. Certain key management may also receive Company contributions upon commencement of the enrollmentemployment. The Company amortizes these contributions on a straight-line basis as they vest, generally over a five-year period. Employees may not purchase more than $25,000 in stock during any calendar year. The maximum number of sharesamounts that mayare expected to be issued underpaid to employees over the ESPP is 3.0 million shares. During fiscal 2019, 2018, and 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, respectively. As of April 30, 2019, the ESPP had approximately 1.0 million shares remaining available for future issuance.
F-22F-16
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 20192022 (continued)
Common Stocknext 12 months are classified as a current liability included in compensation and benefits payable in the accompanying consolidated balance sheets.
During fiscal 2019, 2018The 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 2017,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 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 issued 6,720 shares, 41,075 sharesalso 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 sheets.
The change in the CSV of COLI contracts, net of insurance premiums paid and 53,955 sharesgains realized, is reported net in compensation and benefits expense. As of common stock, respectively, becauseApril 30, 2022 and 2021, the Company held contracts with net CSV of $183.3 million and $161.3 million, respectively. If the issuing insurance companies were to become insolvent, the Company would be considered a general 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. Changes in the estimates of the exerciserestructuring charges are recorded in the period the change is determined.
Stock-Based Compensation
The Company has employee compensation plans under which various types of stock-based instruments are granted. These instruments principally include restricted stock units, restricted stock and an Employee Stock Purchase Plan (“ESPP”). The Company recognizes compensation expense related to restricted stock units, restricted stock and the estimated fair value of stock options, with cash proceeds frompurchases under the exerciseESPP on a straight-line basis over the service period for the entire award.
Translation of $0.2 million, $0.6 million and $0.8 million, respectively.Foreign Currencies
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,Generally, financial results of the Company’s common stock for $37.4foreign 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 loss. 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. During fiscal 2022, 2021 and 2020, the Company recorded foreign currency losses of $1.2 million, $33.1$2.7 million and $28.8$4.1 million respectively.respectively, in general and administrative expenses in the consolidated statements of income.
5. Financial InstrumentsIncome Taxes
The following tables showThere are two components of income tax expense: current and deferred. Current income tax expense (benefit) approximates taxes to be paid or refunded for the Company’scurrent 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 instrumentsstatements. 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 sheet classification as of April 30, 2019 and 2018: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.
F-17
|
| April 30, 2019 |
| |||||||||||||||||||||||||||||
|
| Fair Value Measurement |
|
| Balance Sheet Classification |
| ||||||||||||||||||||||||||
|
| Cost |
|
| Unrealized Gains |
|
| Unrealized Losses |
|
| Fair Value |
|
| Cash and Cash Equivalents |
|
| Marketable Securities, Current |
|
| Marketable Securities, Non- current |
|
| Income Taxes & Other Receivables |
| ||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 579,998 |
|
| $ | — |
|
| $ | — |
|
| $ | 579,998 |
|
| $ | 579,998 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Money market funds |
|
| 46,362 |
|
|
| — |
|
|
| — |
|
|
| 46,362 |
|
|
| 46,362 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Mutual funds (1) |
|
| 135,439 |
|
|
| 6,301 |
|
|
| (989 | ) |
|
| 140,751 |
|
|
| — |
|
|
| 8,288 |
|
|
| 132,463 |
|
|
| — |
|
Total |
| $ | 761,799 |
|
| $ | 6,301 |
|
| $ | (989 | ) |
| $ | 767,111 |
|
| $ | 626,360 |
|
| $ | 8,288 |
|
| $ | 132,463 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
| $ | — |
|
| $ | 821 |
|
| $ | (722 | ) |
| $ | 99 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 99 |
|
Interest rate swap |
| $ | — |
|
| $ | 619 |
|
| $ | — |
|
| $ | 619 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 619 |
|
|
| April 30, 2018 |
| |||||||||||||||||||||||||||||
|
| Fair Value Measurement |
|
| Balance Sheet Classification |
| ||||||||||||||||||||||||||
|
| Cost |
|
| Unrealized Gains |
|
| Unrealized Losses |
|
| Fair Value |
|
| Cash and Cash Equivalents |
|
| Marketable Securities, Current |
|
| Marketable Securities, Non- current |
|
| Income Taxes & Other Receivables |
| ||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 519,818 |
|
| $ | — |
|
| $ | — |
|
| $ | 519,818 |
|
| $ | 519,818 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Money market funds |
|
| 1,030 |
|
|
| — |
|
|
| — |
|
|
| 1,030 |
|
|
| 1,030 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Mutual funds (1) |
|
| 127,077 |
|
|
| 11,040 |
|
|
| (1,032 | ) |
|
| 137,085 |
|
|
| — |
|
|
| 14,293 |
|
|
| 122,792 |
|
|
| — |
|
Total |
| $ | 647,925 |
|
| $ | 11,040 |
|
| $ | (1,032 | ) |
| $ | 657,933 |
|
| $ | 520,848 |
|
| $ | 14,293 |
|
| $ | 122,792 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
| $ | — |
|
| $ | 1,778 |
|
| $ | (1,025 | ) |
| $ | 753 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 753 |
|
Interest rate swap |
| $ | — |
|
| $ | 2,076 |
|
| $ | — |
|
| $ | 2,076 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 2,076 |
|
|
|
F-23
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 20192022 (continued)
Investments in marketable securitiesIncome tax benefits are recognized and measured based upon investment selectionsa 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 employee electsbenefit 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-related interest and penalties within income tax expense.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, investments, foreign currency forward contracts, receivables due from clients and net CSV due from insurance companies, which are discussed above. Cash equivalents include investments in money market securities and commercial papers while investments include mutual funds, commercial papers, corporate notes/bonds and US Treasury and Agency securities. Investments are diversified throughout many industries and geographic regions. The Company conducts periodic reviews of its customers’ financial condition and customer payment practices to minimize collection risk on accounts receivable. At April 30, 2022 and 2021, the Company had no other significant credit concentrations.
Recently Adopted Accounting Standards
In March 2020, the Financial Accounting Standards Board (the “FASB”) issued guidance on Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional expedients and exceptions to the guidance on contract modifications and hedge accounting related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative rates. Entities can elect to adopt this guidance as of any date within an interim period that includes or is subsequent to March 12, 2020 and can adopt it for new contracts and contract modifications entered into through December 31, 2022. The Company adopted this guidance in its fiscal year beginning May 1, 2021 and the Company elected to apply the amendments prospectively through December 12, 2022. The adoption of this guidance did not have a pre-determined setmaterial impact on the consolidated financial statements.
Recently Proposed Accounting Standards - Not Yet Adopted
In October 2021, the FASB issued an amendment in accounting for contract assets and contract liabilities from contracts with customers, which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. The amendment of this standard becomes effective in fiscal years beginning after December 15, 2022. The amendment should be applied prospectively to business combinations that occur after the effective date. The Company will adopt this guidance in its fiscal year beginning May 1, 2023. The Company is currently evaluating the impact of this accounting guidance but does not anticipate that it will have a material impact on the consolidated financial statements.
2. Basic and Diluted Earnings Per Share
ASC 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 the ECAP and the Company invests in marketable securities to mirror these elections. As of April 30, 2019 and 2018, the Company’s investments in marketable securities consist of mutual funds for which market prices are readily available.
Designated Derivatives - Interest Rate Swap Agreement
In March 2017, the Company entered into an interest rate swap contract with a notional amount of $129.8 million to hedge the variability to changes in cash flows attributable to interest rate risks caused by changes in interest rates related to its variable rate debt.calculating earnings per share. The Company has designatedgranted and expects to continue to grant to certain employees under its restricted stock agreements, grants that contain non-forfeitable rights to dividends. Such grants are considered participating securities. Therefore, the swap as a cash flow hedge. AsCompany is required to apply the two-class method in calculating earnings per share. The two-class method of April 30, 2019computing 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 notional amount was $106.6 million. The interest rate swap agreement matures on June 15, 2021 and locks the interest rates on a portionmore dilutive of the debt outstanding at 1.919%, exclusive oftreasury method or the credit spread on the debt.two-class method.
The fair value of the derivative designated as a cash flow hedge instrument is as follows:F-18
|
| April 30, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
|
| (in thousands) |
| |||||
Derivative asset: |
|
|
|
|
|
|
|
|
Interest rate swap contract |
| $ | 619 |
|
| $ | 2,076 |
|
During fiscal 2019, 2018 and 2017, the Company recognized the following gains and losses on the interest rate swap:
|
| Year Ended April 30, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
|
| (in thousands) |
| |||||||||
(Losses) gains recognized in other comprehensive income (net of tax effects of ($281), $828, and ($406), respectively) |
| $ | (800 | ) |
| $ | 1,465 |
|
| $ | (635 | ) |
Gains (losses) reclassified from accumulated other comprehensive income into interest (expense) income, net |
| $ | 376 |
|
| $ | (730 | ) |
| $ | (94 | ) |
As the critical terms of the hedging instrument and the hedged forecasted transaction are the same, the Company has concluded the changes in the fair value or cash flows attributable to the risk being hedged are expected to completely offset at inception and on an ongoing basis.
We estimate that $0.4 million of derivative gains included in accumulated other comprehensive income as of April 30, 2019 will be reclassified into interest expense, net within the following 12 months. The cash flows related to interest rate swap contracts are included in net cash provided by operating activities.
Foreign Currency Forward Contracts Not Designated as Hedges
The fair value of derivatives not designated as hedge instruments are as follows:
|
| April 30, |
| |||||
|
| 2019 |
|
| 2018 | �� | ||
|
| (in thousands) |
| |||||
Derivative assets: |
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
| $ | 821 |
|
| $ | 1,778 |
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
| $ | 722 |
|
| $ | 1,025 |
|
F-24
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 20192022 (continued)
AsBasic 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 April 30, 2019,common shares outstanding. Diluted earnings per common share was computed using the total notional amountstwo-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 forward contracts purchasedform of common stock, but when converted into common stock increase earnings per share, are anti-dilutive and sold were $51.4 million and $40.0 million, respectively. Asare not included in the computation of April 30, 2018, the total notional amounts of the forward contracts purchased and sold were $80.8 million and $78.5 million, respectively. The Company recognizes forward contracts as a net asset or net liability on the consolidated balance sheets as such contracts are covered by master netting agreements. diluted earnings per share.
During fiscal 20192022, 2021 and 2017,2020, restricted stock awards of 1.2 million shares, 1.3 million shares and 0.7 million shares, respectively, were outstanding but not included in the Company incurred gainscomputation of $1.2 milliondiluted earnings per share because they were anti-dilutive.
The following table summarizes basic and $0.6 million, respectively, relateddiluted earnings per common share attributable to forward contracts whichcommon stockholders:
|
| Year Ended April 30, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
|
| (in thousands, except per share data) |
| |||||||||
Net income attributable to Korn Ferry |
| $ | 326,360 |
|
| $ | 114,454 |
|
| $ | 104,946 |
|
Less: distributed and undistributed earnings to nonvested restricted stockholders |
|
| 7,343 |
|
|
| 2,763 |
|
|
| 1,140 |
|
Basic net earnings attributable to common stockholders |
|
| 319,017 |
|
|
| 111,691 |
|
|
| 103,806 |
|
Add: undistributed earnings to nonvested restricted stockholders |
|
| 6,750 |
|
|
| 2,185 |
|
|
| 901 |
|
Less: reallocation of undistributed earnings to nonvested restricted stockholders |
|
| 6,676 |
|
|
| 2,165 |
|
|
| 894 |
|
Diluted net earnings attributable to common stockholders |
| $ | 319,091 |
|
| $ | 111,711 |
|
| $ | 103,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average number of common shares outstanding |
|
| 52,807 |
|
|
| 52,928 |
|
|
| 54,342 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock |
|
| 580 |
|
|
| 476 |
|
|
| 367 |
|
ESPP |
|
| 14 |
|
|
| 1 |
|
|
| 58 |
|
Diluted weighted-average number of common shares outstanding |
|
| 53,401 |
|
|
| 53,405 |
|
|
| 54,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
| $ | 6.04 |
|
| $ | 2.11 |
|
| $ | 1.91 |
|
Diluted earnings per share |
| $ | 5.98 |
|
| $ | 2.09 |
|
| $ | 1.90 |
|
3. Comprehensive Income
Comprehensive income is recordedcomprised of net income and all changes to stockholders’ equity, except those changes resulting from investments by stockholders (changes in generalpaid-in capital) and administrative expensesdistributions to stockholders (dividends) and is reported in the accompanying consolidated statements of comprehensive income. These foreign currency gains offset foreign currency losses that result from transactions denominated in a currencyAccumulated other than the Company’s functional currency. During fiscal 2018, the Company incurred lossescomprehensive loss, net of $3.7 million related to forward contracts whichtaxes, is recorded in general and administrative expenses in the accompanying consolidated statementsas a component 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.
6. Deferred Compensation and Retirement Plansstockholders’ equity.
The Company has several deferred compensation and retirement plans for eligible consultants and vice presidents that provide defined benefits to participants based on the deferralcomponents of current compensation or contributions made by the Company subject to vesting and retirement or termination provisions.
The total benefit obligations for these plansaccumulated other comprehensive loss, net were as follows:
|
| 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 |
|
|
| April 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (in thousands) |
| |||||
Foreign currency translation adjustments |
| $ | (92,717 | ) |
| $ | (33,666 | ) |
Deferred compensation and pension plan adjustments, net of taxes |
|
| 961 |
|
|
| (18,135 | ) |
Marketable securities unrealized loss, net of tax |
|
| (429 | ) |
|
| (19 | ) |
Accumulated other comprehensive loss, net |
| $ | (92,185 | ) |
| $ | (51,820 | ) |
F-19
Deferred Compensation and Pension Plans
The EWAP was established in fiscal 1994, which replaced the 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-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 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-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 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, 20192022 (continued)
The following table summarizes the changes in each component of accumulated other comprehensive loss, net:
|
| Foreign Currency Translation |
|
| Deferred Compensation and Pension Plan (1) |
|
| Unrealized Gains (Losses) on Marketable Securities (2) |
|
| Unrealized Gains on Interest Rate Swap (3) |
|
| Accumulated Other Comprehensive Loss |
| |||||
|
|
|
|
|
| (in thousands) |
|
|
|
|
| |||||||||
Balance as of May 1, 2019 |
| $ | (60,270 | ) |
| $ | (16,838 | ) |
| $ | — |
|
| $ | 456 |
|
| $ | (76,652 | ) |
Unrealized (losses) gains arising during the period |
|
| (23,382 | ) |
|
| (8,883 | ) |
|
| 37 |
|
|
| (678 | ) |
|
| (32,906 | ) |
Reclassification of realized net losses (gains) to net income |
|
| — |
|
|
| 2,167 |
|
|
| (3 | ) |
|
| 222 |
|
|
| 2,386 |
|
Balance as of April 30, 2020 |
|
| (83,652 | ) |
|
| (23,554 | ) |
|
| 34 |
|
|
| — |
|
|
| (107,172 | ) |
Unrealized gains (losses) arising during the period |
|
| 49,986 |
|
|
| 2,660 |
|
|
| (53 | ) |
|
| — |
|
|
| 52,593 |
|
Reclassification of realized net losses to net income |
|
| — |
|
|
| 2,759 |
|
|
| — |
|
|
| — |
|
|
| 2,759 |
|
Balance as of April 30, 2021 |
|
| (33,666 | ) |
|
| (18,135 | ) |
|
| (19 | ) |
|
| — |
|
|
| (51,820 | ) |
Unrealized (losses) gains arising during the period |
|
| (59,051 | ) |
|
| 17,747 |
|
|
| (411 | ) |
|
| — |
|
|
| (41,715 | ) |
Reclassification of realized net losses to net income |
|
| — |
|
|
| 1,349 |
|
|
| 1 |
|
|
| — |
|
|
| 1,350 |
|
Balance as of April 30, 2022 |
| $ | (92,717 | ) |
| $ | 961 |
|
| $ | (429 | ) |
| $ | — |
|
| $ | (92,185 | ) |
(1) | The tax effects on unrealized gains (losses) were $6.0 million, $1.1 million and $(3.1) million as of April 30, 2022, 2021 and 2020, respectively. The tax effects on reclassifications of realized net losses were $0.5 million, $1.0 million and $0.8 million as of April 30, 2022, 2021 and 2020, respectively. |
(2) | The tax effects on unrealized (losses) were $(0.1) million as of April 30, 2022. |
(3) | The tax effects on unrealized (losses) were $(0.2) million as of April 30, 2020. The tax effects on the reclassification of realized net losses to net income was $0.1 million as of April 30, 2020. |
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, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
|
| (in thousands) |
| |||||||||
Restricted stock |
| $ | 28,361 |
|
| $ | 26,516 |
|
| $ | 21,495 |
|
ESPP |
|
| 849 |
|
|
| 641 |
|
|
| 1,323 |
|
Total stock-based compensation expense |
| $ | 29,210 |
|
| $ | 27,157 |
|
| $ | 22,818 |
|
Stock Incentive Plan
At the Company’s 2019 Annual Meeting of Stockholders, held on October 3, 2019, the Company’s stockholders approved an amendment and restatement to the Korn Ferry Amended and Restated 2008 Stock Incentive Plan (the 2019 amendment and restatement being the “Fourth A&R 2008 Plan”), which, among other things, eliminated the fungible share counting provision and decreased the total number of shares of the Company’s common stock available for stock-based awards by 2,141,807 shares, leaving 3,600,000 shares available for issuance, subject to certain changes in the Company’s capital structure and other extraordinary events. The Fourth A&R 2008 Plan was also amended to generally require a minimum one-year vesting for all future awards and provides for the grant of awards to eligible participants, designated as either nonqualified or incentive stock options, restricted stock and restricted stock units, any of which are market-based, and incentive bonuses, which may be paid in cash or stock or a combination thereof.
F-20
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (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 acquisitionCompany’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 Hay Group,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 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.
Restricted stock activity is summarized below:
|
| April 30, |
| |||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||||||||||||||
|
| 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) |
| |||||||||||||||||||||
Non-vested, beginning of year |
|
| 2,370 |
|
| $ | 34.34 |
|
|
| 1,365 |
|
| $ | 44.59 |
|
|
| 1,460 |
|
| $ | 38.42 |
|
Granted |
|
| 483 |
|
| $ | 65.05 |
|
|
| 1,606 |
|
| $ | 27.63 |
|
|
| 608 |
|
| $ | 38.38 |
|
Vested |
|
| (821 | ) |
| $ | 43.76 |
|
|
| (516 | ) |
| $ | 39.78 |
|
|
| (638 | ) |
| $ | 25.42 |
|
Forfeited |
|
| (52 | ) |
| $ | 34.30 |
|
|
| (85 | ) |
| $ | 22.35 |
|
|
| (65 | ) |
| $ | 33.48 |
|
Non-vested, end of year |
|
| 1,980 |
|
| $ | 40.32 |
|
|
| 2,370 |
|
| $ | 34.34 |
|
|
| 1,365 |
|
| $ | 44.59 |
|
As of April 30, 2022, there were 0.4 million shares outstanding relating to market-based restricted stock units with total unrecognized compensation totaling $9.3 million.
As of April 30, 2022, there was $51.9 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 2022 and 2021, 271,794 shares of restricted stock for $18.5 million and 172,749 shares for $5.0 million, respectively, were repurchased by 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 inat the U.S. The assets of this plan are held separately from the assetsoption of the sponsors in self-administered funds. The plan is funded consistent with local statutory requirements.
On July 8, 2016, the Company established the LTPU Plan in orderemployee, 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 employees. A unit award has a base value of $50,000pay 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, subjecttaxes related to the participant’s continued service asvesting 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.restricted stock.
Deferred Compensation and Pension Plans
The following tables reconcileFor financial accounting purposes, the benefit obligation forCompany estimates the present value of the future benefits payable under the deferred compensation plans:
|
| Year Ended April 30, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
|
| (in thousands) |
| |||||
Change in benefit obligation: |
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year |
| $ | 126,494 |
|
| $ | 121,042 |
|
Service cost |
|
| 17,281 |
|
|
| 11,373 |
|
Interest cost |
|
| 5,044 |
|
|
| 3,787 |
|
Actuarial loss (gain) |
|
| 7,803 |
|
|
| (1,574 | ) |
Administrative expenses paid |
|
| (272 | ) |
|
| (166 | ) |
Benefits paid from plan assets |
|
| (1,877 | ) |
|
| (1,833 | ) |
Benefits paid from cash |
|
| (6,104 | ) |
|
| (6,135 | ) |
Benefit obligation, end of year |
|
| 148,369 |
|
|
| 126,494 |
|
|
|
|
|
|
|
|
|
|
Change in fair value of plan assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year |
|
| 26,090 |
|
|
| 25,446 |
|
Actual return on plan assets |
|
| 1,160 |
|
|
| 2,425 |
|
Benefits paid from plan assets |
|
| (1,877 | ) |
|
| (1,833 | ) |
Administrative expenses paid |
|
| (272 | ) |
|
| (166 | ) |
Employer contributions |
|
| 30 |
|
|
| 218 |
|
Fair value of plan assets, end of year |
|
| 25,131 |
|
|
| 26,090 |
|
|
|
|
|
|
|
|
|
|
Funded status and balance, end of year (1) |
| $ | (123,238 | ) |
| $ | (100,404 | ) |
|
|
|
|
|
|
|
|
|
Current liability |
| $ | 8,331 |
|
| $ | 6,496 |
|
Non-current liability |
|
| 114,907 |
|
|
| 93,908 |
|
Total liability |
| $ | 123,238 |
|
| $ | 100,404 |
|
|
|
|
|
|
|
|
|
|
Plan Assets - weighted-average asset allocation: |
|
|
|
|
|
|
|
|
Debt securities |
|
| 54 | % |
|
| 55 | % |
Equity securities |
|
| 45 | % |
|
| 44 | % |
Other |
|
| 1 | % |
|
| 1 | % |
Total |
|
| 100 | % |
|
| 100 | % |
|
|
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,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 from the use of no collar base tables to “top quartile” and white-collar base tablesrecognizes expense for some of our plans. The fair value measurementsa portion of the definedfuture benefit using the unit credit cost method for the Senior Executive Incentive Plan (“SEIP”), Wealth Accumulation Plan (“WAP”), Enhanced Wealth Accumulation Plan (“EWAP”) and Worldwide Executive Benefit Plan (“WEB”) and the pension plan assets fall within the following levels of the fair value hierarchy as of April 30, 2019 and 2018:
|
| 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 40% to 50%, debt securities 45% to 55% and other assets of 0% to 10%. We establish our estimated long‑term return on plan assets considering various factors, including the targeted asset allocation percentages, historic returns and expected future returns.
The components of net periodic benefits costs are as follows:
|
| Year Ended April 30, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
|
| (in thousands) |
| |||||||||
Service cost |
| $ | 17,281 |
|
| $ | 11,373 |
|
| $ | 5,402 |
|
Interest cost |
|
| 5,044 |
|
|
| 3,787 |
|
|
| 3,925 |
|
Amortization of actuarial loss |
|
| 1,798 |
|
|
| 2,308 |
|
|
| 3,051 |
|
Expected return on plan assets |
|
| (1,568 | ) |
|
| (1,594 | ) |
|
| (1,559 | ) |
Net periodic benefit cost (1) |
| $ | 22,555 |
|
| $ | 15,874 |
|
| $ | 10,819 |
|
|
|
The weighted-average assumptions used in calculating the benefit obligations were as follows:
|
| Year Ended April 30, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Discount rate, beginning of year |
|
| 3.93 | % |
|
| 3.57 | % |
|
| 3.18 | % |
Discount rate, end of year |
|
| 3.57 | % |
|
| 3.93 | % |
|
| 3.57 | % |
Rate of compensation increase |
|
| 0.00 | % |
|
| 0.00 | % |
|
| 0.00 | % |
Expected long-term rates of return on plan assets |
|
| 6.00 | % |
|
| 6.25 | % |
|
| 6.50 | % |
F-27
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2019 (continued)
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 ofacquired under Hay Group, the Company inherited a benefit plan which offers medical and life insurance coverage to 126 participants. In fiscal 2018, the Company amended the plan and required any active participants that were not yet eligible for benefits to retire within a short time frame in order to receive any benefits from the plan. As a result of the amendment, participants eligible to the plan declined and the 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 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 |
|
|
|
F-28
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2019 (continued)
The weighted-average assumptions used in calculatingwhile the medical and life insurance plan were as 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,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 loss. The actuarial gains/losses included in accumulated other comprehensive loss 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 reflect expected future service, as appropriate, are expected tobenefits will be paid, overif shorter. The expected return on plan assets takes into account the next ten years as follows:current fair value 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.
Year Ending April 30, |
| Medical and Life Insurance |
| |
|
| (in thousands) |
| |
2020 |
| $ | 651 |
|
2021 |
|
| 646 |
|
2022 |
|
| 632 |
|
2023 |
|
| 616 |
|
2024 |
|
| 597 |
|
2025-2029 |
|
| 2,542 |
|
International Retirement Plans
The Company also maintains various retirement plansIn calculating the accrual for future benefit payments, management has made assumptions regarding employee turnover, participant vesting, violation of non-competition provisions and other miscellaneous deferredthe 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 arrangements in 23 foreign jurisdictions. The aggregate of the long-term benefit obligation accrued at April 30, 2019 and 2018 is $14.7 million for 2,777 participants and $13.7 million for 2,423 participants, respectively. The Company’s contribution to these plans was $13.3 million and $11.8 million in fiscal 2019 and 2018, respectively.expense.
Executive Capital Accumulation Plan
The Company, under 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 five-year period. The amounts that are expected to be paid to employees over the
F-16
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
next 12 months are classified as a current liability included in compensation and benefits payable in the accompanying consolidated balance 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 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 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, 2022 and 2021, the Company held contracts with net CSV of $183.3 million and $161.3 million, respectively. If the issuing insurance companies were to become insolvent, the Company would be considered a general 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. Changes in the estimates of the restructuring charges are recorded in the period the change is determined.
Stock-Based Compensation
The Company has employee compensation plans under which various types of stock-based instruments are granted. These instruments principally include restricted stock units, restricted stock and an Employee Stock Purchase Plan (“ESPP”). The Company recognizes compensation expense related to restricted stock units, restricted stock and the estimated fair value of stock purchases under the ESPP on a straight-line basis over the service period for the entire award.
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 loss. 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. During fiscal 2022, 2021 and 2020, the Company recorded foreign currency losses of $1.2 million, $2.7 million and $4.1 million respectively, in general and administrative expenses in the consolidated statements of income.
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.
F-17
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
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-related interest and penalties within income tax expense.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, investments, foreign currency forward contracts, receivables due from clients and net CSV due from insurance companies, which are discussed above. Cash equivalents include investments in money market securities and commercial papers while investments include mutual funds, commercial papers, corporate notes/bonds and US Treasury and Agency securities. Investments are diversified throughout many industries and geographic regions. The Company conducts periodic reviews of its customers’ financial condition and customer payment practices to minimize collection risk on accounts receivable. At April 30, 2022 and 2021, the Company had no other significant credit concentrations.
Recently Adopted Accounting Standards
In March 2020, the Financial Accounting Standards Board (the “FASB”) issued guidance on Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional expedients and exceptions to the guidance on contract modifications and hedge accounting related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative rates. Entities can elect to adopt this guidance as of any date within an interim period that includes or is subsequent to March 12, 2020 and can adopt it for new contracts and contract modifications entered into through December 31, 2022. The Company adopted this guidance in its fiscal year beginning May 1, 2021 and the Company elected to apply the amendments prospectively through December 12, 2022. The adoption of this guidance did not have a material impact on the consolidated financial statements.
Recently Proposed Accounting Standards - Not Yet Adopted
In October 2021, the FASB issued an amendment in accounting for contract assets and contract liabilities from contracts with customers, which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. The amendment of this standard becomes effective in fiscal years beginning after December 15, 2022. The amendment should be applied prospectively to business combinations that occur after the effective date. The Company will adopt this guidance in its fiscal year beginning May 1, 2023. The Company is currently evaluating the impact of this accounting guidance but does not anticipate that it will have a material impact on the consolidated financial statements.
2. Basic and Diluted Earnings Per Share
ASC 260, Earnings Per Share, requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividends prior to vesting as a separate class of securities in calculating earnings per share. The Company has granted and expects to continue to grant to certain employees under its restricted stock agreements, grants that contain non-forfeitable rights to dividends. Such grants are considered participating securities. Therefore, the Company is required to apply the two-class method in calculating earnings per share. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. The dilutive effect of participating securities is calculated using the more dilutive of the treasury method or the two-class method.
F-18
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
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 2022, 2021 and 2020, restricted stock awards of 1.2 million shares, 1.3 million shares and 0.7 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive.
The following table summarizes basic and diluted earnings per common share attributable to common stockholders:
|
| Year Ended April 30, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
|
| (in thousands, except per share data) |
| |||||||||
Net income attributable to Korn Ferry |
| $ | 326,360 |
|
| $ | 114,454 |
|
| $ | 104,946 |
|
Less: distributed and undistributed earnings to nonvested restricted stockholders |
|
| 7,343 |
|
|
| 2,763 |
|
|
| 1,140 |
|
Basic net earnings attributable to common stockholders |
|
| 319,017 |
|
|
| 111,691 |
|
|
| 103,806 |
|
Add: undistributed earnings to nonvested restricted stockholders |
|
| 6,750 |
|
|
| 2,185 |
|
|
| 901 |
|
Less: reallocation of undistributed earnings to nonvested restricted stockholders |
|
| 6,676 |
|
|
| 2,165 |
|
|
| 894 |
|
Diluted net earnings attributable to common stockholders |
| $ | 319,091 |
|
| $ | 111,711 |
|
| $ | 103,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average number of common shares outstanding |
|
| 52,807 |
|
|
| 52,928 |
|
|
| 54,342 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock |
|
| 580 |
|
|
| 476 |
|
|
| 367 |
|
ESPP |
|
| 14 |
|
|
| 1 |
|
|
| 58 |
|
Diluted weighted-average number of common shares outstanding |
|
| 53,401 |
|
|
| 53,405 |
|
|
| 54,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
| $ | 6.04 |
|
| $ | 2.11 |
|
| $ | 1.91 |
|
Diluted earnings per share |
| $ | 5.98 |
|
| $ | 2.09 |
|
| $ | 1.90 |
|
3. Comprehensive Income
Comprehensive income 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, net of taxes, is recorded as a component of stockholders’ equity.
The components of accumulated other comprehensive loss, net were as follows:
|
| April 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (in thousands) |
| |||||
Foreign currency translation adjustments |
| $ | (92,717 | ) |
| $ | (33,666 | ) |
Deferred compensation and pension plan adjustments, net of taxes |
|
| 961 |
|
|
| (18,135 | ) |
Marketable securities unrealized loss, net of tax |
|
| (429 | ) |
|
| (19 | ) |
Accumulated other comprehensive loss, net |
| $ | (92,185 | ) |
| $ | (51,820 | ) |
F-19
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
The following table summarizes the changes in each component of accumulated other comprehensive loss, net:
|
| Foreign Currency Translation |
|
| Deferred Compensation and Pension Plan (1) |
|
| Unrealized Gains (Losses) on Marketable Securities (2) |
|
| Unrealized Gains on Interest Rate Swap (3) |
|
| Accumulated Other Comprehensive Loss |
| |||||
|
|
|
|
|
| (in thousands) |
|
|
|
|
| |||||||||
Balance as of May 1, 2019 |
| $ | (60,270 | ) |
| $ | (16,838 | ) |
| $ | — |
|
| $ | 456 |
|
| $ | (76,652 | ) |
Unrealized (losses) gains arising during the period |
|
| (23,382 | ) |
|
| (8,883 | ) |
|
| 37 |
|
|
| (678 | ) |
|
| (32,906 | ) |
Reclassification of realized net losses (gains) to net income |
|
| — |
|
|
| 2,167 |
|
|
| (3 | ) |
|
| 222 |
|
|
| 2,386 |
|
Balance as of April 30, 2020 |
|
| (83,652 | ) |
|
| (23,554 | ) |
|
| 34 |
|
|
| — |
|
|
| (107,172 | ) |
Unrealized gains (losses) arising during the period |
|
| 49,986 |
|
|
| 2,660 |
|
|
| (53 | ) |
|
| — |
|
|
| 52,593 |
|
Reclassification of realized net losses to net income |
|
| — |
|
|
| 2,759 |
|
|
| — |
|
|
| — |
|
|
| 2,759 |
|
Balance as of April 30, 2021 |
|
| (33,666 | ) |
|
| (18,135 | ) |
|
| (19 | ) |
|
| — |
|
|
| (51,820 | ) |
Unrealized (losses) gains arising during the period |
|
| (59,051 | ) |
|
| 17,747 |
|
|
| (411 | ) |
|
| — |
|
|
| (41,715 | ) |
Reclassification of realized net losses to net income |
|
| — |
|
|
| 1,349 |
|
|
| 1 |
|
|
| — |
|
|
| 1,350 |
|
Balance as of April 30, 2022 |
| $ | (92,717 | ) |
| $ | 961 |
|
| $ | (429 | ) |
| $ | — |
|
| $ | (92,185 | ) |
(1) | The tax effects on unrealized gains (losses) were $6.0 million, $1.1 million and $(3.1) million as of April 30, 2022, 2021 and 2020, respectively. The tax effects on reclassifications of realized net losses were $0.5 million, $1.0 million and $0.8 million as of April 30, 2022, 2021 and 2020, respectively. |
(2) | The tax effects on unrealized (losses) were $(0.1) million as of April 30, 2022. |
(3) | The tax effects on unrealized (losses) were $(0.2) million as of April 30, 2020. The tax effects on the reclassification of realized net losses to net income was $0.1 million as of April 30, 2020. |
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, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
|
| (in thousands) |
| |||||||||
Restricted stock |
| $ | 28,361 |
|
| $ | 26,516 |
|
| $ | 21,495 |
|
ESPP |
|
| 849 |
|
|
| 641 |
|
|
| 1,323 |
|
Total stock-based compensation expense |
| $ | 29,210 |
|
| $ | 27,157 |
|
| $ | 22,818 |
|
Stock Incentive Plan
At the Company’s 2019 Annual Meeting of Stockholders, held on October 3, 2019, the Company’s stockholders approved an amendment and restatement to the Korn Ferry Amended and Restated 2008 Stock Incentive Plan (the 2019 amendment and restatement being the “Fourth A&R 2008 Plan”), which, among other things, eliminated the fungible share counting provision and decreased the total number of shares of the Company’s common stock available for stock-based awards by 2,141,807 shares, leaving 3,600,000 shares available for issuance, subject to certain changes in the Company’s capital structure and other extraordinary events. The Fourth A&R 2008 Plan was also amended to generally require a minimum one-year vesting for all future awards and provides for the grant of awards to eligible participants, designated as either nonqualified or incentive stock options, restricted stock and restricted stock units, any of which are market-based, and incentive bonuses, which may be paid in cash or stock or a combination thereof.
F-20
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (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 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.
Restricted stock activity is summarized below:
|
| April 30, |
| |||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||||||||||||||
|
| 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) |
| |||||||||||||||||||||
Non-vested, beginning of year |
|
| 2,370 |
|
| $ | 34.34 |
|
|
| 1,365 |
|
| $ | 44.59 |
|
|
| 1,460 |
|
| $ | 38.42 |
|
Granted |
|
| 483 |
|
| $ | 65.05 |
|
|
| 1,606 |
|
| $ | 27.63 |
|
|
| 608 |
|
| $ | 38.38 |
|
Vested |
|
| (821 | ) |
| $ | 43.76 |
|
|
| (516 | ) |
| $ | 39.78 |
|
|
| (638 | ) |
| $ | 25.42 |
|
Forfeited |
|
| (52 | ) |
| $ | 34.30 |
|
|
| (85 | ) |
| $ | 22.35 |
|
|
| (65 | ) |
| $ | 33.48 |
|
Non-vested, end of year |
|
| 1,980 |
|
| $ | 40.32 |
|
|
| 2,370 |
|
| $ | 34.34 |
|
|
| 1,365 |
|
| $ | 44.59 |
|
As of April 30, 2022, there were 0.4 million shares outstanding relating to market-based restricted stock units with total unrecognized compensation totaling $9.3 million.
As of April 30, 2022, there was $51.9 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 2022 and 2021, 271,794 shares of restricted stock for $18.5 million and 172,749 shares for $5.0 million, respectively, were repurchased by the Company, at the option of the employee, to pay for taxes related to the vesting of restricted stock.
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. On June 3, 2020, the Company amended the plan so that the purchase price of the shares purchased could not be less than 85%, or more than 100% of the fair market price of the common stock on the last day of the enrollment period. This amendment became effective July 1, 2020. 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. During fiscal 2022, 2021, and 2020, employees purchased 103,826 shares at an average price of $66.64 per share, 188,608 shares at an average price of $30.25 per share and 220,161 shares at an average price of $34.90 per share, respectively. As of April 30, 2022, the ESPP had approximately 0.4 million shares remaining available for future issuance.
Common Stock
During fiscal 2022, 2021 and 2020, the Company repurchased (on the open market or privately negotiated transactions) 1,470,983 shares of the Company’s common stock for $98.8 million, 973,451 shares for $30.4 million and 2,606,861 shares for $92.4 million, respectively.
F-21
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
5. Financial Instruments
The following tables show the Company’s financial instruments and balance sheet classification as of April 30, 2022 and 2021:
|
| April 30, 2022 |
| |||||||||||||||||||||||||||||
|
| 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) |
| |||||||||||||||||||||||||||||
Changes in Fair Value Recorded in |
| |||||||||||||||||||||||||||||||
Other Comprehensive Loss |
| |||||||||||||||||||||||||||||||
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
| $ | 41,627 |
|
| $ | — |
|
| $ | (126 | ) |
| $ | 41,501 |
|
| $ | 15,489 |
|
| $ | 26,012 |
|
| $ | — |
|
| $ | — |
|
Corporate notes/bonds |
|
| 37,736 |
|
|
| — |
|
|
| (450 | ) |
|
| 37,286 |
|
|
| — |
|
|
| 20,242 |
|
|
| 17,044 |
|
|
| — |
|
U.S. Treasury and Agency Securities |
|
| 995 |
|
|
| — |
|
|
| (8 | ) |
|
| 987 |
|
|
| — |
|
|
| 987 |
|
|
| — |
|
|
| — |
|
Total debt investments |
| $ | 80,358 |
|
| $ | — |
|
| $ | (584 | ) |
| $ | 79,774 |
|
| $ | 15,489 |
|
| $ | 47,241 |
|
| $ | 17,044 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Fair Value Recorded in |
| |||||||||||||||||||||||||||||||
Net Income |
| |||||||||||||||||||||||||||||||
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds (1) |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 168,742 |
|
| $ | — |
|
| $ | 10,003 |
|
| $ | 158,739 |
|
| $ | — |
|
Total equity investments |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 168,742 |
|
| $ | — |
|
| $ | 10,003 |
|
| $ | 158,739 |
|
| $ | — |
|
Cash |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 874,490 |
|
| $ | 874,490 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Money market funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 88,091 |
|
|
| 88,091 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (204 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (204 | ) |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,210,893 |
|
| $ | 978,070 |
|
| $ | 57,244 |
|
| $ | 175,783 |
|
| $ | (204 | ) |
|
| April 30, 2021 |
| |||||||||||||||||||||||||||||
|
| 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) |
| |||||||||||||||||||||||||||||
Changes in Fair Value Recorded in |
| |||||||||||||||||||||||||||||||
Other Comprehensive Income |
| |||||||||||||||||||||||||||||||
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
| $ | 51,979 |
|
| $ | 1 |
|
| $ | (7 | ) |
| $ | 51,973 |
|
| $ | 9,499 |
|
| $ | 42,474 |
|
| $ | — |
|
| $ | — |
|
Corporate notes/bonds |
|
| 26,371 |
|
|
| — |
|
|
| (20 | ) |
|
| 26,351 |
|
|
| — |
|
|
| 10,134 |
|
|
| 16,217 |
|
|
| — |
|
U.S. Treasury and Agency Securities |
|
| 1,975 |
|
|
| — |
|
|
| — |
|
|
| 1,975 |
|
|
| — |
|
|
| 1,975 |
|
|
| — |
|
|
| — |
|
Total debt investments |
| $ | 80,325 |
|
| $ | 1 |
|
| $ | (27 | ) |
| $ | 80,299 |
|
| $ | 9,499 |
|
| $ | 54,583 |
|
| $ | 16,217 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Fair Value Recorded in |
| |||||||||||||||||||||||||||||||
Net Income |
| |||||||||||||||||||||||||||||||
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds (1) |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 175,559 |
|
| $ | — |
|
| $ | 9,084 |
|
| $ | 166,475 |
|
| $ | — |
|
Total equity investments |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 175,559 |
|
| $ | — |
|
| $ | 9,084 |
|
| $ | 166,475 |
|
| $ | — |
|
Cash |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 752,737 |
|
| $ | 752,737 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Money market funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 88,542 |
|
|
| 88,542 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (12 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12 | ) |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,097,125 |
|
| $ | 850,778 |
|
| $ | 63,667 |
|
| $ | 182,692 |
|
| $ | (12 | ) |
F-22
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
(1) | These investments are held in trust for settlement of the Company’s vested obligations of $160.8 million and $157.3 million as of April 30, 2022 and 2021, respectively, under the ECAP (see Note 6 — Deferred Compensation and Retirement Plans). Unvested obligations under the deferred compensation plans totaled $24.0 million and $26.5 million as of April 30, 2022 and 2021, respectively. During fiscal 2022 and 2020, the fair value of the investments decreased; therefore, the Company recognized a loss of $12.0 million and $1.8 million, respectively, which was recorded in other (loss) income, net. During fiscal 2021, the fair value of the investments increased; therefore, the Company recognized income of $38.5 million which was recorded in other (loss) income, net. |
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, 2022 and 2021, marketable securities classified as available-for-sale consisted of commercial paper, corporate notes/bonds and US Treasury and Agency securities, for which market prices for similar assets are readily available. Investments that have an original maturity of 90 days or less and are considered highly liquid investments are classified as cash equivalents. As of April 30, 2022, available-for-sale marketable securities had remaining maturities ranging from one to twenty-one months. During fiscal 2022, 2021 and 2020, there were $79.3 million, $60.6 million and $4.8 million in sales/maturities of available-for-sale marketable securities, respectively. Investments in marketable securities that are held in trust for settlement of the Company’s vested obligations under the ECAP are equity securities and are based upon the investment selections the employee elects from a pre-determined set of securities in the ECAP and the Company invests in equity securities to mirror these elections. As of April 30, 2022 and 2021, the Company’s investments in equity securities consisted of mutual funds for which market prices are readily available. Unrealized losses that relate to equity securities still held as of April 30, 2022 and 2020, was $27.3 million and $8.2 million while unrealized gains that relate to equity securities held as of April 30, 2021, was $32.7 million.
Foreign Currency Forward Contracts Not Designated as Hedges
The fair value of derivatives not designated as hedge instruments are as follows:
|
| April 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (in thousands) |
| |||||
Derivative assets: |
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
| $ | 1,639 |
|
| $ | 822 |
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
| $ | 1,843 |
|
| $ | 834 |
|
As of April 30, 2022, the total notional amounts of the forward contracts purchased and sold were $89.7 million and $35.8 million, respectively. As of April 30, 2021, the total notional amounts of the forward contracts purchased and sold were $69.4 million and $44.9 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 2022 and 2020, the Company incurred losses of $0.2 million and $0.3 million, respectively, 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. During fiscal 2021, the Company incurred gains of $2.7 million related to forward contracts which is recorded in general and administrative expenses in the accompanying consolidated statements of income. These foreign currency gains offset foreign currency losses that result from transactions denominated in a currency other than the Company’s functional currency. The cash flows related to foreign currency forward contracts are included in cash flows from operating 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.
F-23
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
The total benefit obligations for these plans were as follows:
|
| Year Ended April 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (in thousands) |
| |||||
Deferred compensation and pension plans |
| $ | 189,608 |
|
| $ | 178,994 |
|
Medical and Life Insurance plan |
|
| 5,365 |
|
|
| 6,584 |
|
International retirement plans |
|
| 14,395 |
|
|
| 15,633 |
|
Executive Capital Accumulation Plan |
|
| 166,723 |
|
|
| 163,582 |
|
Total benefit obligation |
|
| 376,091 |
|
|
| 364,793 |
|
Less: current portion of benefit obligation(1) |
|
| (18,916 | ) |
|
| (18,338 | ) |
Non-current benefit obligation |
| $ | 357,175 |
|
| $ | 346,455 |
|
(1) Current portion of benefit obligation is included in Compensation and benefits payable in the consolidated balance sheet.
Deferred Compensation and Pension Plans
The EWAP was established in fiscal 1994, which replaced the 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-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.
In conjunction with the acquisition of Hay 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 U.S. The assets of this plan are held separately from the assets of the sponsors in self-administered funds.
On July 8, 2016, the Company established the 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 employees. A unit award has a base value of either $25,000 or $50,000 for the purpose of determining the payment that would be made upon early termination for a partially vested unit award. 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 either $12,500 or $25,000 for each of five years commencing on the seventh anniversary of the grant date.
F-24
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
Deferred Compensation and Pension Plans
The following tables reconcile the benefit obligation for the deferred compensation and pension plans:
|
| Year Ended April 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (in thousands) |
| |||||
Change in benefit obligation: |
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year |
| $ | 205,740 |
|
| $ | 180,821 |
|
Service cost |
|
| 37,952 |
|
|
| 31,947 |
|
Interest cost |
|
| 4,028 |
|
|
| 4,035 |
|
Actuarial gain |
|
| (25,757 | ) |
|
| (590 | ) |
Administrative expenses paid |
|
| (196 | ) |
|
| (265 | ) |
Benefits paid from plan assets |
|
| (2,543 | ) |
|
| (2,327 | ) |
Benefits paid from cash |
|
| (7,626 | ) |
|
| (7,881 | ) |
Benefit obligation, end of year |
|
| 211,598 |
|
|
| 205,740 |
|
|
|
|
|
|
|
|
|
|
Change in fair value of plan assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year |
|
| 26,746 |
|
|
| 24,235 |
|
Actual return on plan assets |
|
| (2,113 | ) |
|
| 4,523 |
|
Benefits paid from plan assets |
|
| (2,543 | ) |
|
| (2,327 | ) |
Administrative expenses paid |
|
| (196 | ) |
|
| (265 | ) |
Employer contributions |
|
| 96 |
|
|
| 580 |
|
Fair value of plan assets, end of year |
|
| 21,990 |
|
|
| 26,746 |
|
|
|
|
|
|
|
|
|
|
Funded status and balance, end of year (1) |
| $ | (189,608 | ) |
| $ | (178,994 | ) |
|
|
|
|
|
|
|
|
|
Current liability |
| $ | 8,833 |
|
| $ | 9,074 |
|
Non-current liability |
|
| 180,775 |
|
|
| 169,920 |
|
Total liability |
| $ | 189,608 |
|
| $ | 178,994 |
|
|
|
|
|
|
|
|
|
|
Plan Assets - weighted-average asset allocation: |
|
|
|
|
|
|
|
|
Debt securities |
|
| 42 | % |
|
| 36 | % |
Equity securities |
|
| 55 | % |
|
| 62 | % |
Other |
|
| 3 | % |
|
| 2 | % |
Total |
|
| 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 the COLI contracts are held in trust and are not separated from our general corporate assets, they are not included in the funded status. As of April 30, 2022 and 2021, the Company held contracts with gross CSV of $263.2 million and $241.3 million, offset by outstanding policy loans of $79.8 million and $80.0 million, respectively. |
The pension obligation in fiscal 2022 increased compared to fiscal 2021 due to the ongoing accruals for the LTPU Plan for additional awards issued in fiscal 2022. Additionally, the change in mortality assumption from the MP-2020 to the MP-2021 mortality projection scale, and the actual return on plan assets being lower than the assumed return caused our funded position to deteriorate. The increase in pension benefit obligations was partially offset by the actuarial gain which was primarily due to an increase in discount rates. The fair value measurements of the defined benefit plan assets fall within the following levels of the fair value hierarchy as of April 30, 2022 and 2021:
F-25
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
|
| (in thousands) |
| |||||||||||||
April 30, 2022: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds |
| $ | — |
|
| $ | 21,353 |
|
| $ | — |
|
| $ | 21,353 |
|
Money market funds |
|
| 637 |
|
|
| — |
|
|
| — |
|
|
| 637 |
|
Total |
| $ | 637 |
|
| $ | 21,353 |
|
| $ | — |
|
| $ | 21,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2021: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds |
| $ | — |
|
| $ | 26,140 |
|
| $ | — |
|
| $ | 26,140 |
|
Money market funds |
|
| 606 |
|
|
| — |
|
|
| — |
|
|
| 606 |
|
Total |
| $ | 606 |
|
| $ | 26,140 |
|
| $ | — |
|
| $ | 26,746 |
|
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 40% to 60% and debt securities 40% to 60%. We establish our estimated long‑term return on plan assets considering various factors, including the targeted asset allocation percentages, historic returns and expected future returns.
The components of net periodic benefits costs are as follows:
|
| Year Ended April 30, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
|
| (in thousands) |
| |||||||||
Service cost |
| $ | 37,952 |
|
| $ | 31,947 |
|
| $ | 24,939 |
|
Interest cost |
|
| 4,028 |
|
|
| 4,035 |
|
|
| 5,433 |
|
Amortization of actuarial loss |
|
| 2,170 |
|
|
| 4,117 |
|
|
| 3,261 |
|
Net prior service credit amortization |
|
| (97 | ) |
|
| (97 | ) |
|
| (24 | ) |
Expected return on plan assets |
|
| (1,554 | ) |
|
| (1,404 | ) |
|
| (1,452 | ) |
Net periodic benefit cost (1) |
| $ | 42,499 |
|
| $ | 38,598 |
|
| $ | 32,157 |
|
(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 (loss) 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, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Discount rate, beginning of year |
|
| 2.17 | % |
|
| 2.29 | % |
|
| 3.57 | % |
Discount rate, end of year |
|
| 4.08 | % |
|
| 2.17 | % |
|
| 2.29 | % |
Rate of compensation increase |
|
| 0.00 | % |
|
| 0.00 | % |
|
| 0.00 | % |
Expected long-term rates of return on plan assets |
|
| 5.50 | % |
|
| 6.00 | % |
|
| 6.00 | % |
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) |
| |
2023 |
| $ | 11,078 |
|
2024 |
|
| 16,216 |
|
2025 |
|
| 25,772 |
|
2026 |
|
| 34,109 |
|
2027 |
|
| 43,923 |
|
2028-2032 |
|
| 222,200 |
|
F-26
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
Medical and Life Insurance Plan
In conjunction with the acquisition of Hay Group, the Company inherited a benefit plan which offers medical and life insurance coverage to 111 participants. The medical and life insurance benefit plan is closed to new entrants and is unfunded.
The following table reconciles the benefit obligation for the medical and life insurance plan:
|
| Year End April 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (in thousands) |
| |||||
Change in benefit obligation: |
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year |
| $ | 6,584 |
|
| $ | 7,527 |
|
Interest cost |
|
| 110 |
|
|
| 140 |
|
Actuarial gain |
|
| (857 | ) |
|
| (549 | ) |
Benefits paid |
|
| (472 | ) |
|
| (534 | ) |
Benefit obligation, end of year |
| $ | 5,365 |
|
| $ | 6,584 |
|
|
|
|
|
|
|
|
|
|
Current liability |
| $ | 585 |
|
| $ | 601 |
|
Non-current liability |
|
| 4,780 |
|
|
| 5,983 |
|
Total liability |
| $ | 5,365 |
|
| $ | 6,584 |
|
The components of net periodic benefits costs are as follows:
|
| Year Ended April 30, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
|
| (in thousands) |
| |||||||||
Service cost |
| $ | — |
|
| $ | — |
|
| $ | — |
|
Interest cost |
|
| 110 |
|
|
| 140 |
|
|
| 227 |
|
Net periodic service credit amortization |
|
| (308 | ) |
|
| (308 | ) |
|
| (308 | ) |
Amortization of actuarial gain |
|
| — |
|
|
| — |
|
|
| — |
|
Net periodic benefit cost (1) |
| $ | (198 | ) |
| $ | (168 | ) |
| $ | (81 | ) |
(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 (loss) income, net, respectively, on the consolidated statements of income. |
The weighted-average assumptions used in calculating the medical and life insurance plan were as follows:
|
| Year Ended April 30, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Discount rate, beginning of year |
|
| 2.54 | % |
|
| 2.45 | % |
|
| 3.67 | % |
Discount rate, end of year |
|
| 4.25 | % |
|
| 2.54 | % |
|
| 2.45 | % |
Healthcare care cost trend rate |
|
| 6.00 | % |
|
| 6.25 | % |
|
| 6.50 | % |
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) |
| |
2023 |
| $ | 592 |
|
2024 |
|
| 571 |
|
2025 |
|
| 545 |
|
2026 |
|
| 519 |
|
2027 |
|
| 481 |
|
2028-2032 |
|
| 1,980 |
|
F-27
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
International Retirement Plans
The Company also maintains various retirement plans and other miscellaneous deferred compensation arrangements in 25 foreign jurisdictions. The aggregate of the long-term benefit obligation accrued at April 30, 2022 and 2021 is $14.4 million for 3,568 participants and $15.6 million for 2,557 participants, respectively. The Company’s contribution to these plans was $14.8 million and $12.7 million in fiscal 2022 and 2021, respectively.
Executive Capital Accumulation Plan
The Company’s ECAP is intended to provide certain employees an opportunity to defer their salary and/or bonus on a pre-tax basis. In addition, the Company, as part of its compensation philosophy, makes discretionary contributions into the ECAP and such contributions may be granted to key employees annually based on the employee’s performance. Certain key management may also receive Company ECAP contributions upon commencement of employment. The Company amortizes these contributions on a straight-line basis over the service period, generally a four to 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 15one-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 sheets.
The Company issued ECAP awards during fiscal 2019, 20182022, 2021 and 20172020 of $8.5$7.5 million, $6.2$8.2 million and $6.2$9.0 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 both fiscal 2019, 2018,2022 and 2017,2020, the deferred compensation liability increased;decreased; therefore, the Company recognized a reduction in compensation expense of $8.7 million, $11.1$10.6 million and $10.6$0.8 million, respectively. Offsetting the increasesdecreases in compensation and benefits liabilityexpense in fiscal 2022 and 2020 was an increasedecreases in the fair value of marketable securities classified as trading (held in trust to satisfy obligations of the ECAP liabilities) of $8.1 million, $10.3$12.0 million and $10.8$1.8 million in fiscal 2019, 2018,2022 and 2017,2020, respectively, recorded in other (loss) income, net on the consolidated statements of income. During fiscal 2021, deferred compensation liability increased; therefore, the Company recognized a compensation expense of $37.3 million. Offsetting the increase in compensation and benefits expense in fiscal 2021 was an increase in the fair value of marketable securities (held in trust to satisfy obligations of the ECAP liabilities) of $38.5 million in fiscal 2021, recorded in other (loss) income, net on the consolidated statement 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, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Balance, beginning of year |
| $ | 128,430 |
|
| $ | 111,584 |
|
| $ | 163,582 |
|
| $ | 129,315 |
|
Employee contributions |
|
| 4,852 |
|
|
| 5,036 |
|
|
| 8,541 |
|
|
| 4,935 |
|
Amortization of employer contributions |
|
| 9,573 |
|
|
| 12,175 |
|
|
| 7,060 |
|
|
| 6,287 |
|
Gain on investment |
|
| 8,697 |
|
|
| 11,095 |
| ||||||||
(Loss) gain on investment |
|
| (10,602 | ) |
|
| 37,323 |
| ||||||||
Employee distributions |
|
| (20,891 | ) |
|
| (11,923 | ) |
|
| (10,880 | ) |
|
| (15,652 | ) |
Acquisition of Lucas Group |
|
| 9,620 |
|
|
| — |
| ||||||||
Exchange rate fluctuations |
|
| (500 | ) |
|
| 463 |
|
|
| (598 | ) |
|
| 1,374 |
|
Balance, end of year |
|
| 130,161 |
|
|
| 128,430 |
|
|
| 166,723 |
|
|
| 163,582 |
|
Less: current portion |
|
| (8,844 | ) |
|
| (14,827 | ) |
|
| (9,498 | ) |
|
| (8,663 | ) |
Non-current portion |
| $ | 121,317 |
|
| $ | 113,603 |
|
| $ | 157,225 |
|
| $ | 154,919 |
|
As of April 30, 20192022 and 2018,2021, the unamortized portion of the Company contributions to the ECAP was $16.8$18.2 million and $19.2$20.2 million, respectively.
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. TheBeginning in fiscal 2022, the Company began to match a portion of the employee contributions each pay period and made $2.1 million matching contributions during fiscal 2022. In addition the Company intends to make an additional matching contributions relatedcontribution relating to fiscal 20192022 of $3.2 million in fiscal 2020.2023, which are accrued in compensation and benefits payable on the consolidated balance sheet. The Company made a $2.7
F-28
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
$3.0 million matching contribution in fiscal 20192022 related to contributions made by employees in fiscal 2018 and2021. Due to the impact of COVID-19, the Company did 0t make a $2.3 million matching contribution in fiscal 2018 related to contributions made by employees in fiscal 2017.2020.
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 $219.2$263.2 million and $186.8$241.3 million as of April 30, 20192022 and 2018,2021, respectively, is offset by outstanding policy loans of $93.2$79.8 million and $66.7$80.0 million in the accompanying consolidated balance sheets as of April 30, 20192022 and 2018,2021, respectively. Total death benefits payable, net of loans under COLI contracts, were $223.6$449.3 million and $226.0$443.9 million at April 30, 20192022 and 2018,2021, 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 $6.2$5.8 million, $7.8$13.0 million and $4.9$6.6 million during fiscal 2019, 20182022, 2021 and 2017,2020, respectively, recorded as a decrease in compensation and benefits expense. In addition, certain policies are held in trusts to provide additional benefit security for the deferred compensation and pension plans. As of April 30, 2019,2022, COLI contracts with a net CSV of $115.7$162.8 million and death benefits, net of loans, of $178.7$400.6 million were held in trust for these purposes.
7. Fee Revenue
Substantially 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 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 transfers control of products or services before there is an unconditional right to payment. A contract liability (deferred revenue) is recorded when cash is received in advance of performance of the obligation. Deferred revenue represents the future performance obligations to transfer control of products or services for which we have already received consideration. Deferred revenue is presented in other accrued liabilities on the consolidated balance sheet.sheets.
F-30
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2019 (continued)
The following table outlines our the Company’s contract asset and liability balances as of April 30, 20192022 and May 1, 2018:2021:
|
| April 30, 2019 |
|
| May 1, 2018 |
| ||
|
| (in thousands) |
| |||||
Contract assets (unbilled receivables) |
| $ | 60,595 |
|
| $ | 65,164 |
|
Contract liabilities (deferred revenue) |
| $ | 112,999 |
|
| $ | 114,695 |
|
|
| April 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (in thousands) |
| |||||
Contract assets-unbilled receivables |
| $ | 100,652 |
|
| $ | 82,842 |
|
Contract liabilities-deferred revenue |
| $ | 244,149 |
|
| $ | 184,610 |
|
During the year ended April 30, 2019,fiscal 2022, 2021, and 2020 we recognized revenue of $97.0$131.3 million, $92.4 million and $94.1 million, respectively, that waswere included in the contract liabilities balance at the beginning of the period.
Performance Obligations
The Company has elected to apply the practical expedient to exclude the value of unsatisfied performance obligations for contracts with a duration of one year or less, which applies to all executive search and professional search fee revenue. As of April 30, 2019,2022, 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$1,034.9 million. Of the $539.5$1,034.9 million of remaining performance obligations, we expectthe Company expects to recognize approximately $307.7 million as fee revenue in fiscal 2020, $132.2$541.2 million in fiscal 2021, $77.42023, $295.6 million in fiscal 2022 and the remaining $22.22024, $128.1 million in fiscal 20232025 and the remaining $70.0 million in fiscal 2026 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—12—Segments.
F-29
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
The following table provides further disaggregation of fee revenue by industry:
|
| Year Ended April 30, |
|
| Year Ended April 30, |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||||||||||||
|
| Dollars |
|
| % |
|
| Dollars |
|
| % |
|
| Dollars |
|
| % |
|
| Dollars |
|
| % |
|
| Dollars |
|
| % |
|
| Dollars |
|
| % |
| ||||||||||||
|
| (dollars in thousands) |
|
| (dollars in thousands) |
| ||||||||||||||||||||||||||||||||||||||||||
Industrial |
| $ | 561,029 |
|
|
| 29.1 | % |
| $ | 530,547 |
|
|
| 30.0 | % |
| $ | 459,732 |
|
|
| 29.4 | % |
| $ | 688,902 |
|
|
| 26.2 | % |
| $ | 490,863 |
|
|
| 27.1 | % |
| $ | 556,189 |
|
|
| 28.8 | % |
Life Sciences/Healthcare |
|
| 501,463 |
|
|
| 19.1 |
|
|
| 355,668 |
|
|
| 19.7 |
|
|
| 343,955 |
|
|
| 17.8 |
| ||||||||||||||||||||||||
Financial Services |
|
| 349,968 |
|
|
| 18.2 |
|
|
| 305,047 |
|
|
| 17.3 |
|
|
| 257,671 |
|
|
| 16.4 |
|
|
| 475,326 |
|
|
| 18.1 |
|
|
| 331,976 |
|
|
| 18.3 |
|
|
| 334,433 |
|
|
| 17.3 |
|
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 |
|
|
| 372,720 |
|
|
| 14.2 |
|
|
| 239,457 |
|
|
| 13.2 |
|
|
| 285,927 |
|
|
| 14.8 |
|
Technology |
|
| 260,918 |
|
|
| 13.5 |
|
|
| 226,142 |
|
|
| 12.8 |
|
|
| 198,867 |
|
|
| 12.7 |
|
|
| 456,498 |
|
|
| 17.4 |
|
|
| 275,510 |
|
|
| 15.2 |
|
|
| 285,562 |
|
|
| 14.8 |
|
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 |
| ||||||||||||||||||||||||
Education/Non–Profit/General |
|
| 131,809 |
|
|
| 5.0 |
|
|
| 116,573 |
|
|
| 6.5 |
|
|
| 126,666 |
|
|
| 6.5 |
| ||||||||||||||||||||||||
Fee Revenue |
| $ | 1,926,033 |
|
|
| 100.0 | % |
| $ | 1,767,217 |
|
|
| 100.0 | % |
| $ | 1,565,521 |
|
|
| 100.0 | % |
| $ | 2,626,718 |
|
|
| 100.0 | % |
| $ | 1,810,047 |
|
|
| 100.0 | % |
| $ | 1,932,732 |
|
|
| 100.0 | % |
8. Income TaxesCredit Losses
Income from continuing operations beforeThe Company is exposed to credit losses primarily through the provision of its Executive Search, Consulting, Digital and RPO & Professional Search services. The Company’s expected credit loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers' trade accounts receivables. Due to the short-term nature of such receivables, the estimate of the amount of accounts receivable that may not be collected is primarily based on historical loss-rate experience. When required, the Company adjusts the loss-rate methodology to account for current conditions and reasonable and supportable expectations of future economic and market conditions. The Company generally assesses future economic conditions for a period of sixty to ninety days, which corresponds with the contractual life of its accounts receivables. Additionally, specific allowance amounts are established to record the appropriate provision for income taxescustomers that have a higher probability of default. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers' financial condition and equitymacroeconomic conditions. Balances are written off when determined to be uncollectible.
The activity in earnings of unconsolidated subsidiaries wasthe allowance for credit losses on the Company's trade receivables is as 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 |
|
| (in thousands) |
| |
Balance at May 1, 2019 | $ | 21,582 |
|
Provision for credit losses |
| 14,644 |
|
Write-offs |
| (12,518 | ) |
Recoveries of amounts previously written off |
| 398 |
|
Foreign currency translation |
| (311 | ) |
Balance at April 30, 2020 |
| 23,795 |
|
Provision for credit losses |
| 15,763 |
|
Write-offs |
| (12,073 | ) |
Recoveries of amounts previously written off |
| 311 |
|
Foreign currency translation |
| 1,528 |
|
Balance at April 30, 2021 |
| 29,324 |
|
Provision for credit losses |
| 21,552 |
|
Write-offs |
| (14,052 | ) |
Recoveries of amounts previously written off |
| 702 |
|
Foreign currency translation |
| (1,142 | ) |
Balance at April 30, 2022 | $ | 36,384 |
|
F-31
The fair value and unrealized losses on available for sale debt securities, aggregated by investment category and the length of time the security has been in an unrealized loss position as of April 30, 2022 and 2021, are as follows:
F-30
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 20192022 (continued)
|
| Less Than 12 Months |
|
| 12 Months or longer |
|
| Balance Sheet Classification |
| |||||||||||||||||||
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
|
| Cash and Cash Equivalents |
|
| Marketable Securities, Current |
|
| Marketable Securities, Non-Current |
| |||||||
|
| (in thousands) |
| |||||||||||||||||||||||||
Balance at April 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
| $ | 36,378 |
|
| $ | 7 |
|
| $ | — |
|
| $ | — |
|
| $ | 5,749 |
|
| $ | 30,629 |
|
| $ | — |
|
Corporate notes/bonds |
| $ | 26,351 |
|
| $ | 20 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 10,134 |
|
| $ | 16,217 |
|
Balance at April 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
| $ | 37,002 |
|
| $ | 125 |
|
| $ | 4,499 |
|
| $ | 1 |
|
| $ | 15,489 |
|
| $ | 26,012 |
|
| $ | — |
|
Corporate notes/bonds |
| $ | 32,186 |
|
| $ | 446 |
|
| $ | 3,800 |
|
| $ | 4 |
|
| $ | — |
|
| $ | 18,942 |
|
| $ | 17,044 |
|
U.S. Treasury and Agency Securities |
| $ | 987 |
|
| $ | 8 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 987 |
|
| $ | — |
|
The unrealized losses on 27 and 18 investments in commercial paper securities, 23 and 15 investments in corporate notes/bonds, and 1 investment and 0 investments in U.S treasury and agency securities on April 30, 2022 and 2021, respectively, were caused by fluctuations in market interest rates. The Company only purchases high grade bonds that have a maturity from the date of purchase of no more than two years. The Company monitors the credit worthiness of its investments on a quarterly basis. The Company does not intend to sell the investments and does not believe it will be required to sell the investments before the investments mature and therefore recover the amortized cost basis.
9. Income Taxes
Income from continuing operations before provision for income taxes was as follows:
|
| Year Ended April 30, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
|
| (in thousands) |
| |||||||||
Domestic |
| $ | 184,877 |
|
| $ | 34,661 |
|
| $ | 40,736 |
|
Foreign |
|
| 248,024 |
|
|
| 129,039 |
|
|
| 110,226 |
|
Income before provision for income taxes |
| $ | 432,901 |
|
| $ | 163,700 |
|
| $ | 150,962 |
|
The provision (benefit) for domestic and foreign income taxes was as follows:
|
| Year Ended April 30, |
|
| Year Ended April 30, |
| ||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
Current income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
| $ | 6,152 |
|
| $ | 29,400 |
|
| $ | (2,026 | ) |
| $ | 43,993 |
|
| $ | 16,913 |
|
| $ | 14,336 |
|
State |
|
| 9,097 |
|
|
| 2,863 |
|
|
| 1,207 |
|
|
| 15,962 |
|
|
| 4,719 |
|
|
| 4,974 |
|
Foreign |
|
| 42,091 |
|
|
| 44,434 |
|
|
| 23,334 |
|
|
| 59,064 |
|
|
| 40,646 |
|
|
| 33,965 |
|
Current provision for income taxes |
|
| 57,340 |
|
|
| 76,697 |
|
|
| 22,515 |
|
|
| 119,019 |
|
|
| 62,278 |
|
|
| 53,275 |
|
Deferred income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
| (16,211 | ) |
|
| (3,530 | ) |
|
| 3,341 |
|
|
| (13,858 | ) |
|
| (5,809 | ) |
|
| (6,862 | ) |
State |
|
| (7,682 | ) |
|
| (317 | ) |
|
| 341 |
|
|
| (3,936 | ) |
|
| (5,025 | ) |
|
| (784 | ) |
Foreign |
|
| (3,903 | ) |
|
| (2,717 | ) |
|
| 2,907 |
|
|
| 831 |
|
|
| (3,306 | ) |
|
| (1,684 | ) |
Deferred (benefit) provision for income taxes |
|
| (27,796 | ) |
|
| (6,564 | ) |
|
| 6,589 |
| ||||||||||||
Deferred benefit for income taxes |
|
| (16,963 | ) |
|
| (14,140 | ) |
|
| (9,330 | ) | ||||||||||||
Total provision for income taxes |
| $ | 29,544 |
|
| $ | 70,133 |
|
| $ | 29,104 |
|
| $ | 102,056 |
|
| $ | 48,138 |
|
| $ | 43,945 |
|
F-31
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
The reconciliation of the statutory federal income tax rate to the effective consolidated tax rate is as follows:
|
| Year Ended April 30, |
|
| Year Ended April 30, |
| ||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| ||||||
U.S. federal statutory income tax rate |
|
| 21.0 | % |
|
| 30.4 | % |
|
| 35.0 | % |
|
| 21.0 | % |
|
| 21.0 | % |
|
| 21.0 | % |
State tax, net of federal effect |
|
| 2.5 |
|
|
| 1.0 |
|
|
| 2.2 |
| ||||||||||||
Foreign tax rates differential |
|
| 5.0 |
|
|
| (2.3 | ) |
|
| (9.1 | ) |
|
| 2.5 |
|
|
| 4.5 |
|
|
| 4.5 |
|
Transition tax |
|
| — |
|
|
| 9.0 |
|
|
| — |
| ||||||||||||
Deferred tax remeasurement |
|
| — |
|
|
| (2.4 | ) |
|
| — |
| ||||||||||||
Non-deductible officers compensation |
|
| 1.1 |
|
|
| — |
|
|
| — |
|
|
| 0.7 |
|
|
| 2.3 |
|
|
| 0.5 |
|
Excess tax benefit on stock-based compensation |
|
| (3.1 | ) |
|
| — |
|
|
| — |
| ||||||||||||
Excess tax (benefit) expense on stock-based compensation |
|
| (0.6 | ) |
|
| 0.8 |
|
|
| (1.0 | ) | ||||||||||||
Change in valuation allowance |
|
| (2.0 | ) |
|
| (2.3 | ) |
|
| (3.1 | ) |
|
| (0.7 | ) |
|
| 0.3 |
|
|
| — |
|
COLI increase, net |
|
| (0.3 | ) |
|
| (1.7 | ) |
|
| (0.9 | ) | ||||||||||||
Change in uncertain tax positions |
|
| 0.3 |
|
|
| 1.1 |
|
|
| 0.2 |
| ||||||||||||
R&D tax credit |
|
| (1.3 | ) |
|
| (0.9 | ) |
|
| — |
| ||||||||||||
Other |
|
| — |
|
|
| 1.7 |
|
|
| 2.3 |
|
|
| (0.5 | ) |
|
| 1.0 |
|
|
| 2.6 |
|
Effective income tax rate |
|
| 22.0 | % |
|
| 34.1 | % |
|
| 25.1 | % |
|
| 23.6 | % |
|
| 29.4 | % |
|
| 29.1 | % |
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 2019 is partially attributable to the reduced U.S. federal income tax rate as well as a tax benefit recorded in connection with stock-based compensation. In the last three fiscal 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.
In 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 were as follows:
|
| April 30, |
|
| April 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation |
| $ | 75,521 |
|
| $ | 67,852 |
|
| $ | 111,133 |
|
| $ | 107,834 |
|
Operating lease liability |
|
| 35,158 |
|
|
| 34,183 |
| ||||||||
Loss carryforwards |
|
| 22,467 |
|
|
| 22,297 |
|
|
| 33,360 |
|
|
| 39,704 |
|
Reserves and accruals |
|
| 12,954 |
|
|
| 13,945 |
|
|
| 20,887 |
|
|
| 16,393 |
|
Deferred rent |
|
| 7,652 |
|
|
| 6,827 |
| ||||||||
Allowance for doubtful accounts |
|
| 5,645 |
|
|
| 4,885 |
| ||||||||
Deferred revenue |
|
| 1,090 |
|
|
| 1,793 |
|
|
| 6,207 |
|
|
| — |
|
Allowance for doubtful accounts |
|
| 3,217 |
|
|
| 2,296 |
| ||||||||
Other |
|
| — |
|
|
| 982 |
| ||||||||
Gross deferred tax assets |
|
| 122,901 |
|
|
| 115,992 |
|
|
| 212,390 |
|
|
| 202,999 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles |
|
| (28,958 | ) |
|
| (57,046 | ) | ||||||||
Operating lease, right-of-use, assets |
|
| (27,513 | ) |
|
| (27,777 | ) | ||||||||
Intangibles and goodwill |
|
| (28,388 | ) |
|
| (26,570 | ) | ||||||||
Property and equipment |
|
| (15,883 | ) |
|
| (5,000 | ) |
|
| (24,063 | ) |
|
| (20,590 | ) |
Prepaid expenses |
|
| (20,152 | ) |
|
| (19,123 | ) |
|
| (24,453 | ) |
|
| (23,928 | ) |
Marketable securities |
|
| (1,260 | ) |
|
| (7,003 | ) | ||||||||
Other |
|
| (1,759 | ) |
|
| (2,726 | ) |
|
| (691 | ) |
|
| (2,684 | ) |
Gross deferred tax liabilities |
|
| (66,752 | ) |
|
| (83,895 | ) |
|
| (106,368 | ) |
|
| (108,552 | ) |
Valuation allowances |
|
| (14,032 | ) |
|
| (15,682 | ) |
|
| (24,025 | ) |
|
| (25,173 | ) |
Net deferred tax asset |
| $ | 42,117 |
|
| $ | 16,415 |
|
| $ | 81,997 |
|
| $ | 69,274 |
|
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 assets will not be realized. Management believes uncertainty exists regarding the realizability of certain operating lossesdeferred tax assets and has, therefore, established a valuation allowance for this portion of theoffsetting deferred tax asset.assets that are not more-likely-than-not to be realized. Realization of the deferred tax asset is dependent on the Company generating sufficientenough taxable income of the appropriate nature in future years. Although realization is not assured, management believes that it is more likely than-not that the net deferred tax assets will be realized. In fiscal 2022, the Company’s valuation allowance decreased by $1.1 million primarily due to the reversal of valuation allowance previously recorded against deferred tax assets, including net operating losses, of certain foreign subsidiaries that had returned to profitability and were now more-likely-than-not to realize those deferred tax assets. In fiscal 2021 and 2020, the Company’s valuation allowance increased by $7.3 million and $3.8 million, respectively, primarily due to increases in net operating losses in certain foreign jurisdictions that were not more-likely-than-not to be realized. Deferred tax assets and deferred tax liabilities are presented net on the consolidated balance sheets by tax jurisdiction.
As of April 30, 2019,2022, the Company had U.S. federal net operating loss carryforwards of $2.9 million, which the Company anticipates will be fully utilized by fiscal 2028. The Company has state net operating loss carryforwards of $39.8$14.6 million, which if unutilized, will begin to expire in fiscal 2020.2030. The Company has state net operating loss carryforwards of $34.2 million, which, if unutilized, will begin to expire in fiscal 2023. The Company also has foreign net operating loss carryforwards of $79.9$112.5 million, which, if unutilized, will begin to expire in fiscal 2020.2023.
We continue to consider approximately $555.4$662.1 million of undistributed earnings of our foreign subsidiaries to be indefinitely reinvested, and, accordingly, have provided no state, local or foreign withholding income taxes on such earnings other than the Transition Tax.
F-32
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
earnings. 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 not indefinitely reinvested, we provide additional taxes, if applicable, includingstate, local and foreign withholding taxes and U.S. state income taxes. Under current U.S. federal tax law, we do not expect to incur a U.S. federal income tax liability on the undistributed earnings in the event they are repatriated to the United States.
The Company elected to treat taxes due on future U.S. inclusions in taxable income related to Global Intangible Low-Taxed Income 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”).
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”) and various state and foreign tax authorities. The IRS has concluded its audit of our fiscal year 2016 federal tax return. The State of New York and the City of New York are currently auditing the Company’s state income tax returns for various fiscal years. Outside the U.S.,Currently, income tax returns of the Company’s subsidiaries are under audit in Brazil, Germany, Switzerland, Japan, 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 20132016 are no longer open to examination by tax authorities (including U.S. federal, state and foreign).
F-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, 2019,2022, the Company had a liability of $7.8$10.7 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, |
| ||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
Unrecognized tax benefits, beginning of year |
| $ | 3,674 |
|
| $ | 2,478 |
|
| $ | 2,095 |
|
| $ | 9,954 |
|
| $ | 6,037 |
|
| $ | 7,794 |
|
Settlement with tax authority |
|
| (1,771 | ) |
|
| (708 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,767 | ) |
Additions based on tax positions related to the current year |
|
| 1,775 |
|
|
| 1,116 |
|
|
| 383 |
|
|
| 456 |
|
|
| 1,716 |
|
|
| 10 |
|
Additions based on tax positions related to prior years |
|
| 4,116 |
|
|
| 788 |
|
|
| — |
|
|
| 272 |
|
|
| 2,201 |
|
|
| — |
|
Unrecognized tax benefits, end of year |
| $ | 7,794 |
|
| $ | 3,674 |
|
| $ | 2,478 |
|
| $ | 10,682 |
|
| $ | 9,954 |
|
| $ | 6,037 |
|
The full amount of unrecognized tax benefits would impact the effective tax rate if recognized. In the next 12 months, it is reasonably possible that the Company’s unrecognized tax benefits could change due to the resolution of certain tax matters either because the tax positions are sustained on audit or the Company agrees to their disallowance. These resolutions could reduce the Company’s liability for unrecognized tax benefits by approximately $3.7$2.9 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$1.4 million, $0.9 million, and $0.3$0.6 million for interest related to unrecognized tax benefits as of April 30, 20192022, 2021, and 2018,2020 respectively. The Company had noan accrual of $0.5 million and $0.5 million as of April 30, 2022 and 2021, respectively, for penalties related to unrecognized tax benefits as of April 30, 2019 and 2018.benefits. The Company recognized interesttax expense of $0.1$0.4 million, $0.3$0.8 million, and $0.1$0.2 million for interest and penalties related to unrecognized tax benefits during the years ended April 30, 2019, 2018fiscal 2022, 2021, and 2017,2020, respectively.
9.10. Property and Equipment, Net
Property and equipment include the following:
|
| April 30, |
|
| April 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Computer equipment and software (1) |
| $ | 220,894 |
|
| $ | 191,437 |
|
| $ | 331,371 |
|
| $ | 290,417 |
|
Leasehold improvements |
|
| 84,368 |
|
|
| 82,467 |
|
|
| 81,743 |
|
|
| 89,276 |
|
Furniture and fixtures |
|
| 42,318 |
|
|
| 42,889 |
|
|
| 41,999 |
|
|
| 44,033 |
|
Automobiles |
|
| 1,022 |
|
|
| 1,305 |
|
|
| 3,460 |
|
|
| 3,356 |
|
|
|
| 348,602 |
|
|
| 318,098 |
|
|
| 458,573 |
|
|
| 427,082 |
|
Less: accumulated depreciation and amortization |
|
| (217,097 | ) |
|
| (198,197 | ) |
|
| (320,401 | ) |
|
| (295,304 | ) |
Property and equipment, net |
| $ | 131,505 |
|
| $ | 119,901 |
|
| $ | 138,172 |
|
| $ | 131,778 |
|
(1) | Depreciation expense for capitalized software was |
F-33
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
Depreciation expense for property and equipment was $33.0$43.2 million, $33.8$42.6 million and $31.9$39.0 million during fiscal 2019, 20182022, 2021 and 2017,2020, respectively.
10.11. Long-Term Debt
4.625% Senior Unsecured Notes due 2027
On December 19, 2018,16, 2019, the Company completed a private placement of 4.625% Senior Unsecured Notes due 2027 (the “Notes”) with a $400 million principal amount pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The Notes were issued with a $4.5 million discount and will mature December 15, 2027, with interest payable semi-annually in arrears on June 15 and December 15 of each year, commencing on June 15, 2020. The Notes represent senior unsecured obligations that rank equally in right of payment to all existing and future senior unsecured indebtedness. The Company may redeem the Notes prior to maturity, subject to certain limitations and premiums defined in the indenture governing the Notes. At any time prior to December 15, 2022, the Company may redeem the Notes at a redemption price equal to 100% of the principal plus the Applicable Premium (as defined in the indenture governing the Notes), and accrued and unpaid interest. At any time prior to December 15, 2022, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the Notes, including any permitted additional notes, at a redemption price equal to 104.625% of the principal amount and accrued and unpaid interest. At any time and from time to time on or after December 15, 2022, the Company may redeem the Notes at the applicable redemption prices set forth in the table below, plus accrued and unpaid interest, if redeemed during the 12-month period beginning on December 15 of each of the years indicated:
Year |
| Percentage |
|
2022 |
| 102.313% |
|
2023 |
| 101.156% |
|
2024 and thereafter |
| 100.000% |
|
The Notes allow the Company to pay $25 million of dividends per fiscal year with no restrictions, plus an unlimited amount of dividends so long as the Company’s consolidated total leverage ratio is not greater than 3.50 to 1.00, and the Company is not in default under the indenture governing the Notes. The Notes are guaranteed by each of the Company's existing and future wholly owned domestic subsidiaries to the extent such subsidiaries guarantee the Company's revolving credit facility. The indenture governing the Notes requires that, upon the occurrence of both a Change of Control and a Rating Decline (each as defined in the indenture), the Company shall make an offer to purchase all of the Notes at 101% of their principal amount and accrued and unpaid interest. The Company used the proceeds from the offering of the Notes to repay $276.9 million outstanding under the Company’s prior revolving credit facility and to pay expenses and fees in connection therewith. The remainder of the proceeds were used for general corporate requirements. The effective interest rate on the Notes is 4.86% as of April 30, 2022. As of April 30, 2022 and 2021, the fair value of the Notes was $379.5 million and $416.5 million, respectively, based on borrowing rates then required of notes with similar terms, maturity and credit risk. The fair value of the Notes was classified as a Level 2 measurement in the fair value hierarchy.
Long-term debt, at amortized cost, consisted of the following:
In thousands |
| April 30, 2022 |
|
| April 30, 2021 |
| ||
Senior Unsecured Notes |
| $ | 400,000 |
|
| $ | 400,000 |
|
Less: Unamortized discount and issuance costs |
|
| (4,523 | ) |
|
| (5,206 | ) |
Long-term borrowings, net of unamortized discount and debt issuance costs |
| $ | 395,477 |
|
| $ | 394,794 |
|
Credit Facility
On December 16, 2019, the Company entered into an Amended and Restateda Credit Agreement (the “Credit Agreement”) with a syndicate of banks and Wells Fargo Bank of America, National Association as administrative agent to among other things, provide for enhanced financial flexibility. The Credit Agreement provides for among other things: (a) a $650.0 million five-year senior secured revolving credit facility (the “Revolver”), and (b)contains certain customary affirmative and negative covenants, including a maximum consolidated totalnet leverage ratio, (as defined below)a maximum consolidated secured net leverage ratio and a minimum interest coverage ratio. The Credit Agreement permits the payment of dividends to stockholders and Company share repurchases so long as pro formathere is no default under the Credit Agreement, the total funded debt to adjusted EBITDA ratio (as set forth in the credit agreement, the “consolidated net leverage ratioratio”), is no greater than 3.25 4.25 to 1.00, and the pro forma domestic liquidity is at least $50.0 million. The Company drew down $226.9 million on the Revolver and used the proceeds to pay-off
F-34
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 20192022 (continued)
the term loan that was outstanding as of December 19, 2018. The payoff 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 amortized over the life of the new issuance. pro forma liquidity is at least $50.0 million.
The principal balance of the revolverRevolver, if any, is due on the date of its termination. The Revolver matures on December 19, 202316, 2024 and any unpaid principal balance is payable on this date. The Revolver may also be prepaid and terminated early by the Company at any time without premium or penalty (subject to customary LIBOR breakage fees).
At the Company’s option, loans issued under the Credit Agreement will bear interest at either LIBOR or an alternate base rate, in each case plus the applicable interest rate margin. The interest rate applicable to loans outstanding under the Credit Agreement may fluctuate between LIBOR plus 1.25%1.125% per annum to LIBOR plus 2.00% per annum, in the case of LIBOR borrowings (or between the alternate base rate plus 0.25%0.125% per annum and the alternate base rate plus 1.00% per annum, in the alternative), based upon the Company’s total funded debt to Adjusted EBITDAconsolidated net leverage 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%0.175% to 0.35% per annum on the average daily unused amount of the Revolver, based upon the Company’s consolidated net leverage ratio at such time, and fees relating to the issuance of letters of credit. During fiscal 2019 theThe average interest rate on our long-term debt arrangements was 3.50%. During fiscal 2018 the average interest rate on ourcurrent and previous term loan for fiscal 2020 was 2.60%3.34%.
As of April 30, 2019, $226.9 million2022 and 2021, there was 0 outstanding liability under the Revolver compared to $238.9 million as of April 30, 2018, under the previous term loan.Revolver. The unamortized debt issuance costs associated with the long-term debt were $4.0Credit Agreement was $2.4 million and $2.7$3.3 million as of April 30, 20192022 and April 30, 2018,2021, respectively. The fair value ofdebt issuance costs were included in other current assets and other non-current assets on the Company’s 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 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 Revolver is classified as a Level 2 liability in the fair value hierarchy.consolidated balance sheets. As of April 30, 2019,2022, the Company was in compliance with its debt covenants.
The Company had a total of $420.2$645.3 million and $646.0 million available under the Revolver after the Company drew down $226.9$4.7 million and after $2.9$4.0 million of standby letters of credit werehave been issued as of April 30, 2019. As of April 30, 2018, the Company had no borrowings under its previous revolver.2022 and 2021, respectively. The Company had a total of $122.1 million available under the previous revolver after $2.9 million of standby letters of credit were issued as of April 30, 2018. The Company had a total of $8.5$10.0 million and $7.4$11.0 million of standby letters with other financial institutions as of April 30, 20192022 and 2018,2021, respectively. The standby letters of creditscredit were generally issued as a result of entering into office premise leases.
The Company has outstanding borrowings against the CSV of COLI contracts of $93.2$79.8 million and $66.7$80.0 million at April 30, 20192022 and 2018,2021, 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%.
11.12. Segments
The Company currently operates through three globalhas seven reportable segments: Consulting, Digital, Executive Search AdvisoryNorth America, Executive Search EMEA, Executive Search Asia Pacific, Executive Search Latin America and RPO & Professional Search. The Executive SearchRevenues are directly attributed to a reportable segment focusesand expenses not directly associated with a specific segment are allocated based on recruiting board level, chief executivethe most relevant measures applicable, including revenues, headcount and other senior executive and general management positions, in addition to research-based interviewing and onboarding solutions, for clients predominantly infactors.
The Company’s 7 reportable segments operate through the consumer 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 arrayfollowing 4 lines of world-leading IP, products and tools. RPO & 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.business:
1. | Consulting aligns organization structure, culture, performance and people to drive sustainable growth by addressing four fundamental needs: Organizational Strategy, Assessment and Succession, Leadership and Professional Development and Total Rewards. This work is supported by a comprehensive range of some of the world’s leading lP and data. The Consulting teams employ an integrated approach across our core capabilities and integrated solutions, each one intended to strengthen our work and thinking in the next, to help clients execute their strategy in a digitally enabled world. |
2. | Digital delivers scalable tech-enabled solutions designed to identify the best structures, roles, capabilities and behaviors to drive businesses forward. Our digital products give clients direct access to our proprietary data, client data and analytics to deliver clear insights with the training and tools needed to align organizational structure with business strategy. |
3. | Executive Search helps organizations recruit board level, chief executive and other senior executive and general management talent to deliver lasting impact. The Company’s approach to placing talent that brings together research-based IP, proprietary assessments, and behavioral interviewing with practical experience to determine the ideal organizational fit. Salary benchmarking then builds appropriate frameworks for compensation and retention. This business is managed and reported on a geographic basis and represents |
F-35
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
four of the Company’s reportable segments (Executive Search North America, Executive Search EMEA, Executive Search Asia Pacific, and Executive Search Latin America). |
4. | RPO & Professional Search focuses on delivering enterprise talent acquisition solutions to clients, at the professional level. The Company leverages the power of people, process expertise, IP-enabled technology, and compensation information to do this. Transaction sizes range from single professional searches to team, department, line of business projects, and global outsource recruiting solutions. |
Executive Search segment is managed by geographic regional leaders and Advisoryleaders. Worldwide operations for Consulting, Digital, and RPO & Professional Search worldwide operations are managed by their Chief Executive Officers. The Executive Search geographic regional leaders and the Chief Executive Officers of AdvisoryConsulting, Digital, and RPO & 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.expenses.
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’smaker (“CODM”) review of (1) fee revenue and (2) adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”). To the extent that such costs or 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)impairment charges). The accounting policies for theCODM is not provided asset information by 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, Adjusted EBITDA included deferred revenue adjustment related to the Hay Group acquisition, reflecting revenue that Advisory 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.segment.
Financial highlights by operating segmentreportable segments are as follows:
|
| Year Ended April 30, 2019 |
| |||||||||||||||||||||||||||||||||
|
| Executive Search |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| North America |
|
| EMEA |
|
| Asia Pacific |
|
| Latin America |
|
| Subtotal |
|
| Advisory |
|
| RPO & Professional Search |
|
| Corporate |
|
| Consolidated |
| |||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||||||
Fee revenue |
| $ | 455,826 |
|
| $ | 182,829 |
|
| $ | 104,291 |
|
| $ | 31,896 |
|
| $ | 774,842 |
|
| $ | 821,048 |
|
| $ | 330,143 |
|
| $ | — |
|
| $ | 1,926,033 |
|
Total revenue |
| $ | 469,743 |
|
| $ | 186,131 |
|
| $ | 105,543 |
|
| $ | 31,960 |
|
| $ | 793,377 |
|
| $ | 838,620 |
|
| $ | 341,865 |
|
| $ | — |
|
| $ | 1,973,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Korn Ferry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 102,651 |
|
Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,145 |
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (10,094 | ) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 16,891 |
|
Equity in earnings of unconsolidated subsidiaries, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (311 | ) |
Income tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 29,544 |
|
Operating income (loss) |
| $ | 120,754 |
|
| $ | 29,974 |
|
| $ | 24,364 |
|
| $ | 3,998 |
|
| $ | 179,090 |
|
| $ | 5,617 |
|
| $ | 50,884 |
|
| $ | (94,765 | ) |
| $ | 140,826 |
|
Depreciation and amortization |
|
| 3,890 |
|
|
| 1,254 |
|
|
| 1,428 |
|
|
| 410 |
|
|
| 6,982 |
|
|
| 29,057 |
|
|
| 3,255 |
|
|
| 7,195 |
|
|
| 46,489 |
|
Other income (loss), net |
|
| 6,388 |
|
|
| 432 |
|
|
| 281 |
|
|
| 322 |
|
|
| 7,423 |
|
|
| 3,198 |
|
|
| 268 |
|
|
| (795 | ) |
|
| 10,094 |
|
Equity in earnings of unconsolidated subsidiaries, net |
|
| 311 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 311 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 311 |
|
EBITDA |
|
| 131,343 |
|
|
| 31,660 |
|
|
| 26,073 |
|
|
| 4,730 |
|
|
| 193,806 |
|
|
| 37,872 |
|
|
| 54,407 |
|
|
| (88,365 | ) |
|
| 197,720 |
|
Integration/acquisition costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,559 |
|
|
| — |
|
|
| 187 |
|
|
| 6,746 |
|
Tradename write-offs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 106,555 |
|
|
| — |
|
|
| — |
|
|
| 106,555 |
|
Adjusted EBITDA |
| $ | 131,343 |
|
| $ | 31,660 |
|
| $ | 26,073 |
|
| $ | 4,730 |
|
| $ | 193,806 |
|
| $ | 150,986 |
|
| $ | 54,407 |
|
| $ | (88,178 | ) |
| $ | 311,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets (1) |
| $ | 427,089 |
|
| $ | 171,120 |
|
| $ | 116,006 |
|
| $ | 24,600 |
|
| $ | 738,815 |
|
| $ | 1,045,432 |
|
| $ | 166,492 |
|
| $ | 384,113 |
|
| $ | 2,334,852 |
|
Long-lived assets (1) |
| $ | 19,864 |
|
| $ | 9,266 |
|
| $ | 9,255 |
|
| $ | 2,711 |
|
| $ | 41,096 |
|
| $ | 46,689 |
|
| $ | 8,980 |
|
| $ | 34,740 |
|
| $ | 131,505 |
|
Goodwill (1) |
| $ | 46,571 |
|
| $ | 45,480 |
|
| $ | 972 |
|
| $ | — |
|
| $ | 93,023 |
|
| $ | 457,361 |
|
| $ | 27,914 |
|
| $ | — |
|
| $ | 578,298 |
|
|
| Year Ended April 30, 2022 |
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Executive Search |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Consulting |
|
| Digital |
|
| North America |
|
| EMEA |
|
| Asia Pacific |
|
| Latin America |
|
| RPO & Professional Search |
|
| Corporate |
|
| Consolidated |
| |||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||||||
Fee revenue |
| $ | 650,204 |
|
| $ | 349,025 |
|
| $ | 605,704 |
|
| $ | 182,192 |
|
| $ | 118,596 |
|
| $ | 29,069 |
|
| $ | 691,928 |
|
| $ | — |
|
| $ | 2,626,718 |
|
Total revenue |
| $ | 654,199 |
|
| $ | 349,437 |
|
| $ | 609,258 |
|
| $ | 182,866 |
|
| $ | 118,705 |
|
| $ | 29,079 |
|
| $ | 699,911 |
|
| $ | — |
|
| $ | 2,643,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Korn Ferry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 326,360 |
|
Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,485 |
|
Other loss, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 11,880 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 25,293 |
|
Income tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 102,056 |
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 470,074 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 63,521 |
|
Other loss, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (11,880 | ) |
Integration/acquisition costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7,906 |
|
Impairment of fixed assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,915 |
|
Impairment of right of use assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7,392 |
|
Adjusted EBITDA(1) |
| $ | 116,108 |
|
| $ | 110,050 |
|
| $ | 181,615 |
|
| $ | 31,804 |
|
| $ | 35,105 |
|
| $ | 9,089 |
|
| $ | 165,141 |
|
| $ | (109,984 | ) |
| $ | 538,928 |
|
(1) |
|
|
| Year Ended April 30, 2021 |
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Executive Search |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Consulting |
|
| Digital |
|
| North America |
|
| EMEA |
|
| Asia Pacific |
|
| Latin America |
|
| RPO & Professional Search |
|
| Corporate |
|
| Consolidated |
| |||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||||||
Fee revenue |
| $ | 515,844 |
|
| $ | 287,306 |
|
| $ | 397,275 |
|
| $ | 138,954 |
|
| $ | 83,306 |
|
| $ | 17,500 |
|
| $ | 369,862 |
|
| $ | — |
|
| $ | 1,810,047 |
|
Total revenue |
| $ | 517,046 |
|
| $ | 287,780 |
|
| $ | 399,104 |
|
| $ | 139,213 |
|
| $ | 83,463 |
|
| $ | 17,500 |
|
| $ | 375,840 |
|
| $ | — |
|
| $ | 1,819,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Korn Ferry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 114,454 |
|
Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,108 |
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (37,194 | ) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 29,278 |
|
Income tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 48,138 |
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 155,784 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 61,845 |
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 37,194 |
|
Integration/acquisition costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 737 |
|
Restructuring charges, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 30,732 |
|
Adjusted EBITDA(1) |
| $ | 81,522 |
|
| $ | 86,095 |
|
| $ | 98,099 |
|
| $ | 11,742 |
|
| $ | 16,676 |
|
| $ | 1,289 |
|
| $ | 69,411 |
|
| $ | (78,542 | ) |
| $ | 286,292 |
|
F-36
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 20192022 (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) | Adjusted EBITDA refers to earnings before interest, taxes, depreciation and amortization and further excludes integration/acquisition costs and net restructuring charges. |
|
| Year Ended April 30, 2020 |
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Executive Search |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Consulting |
|
| Digital |
|
| North America |
|
| EMEA |
|
| Asia Pacific |
|
| Latin America |
|
| RPO & Professional Search |
|
| Corporate |
|
| Consolidated |
| |||||||||
|
| (in thousands) |
| |||||||||||||||||||||||||||||||||
Fee revenue |
| $ | 543,095 |
|
| $ | 292,366 |
|
| $ | 434,624 |
|
| $ | 170,314 |
|
| $ | 98,132 |
|
| $ | 29,400 |
|
| $ | 364,801 |
|
| $ | — |
|
| $ | 1,932,732 |
|
Total revenue |
| $ | 557,255 |
|
| $ | 294,261 |
|
| $ | 447,528 |
|
| $ | 172,978 |
|
| $ | 99,209 |
|
| $ | 29,493 |
|
| $ | 376,606 |
|
| $ | — |
|
| $ | 1,977,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Korn Ferry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 104,946 |
|
Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,071 |
|
Other loss, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,879 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 22,184 |
|
Income tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 43,945 |
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 176,025 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 55,311 |
|
Other loss, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,879 | ) |
Integration/acquisition costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12,152 |
|
Restructuring charges, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 58,559 |
|
Separation costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,783 |
|
Adjusted EBITDA(1) |
| $ | 61,092 |
|
| $ | 83,073 |
|
| $ | 120,725 |
|
| $ | 31,067 |
|
| $ | 22,885 |
|
| $ | 6,402 |
|
| $ | 60,168 |
|
| $ | (84,461 | ) |
| $ | 300,951 |
|
(1) |
|
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 |
|
|
|
Fee revenue attributed to an individual customer or country, other than the U.S. in fiscal year 2022 and the U.S and United Kingdom in fiscal year 2021 and 2020, did not account for more than 10% of the total fee revenue in those fiscal 2019, 2018 or 2017.years. Fee revenue classified by country in which the Company derives revenues are as follows:
|
| Year Ended April 30, |
|
| Year Ended April 30, |
| ||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
U.S. |
| $ | 859,969 |
|
| $ | 778,470 |
|
| $ | 728,871 |
|
| $ | 1,348,377 |
|
| $ | 837,682 |
|
| $ | 875,605 |
|
United Kingdom |
|
| 202,055 |
|
|
| 176,091 |
|
|
| 145,551 |
|
|
| 247,617 |
|
|
| 189,893 |
|
|
| 204,271 |
|
Other countries |
|
| 864,009 |
|
|
| 812,656 |
|
|
| 691,099 |
|
|
| 1,030,724 |
|
|
| 782,472 |
|
|
| 852,856 |
|
Total fee revenue |
| $ | 1,926,033 |
|
| $ | 1,767,217 |
|
| $ | 1,565,521 |
|
| $ | 2,626,718 |
|
| $ | 1,810,047 |
|
| $ | 1,932,732 |
|
F-38
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2019 (continued)
Other than the U.S., in fiscal 2022 and the U.S. and United Kingdom in fiscal 2021 and 2020, no single country controlledhad 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 location of the controlling statutory country are as follows:
|
| Year Ended April 30, |
|
| Year Ended April 30, |
| ||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
U.S. (1) |
| $ | 98,455 |
|
| $ | 80,424 |
|
| $ | 70,949 |
|
| $ | 185,228 |
|
| $ | 182,218 |
|
| $ | 199,436 |
|
United Kingdom |
|
| 26,711 |
|
|
| 34,081 |
|
|
| 35,739 |
| ||||||||||||
Other countries |
|
| 33,050 |
|
|
| 39,477 |
|
|
| 38,618 |
|
|
| 93,967 |
|
|
| 89,600 |
|
|
| 102,630 |
|
Total long-lived assets |
| $ | 131,505 |
|
| $ | 119,901 |
|
| $ | 109,567 |
|
| $ | 305,906 |
|
| $ | 305,899 |
|
| $ | 337,805 |
|
(1) | Includes Corporate long-lived assets |
12.13. Restructuring Charges, Net
DuringThere were 0 restructuring charges in fiscal 2016,2022. In the fourth quarter of fiscal 2020, in light of the uncertainty in worldwide economic conditions caused by COVID-19 and, as part of a broader program aimed at further enhancing Korn Ferry’s strong balance sheet and liquidity position, the Company implementedadopted a restructuring plan in orderintended to rationalizeadjust its cost structure by eliminating redundant positions and consolidating office space duebase to the acquisition of Hay Group on December 1, 2015.then-current economic environment and to position the Company to invest in its recovery. The Company continued the implementation of the fiscal 2016 restructuringthis plan in the first quarter of fiscal 20172021 and 2018. Thisthis resulted in restructuring charges, net of $0.1$30.7 million and $40.5 million during fiscal 2021 and 2020, respectively, across all lines of business relating to severance for positions that were eliminated.
F-37
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
In the third quarter of fiscal 2020, the Company adopted a restructuring plan to rationalize its cost structure to realize the efficiencies and operational improvement that the investments in the Digital business have enabled us to realize. This plan impacted the Consulting and Digital segments which resulted in restructuring charges, net of $18.1 million in fiscal 2018 related to the consolidation of premises and restructuring charges of $34.6 million in fiscal 2017, of which $16.0 million related2020, relating to severance for redundant positions that were eliminated.
Changes in the restructuring liability were as follows:
|
| Restructuring Liability |
| |
|
| (in thousands) |
| |
As of May 1, 2019 |
| $ | 531 |
|
Restructuring charges, net |
|
| 58,559 |
|
Reductions for cash payments |
|
| (16,737 | ) |
Non-cash payments |
|
| (8,053 | ) |
Exchange rate fluctuations |
|
| (147 | ) |
As of April 30, 2020 |
|
| 34,153 |
|
Restructuring charges, net |
|
| 30,732 |
|
Reductions for cash payments |
|
| (56,387 | ) |
Non-cash payments |
|
| (3,968 | ) |
Exchange rate fluctuations |
|
| 2,455 |
|
As of April 30, 2021 |
|
| 6,985 |
|
Reductions for cash payments |
|
| (4,829 | ) |
Exchange rate fluctuations |
|
| (654 | ) |
As of April 30, 2022 |
| $ | 1,502 |
|
As of April 30, 2022 and $18.62021, the restructuring liability is included in the current portion of other accrued liabilities on the consolidated balance sheets, except for $0.5 million related to the consolidation of premises. No restructuring charges, net were incurredand $0.6 million, respectively, which are included in fiscal 2019.other long-term liabilities.
13.
14. Goodwill and Intangible Assets
Changes in the carrying value of goodwill by reportable segment were as follows:
|
|
|
|
|
|
|
|
|
| Executive Search |
|
|
|
|
|
|
|
|
| |||||||||
|
| Consulting |
|
| Digital |
|
| North America |
|
| EMEA |
|
| Asia Pacific |
|
| RPO & Professional Search |
|
| Consolidated |
| |||||||
|
| (in thousands) |
| |||||||||||||||||||||||||
Balance as of May 1, 2020 |
| $ | 173,014 |
|
| $ | 322,727 |
|
| $ | 45,721 |
|
| $ | 44,494 |
|
| $ | 972 |
|
| $ | 27,015 |
|
| $ | 613,943 |
|
Adjustments |
|
| — |
|
|
| 2,643 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,643 |
|
Exchange rate fluctuations |
|
| 396 |
|
|
| 1,258 |
|
|
| 2,777 |
|
|
| 2,955 |
|
|
| — |
|
|
| 2,697 |
|
|
| 10,083 |
|
Balance as of April 30, 2021 |
|
| 173,410 |
|
|
| 326,628 |
|
|
| 48,498 |
|
|
| 47,449 |
|
|
| 972 |
|
|
| 29,712 |
|
|
| 626,669 |
|
Additions (1) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 104,962 |
|
|
| 104,962 |
|
Exchange rate fluctuations |
|
| (440 | ) |
|
| (1,274 | ) |
|
| (934 | ) |
|
| (877 | ) |
|
| — |
|
|
| (2,514 | ) |
|
| (6,039 | ) |
Balance as of April 30, 2022 |
| $ | 172,970 |
|
| $ | 325,354 |
|
| $ | 47,564 |
|
| $ | 46,572 |
|
| $ | 972 |
|
| $ | 132,160 |
|
| $ | 725,592 |
|
|
| 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 |
|
(1) | Additions to goodwill in fiscal 2022 was due to $76.8 million and $28.2 million from the acquisition of the Lucas Group and Patina Solutions Group, respectively. |
Tax deductible goodwill from the Miller Heiman acquisition was $22.7 million and $24.5 million as of April 30, 2022 and 2021, respectively. Tax deductible goodwill from the PIVOT Leadership acquisition was $7.1$5.9 million and $7.0$6.6 million as of April 30, 20192022 and 2018,2021, respectively.
Intangible assets include the following:F-38
|
| April 30, 2019 |
|
| April 30, 2018 |
| ||||||||||||||||||
|
| (in thousands) |
| |||||||||||||||||||||
Amortized intangible assets: |
| Gross |
|
| Accumulated Amortization |
|
| Net |
|
| Gross |
|
| Accumulated Amortization |
|
| Net |
| ||||||
Customer lists |
| $ | 125,099 |
|
| $ | (53,352 | ) |
| $ | 71,747 |
|
| $ | 125,099 |
|
| $ | (42,248 | ) |
| $ | 82,851 |
|
Intellectual property |
|
| 33,100 |
|
|
| (22,045 | ) |
|
| 11,055 |
|
|
| 33,100 |
|
|
| (20,112 | ) |
|
| 12,988 |
|
Proprietary databases |
|
| 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 | ) |
|
| — |
|
Total |
| $ | 167,351 |
|
| $ | (84,329 | ) |
|
| 83,022 |
|
| $ | 167,351 |
|
| $ | (70,847 | ) |
|
| 96,504 |
|
Unamortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
| 106,000 |
|
Exchange rate fluctuations |
|
|
|
|
|
|
|
|
|
| (74 | ) |
|
|
|
|
|
|
|
|
|
| 712 |
|
Total Intangible assets |
|
|
|
|
|
|
|
|
| $ | 82,948 |
|
|
|
|
|
|
|
|
|
| $ | 203,216 |
|
F-39
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 20192022 (continued)
DuringIntangible assets include the following:
|
| April 30, 2022 |
|
| April 30, 2021 |
| ||||||||||||||||||
|
| (in thousands) |
| |||||||||||||||||||||
Amortized intangible assets: |
| Gross |
|
| Accumulated Amortization |
|
| Net |
|
| Gross |
|
| Accumulated Amortization |
|
| Net |
| ||||||
Customer lists |
| $ | 146,799 |
|
| $ | (89,024 | ) |
| $ | 57,775 |
|
| $ | 131,299 |
|
| $ | (76,489 | ) |
| $ | 54,810 |
|
Intellectual property |
|
| 69,100 |
|
|
| (40,720 | ) |
|
| 28,380 |
|
|
| 69,100 |
|
|
| (33,623 | ) |
|
| 35,477 |
|
Proprietary databases |
|
| 4,256 |
|
|
| (4,256 | ) |
|
| — |
|
|
| 4,256 |
|
|
| (4,234 | ) |
|
| 22 |
|
Non-compete agreements |
|
| 910 |
|
|
| (910 | ) |
|
| — |
|
|
| 910 |
|
|
| (910 | ) |
|
| — |
|
Trademarks |
|
| 8,986 |
|
|
| (5,261 | ) |
|
| 3,725 |
|
|
| 7,186 |
|
|
| (4,636 | ) |
|
| 2,550 |
|
Total (1) |
| $ | 230,051 |
|
| $ | (140,171 | ) |
|
| 89,880 |
|
| $ | 212,751 |
|
| $ | (119,892 | ) |
|
| 92,859 |
|
Exchange rate fluctuations |
|
|
|
|
|
|
|
|
|
| (110 | ) |
|
|
|
|
|
|
|
|
|
| 90 |
|
Total Intangible assets |
|
|
|
|
|
|
|
|
| $ | 89,770 |
|
|
|
|
|
|
|
|
|
| $ | 92,949 |
|
(1) | In fiscal 2022 there were intangible assets additions of $11.6 million and $5.7 million from the acquisition of the Lucas Group and Patina Solutions Group, respectively. |
Acquisition-related intangible assets acquired in fiscal 2019,2022 consists of customer relationships and tradenames of $15.5 million and $1.8 million, respectively, with weighted-average useful lives from the Company decided to further integrate our go-to-market activities under one master brand —Korn Ferry,date of purchase of seven years 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 asset impairment charge of $106.6 million during the year ended April 30, 2019, recorded in general and administrative expenses.two years, respectively.
Amortization expense for amortized intangible assets was $13.5$20.3 million, $14.7$19.2 million and $15.4$16.3 million during fiscal 2019, 20182022, 2021 and 2017,2020, 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) |
| ||
2020 |
| $ | 13,204 |
| ||||
2021 |
|
| 13,071 |
| ||||
2022 |
|
| 13,060 |
| ||||
2023 |
|
| 11,208 |
|
| $ | 20,384 |
|
2024 |
|
| 8,731 |
|
|
| 17,583 |
|
2025 |
|
| 16,889 |
| ||||
2026 |
|
| 16,388 |
| ||||
2027 |
|
| 10,635 |
| ||||
Thereafter |
|
| 23,748 |
|
|
| 7,891 |
|
|
| $ | 83,022 |
|
| $ | 89,770 |
|
All amortizable intangible assets will be fully amortized by the end of fiscal 2032.
14. Commitments and Contingencies
Lease Commitments15. Leases
The Company leases office premises and certain office equipment under leases expiring at various dates through 2030. Total rental expense during fiscal 2019, 2018 and 2017 amounted to $58.2 million, $57.6 million and $56.8 million, respectively.
Future minimum commitments under non-cancelableCompany’s lease portfolio is comprised of operating leases for office space and equipment and finance leases for equipment. Equipment leases are comprised of vehicles and office equipment. The majority of the Company’s leases include both lease and non-lease components. Non-lease components primarily include maintenance, insurance, taxes and other utilities. The Company combines fixed payments for non-lease components with its lease payments and accounts for them as a single lease component, which increases its ROU assets and lease liabilities. Some of the leases include one or more options to renew or terminate the lease at the Company’s discretion. Generally, the renewal and termination options are not included in the ROU assets and lease liabilities as they are not reasonably certain of exercise. The Company has elected not to recognize a ROU asset or lease liability for leases with an initial term of 12 months or less.
As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of the future minimum lease payments. The Company applies the portfolio approach when determining the incremental borrowing rate since it has a centrally managed treasury function. The Company’s incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments in a similar economic environment.
Operating leases contain both office and equipment leases and have remaining terms that range from less than one year to 10 years, some of which also include options to extend or terminate the lease. Finance leases are comprised
F-39
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
of equipment leases and have remaining terms that range from less than one year to five years. Finance lease assets are included in property and equipment, net while finance lease liabilities are included in other accrued liabilities and other liabilities.
During fiscal 2022, the Company reduced its real estate footprint and as a result recorded an impairment charge of the ROU assets of $7.4 million recorded in the consolidated statements of income. On November 1, 2021, the Company acquired Lucas Group and as a result recognized ROU assets of $3.8 million with a corresponding liability of $9.4 million. On April 1, 2022, the Company acquired Patina Solutions Group and as a result recognized ROU asset of $0.2 million with a corresponding liability of $0.7 million. In both acquisitions, the ROU asset was adjusted to reflect unfavorable lease terms when compared with current market rates.
As a result of the acquisition of the Acquired Companies in excessfiscal 2020, the Company recognized ROU assets of one year excluding commitments accrued$3.2 million with a corresponding liability of $6.7 million. The ROU asset balance was adjusted by reclassification of pre-existing prepaid expenses, restructuring liabilities and deferred rent totaling $3.5 million. As part of the plan for integrating the Acquired Companies, the Company decided to exit 16 office leases and as a result, recorded an impairment charge of the ROU assets of $2.3 million in fiscal 2020 recorded in the restructuring liability areconsolidated statement of income.
The components of lease expense were as follows:
Year Ending April 30, |
| Lease Commitments |
| |
|
| (in thousands) |
| |
2020 |
| $ | 55,351 |
|
2021 |
|
| 52,567 |
|
2022 |
|
| 45,465 |
|
2023 |
|
| 38,582 |
|
2024 |
|
| 34,008 |
|
Thereafter |
|
| 74,764 |
|
|
| $ | 300,737 |
|
|
| Year Ended April 30, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
|
| (in thousands) |
| |||||||||
Finance lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of ROU assets |
| $ | 1,065 |
|
| $ | 1,221 |
|
| $ | 1,820 |
|
Interest on lease liabilities |
|
| 84 |
|
|
| 114 |
|
|
| 149 |
|
|
|
| 1,149 |
|
|
| 1,335 |
|
|
| 1,969 |
|
Operating lease cost |
|
| 53,092 |
|
|
| 56,166 |
|
|
| 57,683 |
|
Short-term lease cost |
|
| 966 |
|
|
| 474 |
|
|
| 1,111 |
|
Variable lease cost |
|
| 10,986 |
|
|
| 11,592 |
|
|
| 13,562 |
|
Lease impairment cost |
|
| 7,392 |
|
|
| — |
|
|
| 2,282 |
|
Sublease income |
|
| (1,119 | ) |
|
| (657 | ) |
|
| (447 | ) |
Total lease cost |
| $ | 72,466 |
|
| $ | 68,910 |
|
| $ | 76,160 |
|
Supplemental cash flow information related to leases was as follows:
|
| Year Ended April 30, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
|
| (in thousands) |
| |||||||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 62,996 |
|
| $ | 66,991 |
|
| $ | 59,631 |
|
Financing cash flows from finance leases |
| $ | 1,157 |
|
| $ | 1,324 |
|
| $ | 1,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROU assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
| $ | 49,235 |
|
| $ | 13,638 |
|
| $ | 15,246 |
|
Finance leases |
| $ | 1,586 |
|
| $ | 516 |
|
| $ | 1,333 |
|
Supplemental balance sheet information related to leases was as follows:
F-40
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
|
| Year Ended April 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (in thousands) |
| |||||
Finance Leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost |
| $ | 5,770 |
|
| $ | 4,801 |
|
Accumulated depreciation |
|
| (3,085 | ) |
|
| (2,590 | ) |
Property and equipment, net |
| $ | 2,685 |
|
| $ | 2,211 |
|
|
|
|
|
|
|
|
|
|
Other accrued liabilities |
| $ | 1,049 |
|
| $ | 1,010 |
|
Other liabilities |
|
| 1,657 |
|
|
| 1,301 |
|
Total finance lease liabilities |
| $ | 2,706 |
|
| $ | 2,311 |
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease terms: |
|
|
|
|
|
|
|
|
Operating leases |
| 5.1 years |
|
| 5.0 years |
| ||
Finance leases |
| 3.3 years |
|
| 2.7 years |
| ||
|
|
|
|
|
|
|
|
|
Weighted average discount rate: |
|
|
|
|
|
|
|
|
Operating leases |
|
| 4.3 | % |
|
| 4.8 | % |
Finance leases |
|
| 3.2 | % |
|
| 4.2 | % |
Maturities of lease liabilities are as follows:
Year Ending April 30, |
| Operating |
|
| Financing |
| ||
|
| (in thousands) |
| |||||
2023 |
| $ | 55,890 |
|
| $ | 1,115 |
|
2024 |
|
| 47,290 |
|
|
| 776 |
|
2025 |
|
| 40,353 |
|
|
| 523 |
|
2026 |
|
| 37,427 |
|
|
| 293 |
|
2027 |
|
| 17,918 |
|
|
| 128 |
|
Thereafter |
|
| 23,984 |
|
|
| — |
|
Total lease payments |
|
| 222,862 |
|
|
| 2,835 |
|
Less: imputed interest |
|
| 23,041 |
|
|
| 129 |
|
Total |
| $ | 199,821 |
|
| $ | 2,706 |
|
F-41
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
16. Acquisition
The following table provides a summary of the net assets acquired in the periods indicated (no acquisitions were completed in fiscal 2021):
|
| Year Ended April 30 |
| |||||
|
| 2022 (2), (3) |
|
| 2020 (4) |
| ||
|
| (in thousands) |
| |||||
Current assets (1) |
| $ | 36,071 |
|
| $ | 44,475 |
|
Long-term assets |
|
| 9,351 |
|
|
| 15,024 |
|
Intangibles assets |
|
| 17,300 |
|
|
| 45,400 |
|
Current liabilities |
|
| 17,672 |
|
|
| 29,503 |
|
Long-term liabilities |
|
| 16,210 |
|
|
| 5,720 |
|
Net assets acquired |
|
| 28,840 |
|
|
| 69,676 |
|
Purchase price |
|
| 133,802 |
|
|
| 108,602 |
|
Goodwill |
| $ | 104,962 |
|
| $ | 38,926 |
|
(1) | Included in current assets is acquired receivables in the amount of $24.5 million and $41.1 million for acquisitions completed in fiscal 2022 and 2020, respectively. |
(2) | On April 1, 2022, the Company completed its acquisition of Patina Solutions Group for $42.9 million, net of cash acquired. We believe Patina Solutions Group brings to the Company substantial interim executive solutions expertise across multiple industry verticals as well as offers ideal solutions for today’s nomadic labor market. Patina’s vast network of C-suite, top-tier, and professional interim talent spans functional area of expertise such as finance, operations, legal, human resources, IT and more. This combination presents real, tangible opportunity for Korn Ferry and our clients looking for the right talent, who are highly agile, with specialized skills and expertise, to help them drive superior performance, including on an interim basis. Actual results of operation of Patina Solution Group are included in the Company’s consolidated financial statement from April 1, 2022, the effective date of the acquisition. |
(3) | On November 1, 2021, the Company completed its acquisition of Lucas Group for $90.9 million, net of cash acquired. Lucas Group has contributed a substantial professional search and interim expertise that has enhanced the Company’s search portfolio. The addition of Lucas Group to Korn Ferry’s broader talent acquisition portfolio – spanning Executive Search, RPO, and Professional Search – has accelerated Korn Ferry’s ability to capture additional share of this significant market. Lucas Group is included in the RPO & Professional Search segment. Actual results of operations of Lucas Group are included in the Company’s consolidated financial statements from November 1, 2021, the effective date of the acquisition. |
(4) | On November 1, 2019, the Company completed its acquisition of the Acquired Companies for $108.6 million, net of cash acquired. The Acquired Companies contributed a world-class portfolio of learning, development and performance improvement offerings and expertise to Korn Ferry and bolster the Company’s substantial leadership development capabilities. These companies are included in the Digital segment. The addition of the Acquired Companies further expanded Korn Ferry’s vast IP and content and leveraged the firm’s digital delivery platforms. Actual results of operations of the Acquired Companies are included in the Company’s consolidated financial statements from November 1, 2019, the effective date of the acquisition. During fiscal 2021, the Company finalized the purchase price allocation by recording an increase in goodwill of $2.6 million as a result of additional tax liabilities. |
For each acquisition, the aggregate purchase price was allocated on a preliminary basis to the assets acquired and liabilities assumed on their estimated fair values at the date of acquisition. As of April 30, 2022, the aggregate purchase price allocations for Lucas Group and Patina Solutions remain preliminary with regard to income taxes. The measurement period for purchase price allocation ends as soon as information on the facts and circumstances become available, not to exceed 12 months.
F-42
KORN FERRY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022 (continued)
17. Commitments and Contingencies
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)
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 statements of income data for the quarters in fiscal 2019 and 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 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 |
|
16.18. Subsequent Event
Quarterly Dividend Declaration
On June 20, 2019,21, 2022, the Board of Directors of the Company approved an increase of 25% in the Company’s quarterly dividend policy to $0.15 per share and declared a cash dividend of $0.10$0.15 per share with a payment date of July 31, 201929, 2022 to holders of the Company’s common stock of record at the close of business on July 2, 2019.6, 2022. 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,condition, 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.
On June 21, 2022, the Board of Directors approved an increase in the Company’s stock repurchase program of approximately $300 million, which brought our available capacity to repurchase shares in the open market or privately negotiated transactions to $318 million.
Credit Facility
On June 24, 2022, the Company entered into an amendment (the “Amendment”) to its December 16, 2019 Credit Agreement (as amended by the Amendment, the “Amended Credit Agreement”) with the lenders party thereto and Bank of America, National Association as administrative agent, to, among other things, extend the existing maturity date and provide for a new delayed draw term loan facility. The Amended Credit Agreement provides for five-year senior secured credit facilities in an aggregate amount of $1,150 million comprised of a $650.0 million revolving credit facility (the “Revolver”) and a $500 million delayed draw term loan facility (the “Delayed Draw Facility”, and together with the Revolver, the “Credit Facilities”). The Amended Credit Agreement also provides that, under certain circumstances, the Company may incur term loans or increase the aggregate principal amount of revolving commitments by an aggregate amount of up to $250 million plus an unlimited amount subject to a consolidated secured net leverage ratio of 3.25 to 1.00.
Extensions of credit under the Delayed Draw Facility are available to the Company in up to two advances through June 24, 2023. Any amounts undrawn under the Delayed Draw Facility as of June 24, 2023 will no longer be available to the Company. The Amended Credit Agreement contains certain customary affirmative and negative covenants that, among other things, restrict the Company’s ability to incur additional indebtedness, grant liens and make certain acquisitions, investments, asset dispositions and restricted payments. In addition, the Amended Credit Agreement contains a covenant that requires the Company to maintain a maximum consolidated secured leverage ratio of 3.50 to 1.00 (which may be temporarily increased to 4.00 following certain material acquisitions under certain circumstances) (the “Financial Covenant”).
The principal balance of the Delayed Draw Facility, if any, is subject to annual term loan amortization of 2.5% for the fiscal quarters ending September 30, 2022 through June 30, 2024, and 5.0% for the fiscal quarters ending September 30, 2024 through June 30, 2027, with the remaining principal due at maturity. The principal balance of the Revolver, if any, is due at maturity. The Credit Facilities mature on June 24, 2027 and any unpaid principal balance is payable on
F-43
KORN FERRY AND SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 20192022 (continued)
Column A |
| Column B |
|
| Column C |
|
| Column D |
|
| Column E |
| ||||||||
|
|
|
|
|
| Additions |
|
|
|
|
|
|
|
|
| |||||
Description |
| 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) |
| |||||||||||||||||
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
this date. The Credit Facilities may also be prepaid and terminated early by the Company at any time without premium or penalty (subject to customary breakage fees).
Amounts outstanding under the Amended Credit Agreement will bear interest at a rate equal to, at the Company’s election, either Term Secured Financing Overnight Rate (“SOFR”) plus a SOFR adjustment of 0.10%, plus an interest rate margin between 1.125% per annum and 2.00% per annum, depending on the Company’s consolidated net leverage ratio, or base rate plus an interest rate margin between 0.125% per annum and 1.00% per annum, depending on the Company’s consolidated net leverage ratio. In addition, the Company will be required to pay to the lenders ticking fee of 0.20% per annum on the actual daily unused portion of the Delayed Draw facility, and a quarterly commitment fee ranging from 0.175% to 0.300% per annum on the actual daily unused amount of the Revolver, based upon the Company’s consolidated net leverage ratio at such time, and fees relating to the issuance of letters of credit. |
|
|
|
F-42F-44