Item # |
Item 1. Consolidated Financial Statements KORN/KORN FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS | | | | | | | | | | | January 31, 2018 | | | April 30, 2017 | | | | (unaudited) | | | | | | | (in thousands, except per share data) | | ASSETS | | | | | | | | | Cash and cash equivalents | | $ | 389,990 | | | $ | 410,882 | | Marketable securities | | | 14,807 | | | | 4,363 | | Receivables due from clients, net of allowance for doubtful accounts of $17,990 and $15,455 at January 31, 2018 and April 30, 2017, respectively | | | 397,845 | | | | 345,314 | | Income taxes and other receivables | | | 25,985 | | | | 31,573 | | Prepaid expenses and other assets | | | 63,409 | | | | 51,542 | | | | | | | | | | | Total current assets | | | 892,036 | | | | 843,674 | | Marketable securities,non-current | | | 124,196 | | | | 115,574 | | Property and equipment, net | | | 116,767 | | | | 109,567 | | Cash surrender value of company owned life insurance policies, net of loans | | | 118,248 | | | | 113,067 | | Deferred income taxes, net | | | 23,222 | | | | 20,175 | | Goodwill | | | 586,561 | | | | 576,865 | | Intangible assets, net | | | 206,733 | | | | 217,319 | | Investments and other assets | | | 98,769 | | | | 66,657 | | | | | | | | | | | Total assets | | $ | 2,166,532 | | | $ | 2,062,898 | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | Accounts payable | | $ | 28,359 | | | $ | 37,481 | | Income taxes payable | | | 17,128 | | | | 4,526 | | Compensation and benefits payable | | | 234,411 | | | | 248,354 | | Term loan | | | 23,192 | | | | 19,754 | | Other accrued liabilities | | | 163,784 | | | | 148,464 | | | | | | | | | | | Total current liabilities | | | 466,874 | | | | 458,579 | | | | | Deferred compensation and other retirement plans | | | 233,595 | | | | 219,905 | | Term loan,non-current | | | 217,969 | | | | 236,222 | | Deferred tax liabilities | | | 7,619 | | | | 7,014 | | Other liabilities | | | 59,581 | | | | 54,130 | | | | | | | | | | | Total liabilities | | | 985,638 | | | | 975,850 | | | | | | | | | | | | | | Stockholders’ equity: | | | | | | | | | Common stock: $0.01 par value, 150,000 shares authorized, 71,606 and 70,811 shares issued at January 31, 2018 and April 30, 2017, respectively and 56,518 and 56,938 shares outstanding at January 31, 2018 and April 30, 2017, respectively | | | 679,277 | | | | 692,527 | | Retained earnings | | | 537,353 | | | | 461,976 | | Accumulated other comprehensive loss, net | | | (38,671 | ) | | | (71,064 | ) | | | | | | | | | | Total Korn/Ferry International stockholders’ equity | | | 1,177,959 | | | | 1,083,439 | | Noncontrolling interest | | | 2,935 | | | | 3,609 | | | | | | | | | | | Total stockholders’ equity | | | 1,180,894 | | | | 1,087,048 | | | | | | | | | | | Total liabilities and stockholders’ equity | | $ | 2,166,532 | | | $ | 2,062,898 | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
| | | | | | | | | | | | | | | | | | | Three Months Ended January 31, | | | Nine Months Ended January 31, | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | | (in thousands, except per share data) | | Fee revenue | | $ | 447,581 | | | $ | 381,918 | | | $ | 1,291,853 | | | $ | 1,159,456 | | Reimbursedout-of-pocket engagement expenses | | | 13,189 | | | | 12,277 | | | | 39,302 | | | | 42,626 | | | | | | | | | | | | | | | | | | | Total revenue | | | 460,770 | | | | 394,195 | | | | 1,331,155 | | | | 1,202,082 | | | | | | | | | | | | | | | | | | | | | | | | Compensation and benefits | | | 310,751 | | | | 262,438 | | | | 885,748 | | | | 796,014 | | General and administrative expenses | | | 58,516 | | | | 56,818 | | | | 175,380 | | | | 166,294 | | Reimbursed expenses | | | 13,189 | | | | 12,277 | | | | 39,302 | | | | 42,626 | | Cost of services | | | 17,467 | | | | 16,545 | | | | 53,163 | | | | 52,251 | | Depreciation and amortization | | | 12,225 | | | | 11,774 | | | | 36,881 | | | | 34,970 | | Restructuring charges, net | | | — | | | | 3,801 | | | | 78 | | | | 28,321 | | | | | | | | | | | | | | | | | | | Total operating expenses | | | 412,148 | | | | 363,653 | | | | 1,190,552 | | | | 1,120,476 | | | | | | | | | | | | | | | | | | | | | | | | Operating income | | | 48,622 | | | | 30,542 | | | | 140,603 | | | | 81,606 | | Other income, net | | | 7,689 | | | | 4,200 | | | | 14,847 | | | | 7,580 | | Interest expense, net | | | (2,665 | ) | | | (2,402 | ) | | | (7,904 | ) | | | (8,199 | ) | | | | | | | | | | | | | | | | | | Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries | | | 53,646 | | | | 32,340 | | | | 147,546 | | | | 80,987 | | Equity in earnings of unconsolidated subsidiaries, net | | | 97 | | | | 113 | | | | 187 | | | | 221 | | Income tax provision | | | 26,316 | | | | 8,075 | | | | 54,145 | | | | 21,706 | | | | | | | | | | | | | | | | | | | Net income | | | 27,427 | | | | 24,378 | | | | 93,588 | | | | 59,502 | | Net income attributable to noncontrolling interest | | | (180 | ) | | | (481 | ) | | | (969 | ) | | | (2,245 | ) | | | | | | | | | | | | | | | | | | Net income attributable to Korn/Ferry International | | $ | 27,247 | | | $ | 23,897 | | | $ | 92,619 | | | $ | 57,257 | | | | | | | | | | | | | | | | | | | | | | | | Earnings per common share: | | | | | | | | | | | | | | | | | Basic | | $ | 0.49 | | | $ | 0.42 | | | $ | 1.65 | | | $ | 1.01 | | | | | | | | | | | | | | | | | | | Diluted | | $ | 0.48 | | | $ | 0.42 | | | $ | 1.63 | | | $ | 1.00 | | | | | | | | | | | | | | | | | | | | | | | | Weighted-average common shares outstanding: | | | | | | | | | | | | | | | | | Basic | | | 55,252 | | | | 56,173 | | | | 55,479 | | | | 56,325 | | | | | | | | | | | | | | | | | | | Diluted | | | 55,997 | | | | 56,702 | | | | 56,236 | | | | 56,917 | | | | | | | | | | | | | | | | | | | | | | | | Cash dividends declared per share: | | $ | 0.10 | | | $ | 0.10 | | | $ | 0.30 | | | $ | 0.30 | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
| | | | | | | | | | | | | | | | | | | Three Months Ended January 31, | | | Nine Months Ended January 31, | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | | (in thousands) | | Net income | | $ | 27,427 | | | $ | 24,378 | | | $ | 93,588 | | | $ | 59,502 | | | | | | | Other comprehensive income: | | | | | | | | | | | | | | | | | Foreign currency translation adjustments | | | 17,839 | | | | (1,583 | ) | | | 29,773 | | | | (20,016 | ) | Deferred compensation and pension plan adjustments, net of tax | | | 361 | | | | 465 | | | | 1,065 | | | | 1,392 | | Unrealized gain on interest rate swap, net of tax | | | 1,077 | | | | — | | | | 1,470 | | | | — | | | | | | | | | | | | | | | | | | | Comprehensive income | | | 46,704 | | | | 23,260 | | | | 125,896 | | | | 40,878 | | Less: comprehensive income attributable to noncontrolling interest | | | (226 | ) | | | (219 | ) | | | (884 | ) | | | (1,809 | ) | | | | | | | | | | | | | | | | | | Comprehensive income attributable to Korn/Ferry International | | $ | 46,478 | | | $ | 23,041 | | | $ | 125,012 | | | $ | 39,069 | | | | | | | | | | | | | | | | | | |
| | July 31, 2019 | | | April 30, 2019 | | | | (unaudited) | | | | | | | | (in thousands, except per share data) | | ASSETS | | | | | | | | | Cash and cash equivalents | | $ | 424,637 | | | $ | 626,360 | | Marketable securities | | | 8,508 | | | | 8,288 | | Receivables due from clients, net of allowance for doubtful accounts of $21,732 and $21,582 at July 31, 2019 and April 30, 2019, respectively | | | 432,758 | | | | 404,857 | | | Income taxes and other receivables | | | 30,529 | | | | 26,767 | | Unearned compensation | | | 45,380 | | | | 42,003 | | Prepaid expenses and other assets | | | 33,311 | | | | 28,535 | | Total current assets | | | 975,123 | | | | 1,136,810 | | | | | | | | | | | Marketable securities, non-current | | | 134,148 | | | | 132,463 | | Property and equipment, net | | | 137,367 | | | | 131,505 | | Operating lease right-of-use assets, net | | | 219,412 | | | | — | | Cash surrender value of company-owned life insurance policies, net of loans | | | 126,752 | | | | 126,000 | | Deferred income taxes | | | 41,191 | | | | 43,220 | | Goodwill | | | 578,567 | | | | 578,298 | | Intangible assets, net | | | 79,581 | | | | 82,948 | | Unearned compensation, non-current | | | 92,365 | | | | 80,924 | | Investments and other assets | | | 22,052 | | | | 22,684 | | Total assets | | $ | 2,406,558 | | | $ | 2,334,852 | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | Accounts payable | | $ | 33,174 | | | $ | 39,156 | | Income taxes payable | | | 19,199 | | | | 21,145 | | Compensation and benefits payable | | | 156,208 | | | | 328,610 | | Operating lease liability, current | | | 46,854 | | | | — | | Other accrued liabilities | | | 156,218 | | | | 162,047 | | Total current liabilities | | | 411,653 | | | | 550,958 | | | | | | | | | | | Deferred compensation and other retirement plans | | | 269,380 | | | | 257,635 | | Operating lease liability, non-current | | | 207,603 | | | | — | | Long-term debt | | | 223,094 | | | | 222,878 | | Deferred tax liabilities | | | 1,048 | | | | 1,103 | | Other liabilities | | | 29,386 | | | | 58,891 | | Total liabilities | | | 1,142,164 | | | | 1,091,465 | | | | | | | | | | | Stockholders' equity | | | | | | | | | Common stock: $0.01 par value, 150,000 shares authorized, 73,076 and 72,442 shares issued and 56,596 and 56,431 shares outstanding at July 31, 2019 and April 30, 2019, respectively | | | 645,299 | | | | 656,463 | | Retained earnings | | | 697,715 | | | | 660,845 | | Accumulated other comprehensive loss, net | | | (82,114 | ) | | | (76,652 | ) | Total Korn Ferry stockholders' equity | | | 1,260,900 | | | | 1,240,656 | | Noncontrolling interest | | | 3,494 | | | | 2,731 | | Total stockholders' equity | | | 1,264,394 | | | | 1,243,387 | | Total liabilities and stockholders' equity | | $ | 2,406,558 | | | $ | 2,334,852 | |
The accompanying notes are an integral part of these consolidated financial statements. 1
KORN/KORN FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWSOPERATIONS (unaudited) | | | | | | | | | | | Nine Months Ended January 31, | | | | 2018 | | | 2017 | | | | (in thousands) | | Cash flows from operating activities: | | | | | | | | | Net income | | $ | 93,588 | | | $ | 59,502 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | Depreciation and amortization | | | 36,881 | | | | 34,970 | | Stock-based compensation expense | | | 15,800 | | | | 14,101 | | Provision for doubtful accounts | | | 9,933 | | | | 8,373 | | Gain on cash surrender value of life insurance policies | | | (6,020 | ) | | | (3,316 | ) | Gain on marketable securities | | | (14,022 | ) | | | (7,090 | ) | Deferred income taxes | | | 5,373 | | | | 7,812 | | Change in other assets and liabilities: | | | | | | | | | Deferred compensation | | | 25,587 | | | | (22 | ) | Receivables due from clients | | | (62,464 | ) | | | (35,503 | ) | Income tax and other receivables | | | 4,445 | | | | (3,249 | ) | Prepaid expenses and other assets | | | (11,867 | ) | | | (8,882 | ) | Investment in unconsolidated subsidiaries | | | (187 | ) | | | (221 | ) | Income taxes payable | | | 18,217 | | | | (3,450 | ) | Accounts payable and accrued liabilities | | | (15,569 | ) | | | (45,891 | ) | Other | | | (40,103 | ) | | | (3,393 | ) | | | | | | | | | | Net cash provided by operating activities | | | 59,592 | | | | 13,741 | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | Purchase of property and equipment | | | (31,133 | ) | | | (41,616 | ) | Cash paid for acquisition, net of cash acquired | | | — | | | | (2,880 | ) | Purchase of marketable securities | | | (7,462 | ) | | | (9,526 | ) | Proceeds from sales/maturities of marketable securities | | | 2,515 | | | | 42,533 | | Premium on company-owned life insurance policies | | | (1,339 | ) | | | (1,337 | ) | Proceeds from life insurance policies | | | 5,175 | | | | — | | Dividends received from unconsolidated subsidiaries | | | 60 | | | | 455 | | | | | | | | | | | Net cash used in investing activities | | | (32,184 | ) | | | (12,371 | ) | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | Proceeds from term loan facility | | | — | | | | 275,000 | | Principal payment on term loan facility | | | (15,469 | ) | | | (150,313 | ) | Payment of contingent consideration from acquisition | | | (485 | ) | | | (1,070 | ) | Repurchases of common stock | | | (32,568 | ) | | | (16,318 | ) | Payments of tax withholdings on restricted stock | | | (3,657 | ) | | | (4,377 | ) | Proceeds from issuance of common stock upon exercise of employee stock options and in connection with an employee stock purchase plan | | | 6,885 | | | | 4,981 | | Dividends – noncontrolling interest | | | (1,558 | ) | | | (1,229 | ) | Dividends paid to shareholders | | | (17,242 | ) | | | (17,546 | ) | Payments on life insurance policy loans | | | (464 | ) | | | — | | | | | | | | | | | Net cash (used in) provided by financing activities | | | (64,558 | ) | | | 89,128 | | | | | | | | | | | Effect of exchange rate changes on cash and cash equivalents | | | 16,258 | | | | (12,445 | ) | | | | | | | | | | Net (decrease) increase in cash and cash equivalents | | | (20,892 | ) | | | 78,053 | | Cash and cash equivalents at beginning of period | | | 410,882 | | | | 273,252 | | | | | | | | | | | Cash and cash equivalents at end of period | | $ | 389,990 | | | $ | 351,305 | | | | | | | | | | |
| | Three Months Ended July 31, | | | | 2019 | | | 2018 | | | | (in thousands, except per share data) | | Fee revenue | | $ | 484,549 | | | $ | 465,568 | | Reimbursed out-of-pocket engagement expenses | | | 11,649 | | | | 12,794 | | Total revenue | | | 496,198 | | | | 478,362 | | | | | | | | | | | Compensation and benefits | | | 328,496 | | | | 321,905 | | General and administrative expenses | | | 65,807 | | | | 168,724 | | Reimbursed expenses | | | 11,649 | | | | 12,794 | | Cost of services | | | 17,135 | | | | 18,327 | | Depreciation and amortization | | | 12,777 | | | | 11,731 | | Total operating expenses | | | 435,864 | | | | 533,481 | | | | | | | | | | | Operating income (loss) | | | 60,334 | | | | (55,119 | ) | Other income, net | | | 1,826 | | | | 4,520 | | Interest expense, net | | | (4,057 | ) | | | (4,103 | ) | Income (loss) before provision (benefit) for income taxes | | | 58,103 | | | | (54,702 | ) | Income tax provision (benefit) | | | 14,453 | | | | (16,110 | ) | Net income (loss) | | | 43,650 | | | | (38,592 | ) | Net income attributable to noncontrolling interest | | | (699 | ) | | | (19 | ) | Net income (loss) attributable to Korn Ferry | | $ | 42,951 | | | $ | (38,611 | ) | | | | | | | | | | Earnings (loss) per common share attributable to Korn Ferry: | | | | | | | | | Basic | | $ | 0.77 | | | $ | (0.70 | ) | Diluted | | $ | 0.76 | | | $ | (0.70 | ) | | | | | | | | | | Weighted-average common shares outstanding: | | | | | | | | | Basic | | | 55,266 | | | | 55,378 | | Diluted | | | 55,635 | | | | 55,378 | | | | | | | | | | | Cash dividends declared per share: | | $ | 0.10 | | | $ | 0.10 | |
The accompanying notes are an integral part of these consolidated financial statements. 2
KORN FERRY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited) | | Three Months Ended July 31, | | | | 2019 | | | 2018 | | | | (in thousands) | | Net income (loss) | | $ | 43,650 | | | $ | (38,592 | ) | | | | | | | | | | Other comprehensive income (loss): | | | | | | | | | Foreign currency translation adjustments | | | (5,298 | ) | | | (14,556 | ) | Deferred compensation and pension plan adjustments, net of tax | | | 495 | | | | 273 | | Net unrealized (loss) gain on interest rate swap, net of tax | | | (595 | ) | | | 133 | | Comprehensive income (loss) | | | 38,252 | | | | (52,742 | ) | Less: comprehensive income attributable to noncontrolling interest | | | (763 | ) | | | (25 | ) | Comprehensive income (loss) attributable to Korn Ferry | | $ | 37,489 | | | $ | (52,767 | ) |
The accompanying notes are an integral part of these consolidated financial statements. 3
KORN FERRY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) | | | | | | | | | | | | | Accumulated Other | | | Total | | | | | | | | | | | | | | | | | | | | | | | Comprehensive | | | Korn Ferry | | | | | | | Total | | | Common Stock | | | Retained | | | Loss, | | | Stockholders' | | | Noncontrolling | | | Stockholder's | | | Shares | | | Amount | | | Earnings | | | Net | | | Equity | | | Interest | | | Equity | | | (in thousands) | | Balance as of April 30, 2019 | | 56,431 | | | $ | 656,463 | | | $ | 660,845 | | | $ | (76,652 | ) | | $ | 1,240,656 | | | $ | 2,731 | | | $ | 1,243,387 | | Net income | | — | | | | — | | | | 42,951 | | | | — | | | | 42,951 | | | | 699 | | | | 43,650 | | Other comprehensive (loss) income | | — | | | | — | | | | — | | | | (5,462 | ) | | | (5,462 | ) | | | 64 | | | | (5,398 | ) | Dividends paid to shareholders | | — | | | | — | | | | (6,081 | ) | | | — | | | | (6,081 | ) | | | — | | | | (6,081 | ) | Purchase of stock | | (546 | ) | | | (21,329 | ) | | | — | | | | — | | | | (21,329 | ) | | | — | | | | (21,329 | ) | Issuance of stock | | 711 | | | | 5,074 | | | | — | | | | — | | | | 5,074 | | | | — | | | | 5,074 | | Stock-based compensation | | — | | | | 5,091 | | | | — | | | | — | | | | 5,091 | | | | — | | | | 5,091 | | Balance as of July 31, 2019 | | 56,596 | | | $ | 645,299 | | | $ | 697,715 | | | $ | (82,114 | ) | | $ | 1,260,900 | | | $ | 3,494 | | | $ | 1,264,394 | |
| | | | | | | | | | | | | Accumulated Other | | | Total | | | | | | | | | | | | | | | | | | | | | | | Comprehensive | | | Korn Ferry | | | | | | | Total | | | Common Stock | | | Retained | | | Loss, | | | Stockholders' | | | Noncontrolling | | | Stockholder's | | | Shares | | | Amount | | | Earnings | | | Net | | | Equity | | | Interest | | | Equity | | | (in thousands) | | Balance as of April 30, 2018 | | 56,517 | | | $ | 683,942 | | | $ | 572,800 | | | $ | (40,135 | ) | | $ | 1,216,607 | | | $ | 3,008 | | | $ | 1,219,615 | | Net loss | | — | | | | — | | | | (38,611 | ) | | | — | | | | (38,611 | ) | | | 19 | | | | (38,592 | ) | Other comprehensive (loss) income | | — | | | | — | | | | — | | | | (14,156 | ) | | | (14,156 | ) | | | 6 | | | | (14,150 | ) | Effect of adopting new accounting standards | | — | | | | — | | | | 8,853 | | | | (2,197 | ) | | | 6,656 | | | | — | | | | 6,656 | | Dividends paid to shareholders | | — | | | | — | | | | (6,027 | ) | | | — | | | | (6,027 | ) | | | — | | | | (6,027 | ) | Purchase of stock | | (200 | ) | | | (13,054 | ) | | | — | | | | — | | | | (13,054 | ) | | | — | | | | (13,054 | ) | Issuance of stock | | 621 | | | | 4,803 | | | | — | | | | — | | | | 4,803 | | | | — | | | | 4,803 | | Stock-based compensation | | — | | | | 5,369 | | | | — | | | | — | | | | 5,369 | | | | — | | | | 5,369 | | Balance as of July 31, 2018 | | 56,938 | | | $ | 681,060 | | | $ | 537,015 | | | $ | (56,488 | ) | | $ | 1,161,587 | | | $ | 3,033 | | | $ | 1,164,620 | |
The accompanying notes are an integral part of these consolidated financial statements. 4
KORN FERRY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) | | Three Months Ended July 31, | | | | 2019 | | | 2018 | | | | (in thousands) | | Cash flows from operating activities: | | | | | | | | | Net income (loss) | | $ | 43,650 | | | $ | (38,592 | ) | Adjustments to reconcile net income (loss) to net cash used by operating activities: | | | | | | | | | Depreciation and amortization | | | 12,777 | | | | 11,731 | | Stock-based compensation expense | | | 5,462 | | | | 5,714 | | Tradename write-offs | | | — | | | | 106,555 | | Provision for doubtful accounts | | | 3,549 | | | | 3,707 | | Gain on cash surrender value of life insurance policies | | | (2,338 | ) | | | (1,347 | ) | Gain on marketable securities | | | (1,945 | ) | | | (4,001 | ) | Deferred income taxes | | | 1,974 | | | | (22,564 | ) | Change in other assets and liabilities: | | | | | | | | | Deferred compensation | | | 11,652 | | | | 3,021 | | Receivables due from clients | | | (31,450 | ) | | | (16,270 | ) | Income taxes and other receivables | | | (3,176 | ) | | | (7,811 | ) | Prepaid expenses and other assets | | | (9,845 | ) | | | (4,356 | ) | Unearned compensation | | | (14,818 | ) | | | (17,463 | ) | Income taxes payable | | | (1,911 | ) | | | 1,434 | | Accounts payable and accrued liabilities | | | (175,709 | ) | | | (135,405 | ) | Other | | | 209 | | | | (1,845 | ) | Net cash used by operating activities | | | (161,919 | ) | | | (117,492 | ) | Cash flows from investing activities: | | | | | | | | | Purchase of property and equipment | | | (10,706 | ) | | | (13,163 | ) | Purchase of marketable securities | | | (1,600 | ) | | | (1,396 | ) | Proceeds from sales/maturities of marketable securities | | | 1,599 | | | | 8,240 | | Premium on company-owned life insurance policies | | | (341 | ) | | | (398 | ) | Proceeds from life insurance policies | | | 1,673 | | | | 85 | | Dividends received from unconsolidated subsidiaries | | | 166 | | | | — | | Net cash used in investing activities | | | (9,209 | ) | | | (6,632 | ) | Cash flows from financing activities: | | | | | | | | | Repurchases of common stock | | | (12,738 | ) | | | — | | Payments of tax withholdings on restricted stock | | | (8,591 | ) | | | (13,054 | ) | Proceeds from issuance of common stock upon exercise of employee stock options and in connection with an employee stock purchase plan | | | 4,313 | | | | 4,105 | | Payments on life insurance policy loans | | | (943 | ) | | | — | | Principal payments on finance leases | | | (432 | ) | | | — | | Dividends paid to shareholders | | | (6,081 | ) | | | (6,027 | ) | Principal payments on term loan | | | — | | | | (5,156 | ) | Payment of contingent consideration from acquisitions | | | (455 | ) | | | (455 | ) | Net cash used in financing activities | | | (24,927 | ) | | | (20,587 | ) | Effect of exchange rate changes on cash and cash equivalents | | | (5,668 | ) | | | (10,408 | ) | Net decrease in cash and cash equivalents | | | (201,723 | ) | | | (155,119 | ) | Cash and cash equivalents at beginning of period | | | 626,360 | | | | 520,848 | | Cash and cash equivalents at end of the period | | $ | 424,637 | | | $ | 365,729 | |
The accompanying notes are an integral part of these consolidated financial statements.
| | | | | | | KORN/KORN FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS JanuaryJuly 31, 20182019
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1. Organization and Summary of Significant Accounting Policies Nature of Business Korn/Korn Ferry, International, a Delaware corporation (the “Company”), and its subsidiaries are engagedcurrently operate through 3 global segments: Korn Ferry Advisory (“Advisory”), Executive Search and Korn Ferry RPO and Professional Search (“RPO & Professional Search”). Advisory assists clients to synchronize strategy and talent by addressing four fundamental needs: Organizational Strategy, Assessment and Succession, Leadership Development, and Rewards and Benefits, all underpinned by a comprehensive array of one of the world-leading intellectual property (“IP”), products and tools. Executive Search focuses on recruiting board level, chief executive and other senior executive and general management positions, in addition to research-based interviewing and assessment solutions, for clients predominantly in the businessconsumer goods, financial services, industrial, life sciences/healthcare and technology industries. 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 providing talent management solutions, including executive search on a retained basis, recruitment fornon-executive professionals, recruitment process outsourcingRecruitment Process Outsourcing (“RPO”), Professional Search and leadership & talent consulting services.Project Recruitment.
Basis of Consolidation and Presentation The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form10-K for the year ended April 30, 20172019 for the Company and its wholly and majority owned/controlled domestic and international subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The preparation of the consolidated financial statements conform with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and prevailing practice within the industry. The consolidated financial statements include all adjustments, consisting of normal recurring accruals and any other adjustments that management considers necessary for a fair presentation of the results for these periods. The results of operations for the interim period are not necessarily indicative of the results for the entire fiscal year. Investments in affiliated companies, which are 50% or less owned and where the Company exercises significant influence over operations, are accounted for using the equity method. The Company has control of a Mexico subsidiary and consolidates the operations of this subsidiary. Noncontrolling interest, which represents the Company’sMexico Partners’ 51% noncontrolling interest in the Mexico subsidiary, is reflected on the Company’s consolidated financial statements. The Company considers events or transactions that occur after the balance sheet date but before the consolidated financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosures. Use of Estimates and Uncertainties The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates, and changes in estimates are reported in current operations as new information is learned or upon the amounts becoming fixed andor determinable. The most significant areas that require managementmanagement’s judgment are revenue recognition, restructuring, deferred compensation, annual performance relatedperformance-related bonuses, evaluation of the carrying value of receivables, goodwill and other intangible assets, fair value of contingent consideration, share-based payments, leases, and the recoverability of deferred income taxes. Revenue Recognition Substantially all fee revenue is derived from fees for professional services related to executive search performed on a retained basis, recruitment fornon-executive professionals, recruitment process outsourcing, peopletalent and organizational advisory services and the sale of product services. Fee revenue fromproducts, fees for professional services related to executive search activities and professional recruitment fornon-executive professionalsperformed on a retained basis and RPO, eitherstand-alone or as part of a solution. Revenue is generallyone-thirdrecognized when control of the estimated first year compensation of the placed executive ornon-executive professional, as applicable, plus a percentage of the fee to cover indirect engagement related expenses. The Company generally recognizes such revenue on a straight-line basis over a three-month period, commencing upon client acceptance, as this is the period over which the recruitmentgoods and services are performed. Fees earnedtransferred to the customer, in excess ofan amount that reflects the initialconsideration the Company expects to be entitled to in exchange for those goods and services. Revenue contracts with customers are evaluated based on the five-step model outlined in Accounting Standard Codification 606 (“ASC 606”): 1) identify the contract amount are recognized upon completion ofwith a customer; 2) identify the engagement, which reflectperformance obligation(s) in the difference between the final actual compensation of the placed executive and the estimate used for purposes of the previous billings. Since the initial contract fees are typically not contingent upon placement of a candidate, our assumptions primarily relate to establishing the period over which such service is performed. These assumptionscontract; 3) determine the timing oftransaction price; 4) allocate the transaction price to the separate performance obligation(s); and 5) recognize revenue recognition and profitability for the reported period. Any revenues associated with services that are provided on a contingent basis are recognized once the contingencywhen (or as) each performance obligation is resolved. In addition to recruitment fornon-executive professionals, Futurestep provides recruitment process outsourcing (“RPO”) services andsatisfied. 6
| KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS July 31, 2019 (continued) |
Consulting fee revenue, primarily generated from Advisory, is recognized as services are rendered, and/or as milestones are achieved. Fee revenue from Hay Group (formerly known as Leadership & Talent Consulting (“Legacy LTC”) which was combined with HG (Luxembourg) S.à.r.l (“Legacy Hay”) in December 2015) is recognized as services are rendered for consulting engagements and other time-based services, measured by total hours incurred to the total estimated hours at completion. It is possible that updated estimates for the consulting engagementengagements may vary from initial estimates with such updates being recognized in the period of determination. | | | | | | | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
January 31, 2018 (continued)
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Depending on the timing of billings and services rendered, the Company accrues or defers revenue as appropriate. Hay Group Product revenue is also derivedgenerated from a range of online tools designed to support human resource processes for pay, talent and engagement, and assessments, as well as licenses to proprietary IP and tangible/digital products. IPsubscriptions grant access to proprietary compensation and job evaluation databases. IP subscriptions are considered symbolic IP due to the saledynamic nature of product services, which includesthe content and, as a result, revenue from licenses and from the sale of products. Revenue from licenses is recognized using a straight-line method over the term of the contract (generally 12 months). Under fixed termcontract.Functional IP licenses grant customers the Company is obligated to provide the licensee with access to any updates to the underlying intellectual property that are made by the Company during the term of the license. Once the term of the agreement expires, the client’s right to access or use IP content via delivery of a flat file. Because the intellectual property expiresIP content license has significant stand-alone functionality, revenue is recognized upon delivery and when an enforceable right to payment exists.Online assessments are delivered in the form of online questionnaires.A bundle of assessments represents one performance obligation, and revenue is recognized as assessment services are delivered and the Company has no further obligationsa legally enforceable right to the client under the license agreement. Revenue from perpetual licenses is recognized when the license is sold since the Company’s only obligation is to provide the client access to the intellectual property but is not obligated to provide maintenance, support, updates or upgrades. Productspayment. Tangible/digital products sold by the Company mainly consist of books and automated servicesdigital files covering a variety of topics including performance management, team effectiveness, and coaching and development. The Company recognizes revenue for its products when the product has been sold or shipped, as is the case for books. 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 casebilling terms of books. Asthe 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 January 31, 2018revenue recognition for the reported period. RPO feerevenue is generated through two distinct phases: 1) the implementation phase and April 30, 2017,2) the Company included deferred revenue of $110.9 millionpost-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 $95.8 million, respectively, in other accrued liabilities.variable fees, which are recognized over the period that the related recruiting services are performed. Reimbursements The Company incurs certainout-of-pocket expenses that are reimbursed by its clients, which are accounted for as revenue in itsthe consolidated statements of income.operations. Allowance for Doubtful Accounts An allowance is established for doubtful accounts by taking a charge to general and administrative expenses. The amount of the allowance is based on historical loss experience and assessment of the collectability of specific accounts, as well as expectations of future collections based upon trends and the type of work for which services are rendered. After the Company exhausts all collection efforts, the amount of the allowance is reduced for balances identified as uncollectible. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. As of JanuaryJuly 31, 20182019 and April 30, 2017,2019, the Company’s investments in cash equivalents consistconsisted of money market funds for which market prices are readily available. Marketable Securities The Company currently has investments in mutual funds that are classified as trading securities based upon management’s intent and ability to hold, sell or trade such securities. The classification of the investments in mutual funds is assessed upon purchase and reassessed at each reporting period. The investments in mutual funds (for which market prices are readily available) that are held in trust to satisfy obligations under the Company’s deferred compensation plans. Such investments are based upon the employees’ investment elections in their deemed accounts in the Executive Capital Accumulation Plan and similar plans in Asia Pacific and Canada (“ECAP”) from apre-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 operations and are classified as marketable securities in the accompanying consolidated balance sheets. The investments that the Company may sell within the next twelve months are carried as current assets. Realized gains (losses) on marketable securities are determined by specific identification. Interest is recognized on an accrual basis; dividends are recorded as earned on theex-dividend date. Interest, dividend income and the changes in fair value in tradingmarketable securities are recorded in the accompanying consolidated statements of incomeoperations in other income, net. 7
| KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS July 31, 2019 (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 JanuaryJuly 31, 20182019 and April 30, 2017,2019, the Company held certain assets that are required to be measured at fair value on a recurring basis. These included cash, cash equivalents, accounts receivable, marketable securities, foreign currency forward contracts and an interest rate swap. The carrying amount of cash, cash equivalents and accounts receivable approximates fair value due to the shortshort-term maturity of these instruments. The fair values of marketable securities classified as trading are obtained | | | | | | | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
January 31, 2018 (continued)
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from quoted market prices, and the fair values of foreign currency forward contracts orand the interest rate swap are obtained from a third party, which are based on quoted prices or market prices for similar assets and financial instruments. Derivative Financial Instruments The Company is exposed to interest rate risk due to the outstanding senior secured credit agreement entered on June 15, 2016. The Company has entered into an interest rate swap agreement to effectively convert its variable debt to a fixed-rate basis. The principal objective of these contracts is to eliminate or reduce the variability of the cash flows in interest payments associated with the Company’s long-term debt, thus reducing the impact of interest rate changes on future interest payment cash flows. The Company has determined that the interest rate swap qualifies as a cash flow hedge in accordance with Accounting Standards Codification 815,Derivatives and Hedging(“ASC 815”). Changes in the fair value of an interest rate swap agreement designated as a cash flow hedge are recorded as a component of accumulated other comprehensive (loss) income (loss), net 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.exposures primarily originating from intercompany balances due to cross border work performed in the ordinary course of business. These foreign currency forward contracts are neither used for trading purposes nor are they designated as hedging instruments pursuant to Accounting Standards Codification 815,Derivatives and Hedging.ASC 815. Accordingly, the fair value of these contracts is recorded as of the end of the reporting period in the accompanying consolidated balance sheets, while the change in fair value is recorded to the accompanying consolidated statements of income.operations. Business Acquisitions Business acquisitions are accounted for under the acquisition method. The acquisition method requires the reporting entity to identify the acquirer, determine the acquisition date, recognize and measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity, and recognize and measure goodwill or a gain from the purchase. The acquiree’s results are included in the Company’s consolidated financial statements from the date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill, or if the fair value of the assets acquired exceeds the purchase price consideration, a bargain purchase gain is recorded. Adjustments to fair value assessments are generally recorded to goodwill over the measurement period (not longer than twelve months). The acquisition method also requires that acquisition-related transaction and post-acquisition restructuring costs be charged to expense as committed and requires the Company to recognize and measure certain assets and liabilities including those arising from contingencies and contingent consideration in a business combination. Leases The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of use (“ROU”) assets and current and non-current operating lease liability, in the consolidated balance sheets. Finance leases are included in property and equipment, net, other accrued liabilities and other liabilities in the consolidated balance sheets. 8
| KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS July 31, 2019 (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 at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the periods in which they are incurred. The Company has lease agreements with lease and non-lease components. For all leases with non-lease components the Company accounts for the lease and non-lease components as a single lease component. Goodwill and Intangible Assets Goodwill represents the excess of the purchase price over the fair value of assets acquired. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit would be considered impaired. To measure the amount of the impairment loss, the implied fair value of a reporting unit’s goodwill is compared to the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. For each of these tests, the fair value of each of the Company’s reporting units is determined using a combination of valuation techniques, including a discounted cash flow methodology. To corroborate the discounted cash flow analysis performed at each reporting unit, a market approach is utilized using observable market data such as comparable companies in similar lines of business that are publicly traded or which are part of a public or private transaction (to the extent available). Results of the annual impairment test performed as of January 31, 2017,2019, indicated that the fair value of each reporting unit exceeded its carrying amount and no reporting units were at risk of failing the impairment test. As a result, no0 impairment charge was recognized. The Company’s annual impairment test will be performed in the fourth quarter of fiscal 2018. There was also no indication of potential impairment as of JanuaryJuly 31, 20182019 and April 30, 20172019 that would have required further testing. Intangible assets primarily consist of customer lists,non-compete agreements, proprietary databases intellectual property and trademarks andIP. Intangible assets are recorded at their estimated fair value at the date of acquisition and are amortized in a pattern in which the asset is consumed, if that pattern can be reliably determined, or using the straight-line method over their estimated useful lives, which range from one to 24 years. For intangible assets subject to amortization, an impairment loss is recognized if the carrying amount of the intangible assets is not recoverable and exceeds fair value. The carrying amount of the intangible assets is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from use of the asset. Intangible assets with indefinite lives are not amortized, but are reviewed annually for impairment or more frequently whenever events or changes in circumstances indicateindicated that the fair value of the asset may be less than its carrying amount. As of JanuaryJuly 31, 20182019 and April 30, 2017,2019, there were no0 indicators of impairment with respect to the Company’s intangible assets. | | | | | | | KORN/FERRY INTERNATIONAL AND SUBSIDIARIESOn June 12, 2018, the Company’s Board of Directors voted to approve a plan to go to market under a single, master brand architecture and to simplify the Company’s organizational structure by eliminating and/or consolidating certain legal entities and implementing a rebranding of the Company to offer the Company’s current products and services using the “Korn Ferry” name, branding and trademarks. As a result, the Company discontinued the use of all sub-brands. Two of the Company’s former sub-brands, Hay Group and Lominger, came to Korn Ferry through acquisitions. In connection with the accounting for these acquisitions, $106.6 million of the purchase price was allocated to indefinite-lived tradename intangible assets. As a result of the decision to discontinue their use, the Company took a non-cash intangible asset write-off of $106.6 million during the three months ended July 31, 2018, recorded in general and administrative expenses.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
January 31, 2018 (continued)
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Compensation and Benefits Expense Compensation and benefits expense in the accompanying consolidated statements of incomeoperations consist of compensation and benefits paid to consultants (employees who originate business), executive officers and administrative and support personnel. The most significant portions of this expense are salaries and the amounts paid under the annual performance relatedperformance-related bonus plan to employees. The portion of the expense applicable to salaries is comprised of amounts earned by employees during a reporting period. The portion of the expenses applicable to annual performance relatedperformance-related bonuses refers to the Company’s annual employee performance relatedperformance-related bonus with respect to a fiscal year, the amount of which is communicated and paid to each eligible employee following the completion of the fiscal year. Each quarter, management makes its best estimate of its annual performance relatedperformance-related bonuses, which requires management to, among other things, project annual consultant productivity (as measured by engagement fees billed and collected by executive search consultants and revenue and other performance/profitability metrics for Hay GroupAdvisory and FuturestepRPO & Professional Search consultants), the level of engagements referred by a consultant in one line of business to a different line of business, 9
| KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS July 31, 2019 (continued) |
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 relatedperformance-related bonus expense was $155.2$53.0 million and $136.2$61.0 million during the ninethree months ended JanuaryJuly 31, 20182019 and 2017,2018, respectively, included in compensation and benefits expense in the consolidated statements of income. During the three months ended January 31, 2018 and 2017, the performance related bonus expense was $56.8 million and $41.1 million, respectively.operations. 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 ownedcompany-owned life insurance (“COLI”) contracts, amortization of stock compensation awards, payroll taxes and employee insurance benefits. Investments and other assets includeUnearned compensation on the consolidated balance sheets includes long-term retention awards that are generally amortized over four to fivefour-to-five years. 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 includedone-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. 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 MarchFebruary 2016,the Financial Accounting Standards Board (the “FASB”(“FASB”) issued guidance on accounting for certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled. Furthermore, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows. The guidance also allows companies to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting, clarifying that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity in the consolidated statements of cash flows and provides an accounting policy election to account for forfeitures as they occur. The provisions of the guidance are effective for fiscal years beginning after December 15, 2016 and were adopted by the Company effective May 1, 2017. The primary impact of the adoption was the recognition of excess tax benefits in our provision for income taxes in the current year compared to recording it previously as a component of equity. Additional amendments to the accounting for income taxes and minimum statutory withholding tax requirements had no impact to retained earnings, where the cumulative effect of these changes are required to be recorded. The Company elected to apply the presentation for cash flows related to excess tax benefits retrospectively for all periods presented which resulted in minimal impact to cash used in operations and cash provided | | | | | | | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
January 31, 2018 (continued)
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by financing activities for the nine months ended January 31, 2017. The presentation requirements for cash flows related to employee taxes paid for withheld shares had no impact on any of the periods presented on our consolidated cash flows statements since such cash flows have historically been presented as a financing activity. The Company elected to account for forfeitures as they occur, rather than estimating the expected forfeitures over the vesting period. This election did not have an impact on the Company’s financial statements.
Recently Issued Accounting Standards - Not Yet Adopted
In May 2014, the FASB issued ASU2014-09, which superseded revenue recognition requirements regarding contracts with customers to transfer goods or services or for the transfer of nonfinancial assets. Under this new guidance, entities are required to recognize revenue that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step analysis to be performed on transactions to determine when and how revenue is recognized. In addition, the guidance permits companies to choose between the following two transition methods of adopting ASU2014-09: (1) the full retrospective method, in which case the standard would be applied to all reporting periods presented and (2) the modified retrospective method, with a cumulative-effect adjustment as of the date of adoption.
The new guidance is effective for fiscal years and interim periods within those annual years beginning after December 15, 2017. The Company will adopt this guidance in its fiscal year beginning May 1, 2018 and expects to apply the modified retrospective method in adopting ASU2014-09. The Company organized a team and developed a project plan to guide the implementation. The project plan includes working sessions to review, evaluate and document the arrangements with customers under our various reporting units to identify potential differences that would result from applying the requirements of the new standard.
The Company has completed its initial evaluation of the impact of ASU2014-09 on executive search activities and recruitment fornon-executive professionals and recruitment process outsourcing. As to executive search and recruitment fornon-executive professionals we expect the implementation of ASU2014-09 to result in timing differences in the recognition of uptick revenue (uptick revenue occurs when a placement’s actual compensation is higher than the original estimated compensation). Currently the Company recognizes uptick revenue as the amount becomes fixed and determinable. Under ASU2014-09, however, upticks are considered variable consideration and the Company will be required to estimate upticks at contract inception and recognize the revenue over the service period. Based on our initial evaluation the impact of ASU2014-09 on the recruitment process outsourcing revenue stream is not expected to be material. The Company expects to finalize its evaluation of the impact of ASUNo. 2014-09 by the end of the fiscal year.
In February 2016, the FASB issued guidance(Accounting Standard Codification 842 – Leases) on accounting for leases that generally requires all leases to be recognized on the consolidated balance sheet. The provisions of the guidance areis effective for fiscal years beginning after December 15, 2018. On July 30, 2018, and early adoption is permitted.the FASB issued an amendment that allows entities to apply the provisions at the effective date without adjusting comparative periods. The Company plans to adoptadopted this guidance in its fiscal year beginning May 1, 2019 using a modified retrospective approach without restatement of comparative periods. As such, periods prior to the date of adoption are presented in accordance with Accounting Standard Codification 840 - Leases. The FASB also issued subsequent related Accounting Standards Updates (“ASUs”), which detail amendments to the ASU, implementation considerations, narrow-scope improvements and practical expedients. The Company has elected to apply the group of practical expedients which allows the Company to carry forward its identification of contracts that are or contain leases, its historical lease classification and its initial direct costs for existing leases. The Company has also elected to combine lease and non-lease components for all asset classes and recognize leases with an initial term of 12 months or less on a straight-line basis without recognizing a ROU asset or operating lease liability.
The adoption of this standard had a material impact on the consolidated balance sheet as of July 31, 2019 due to the recognition of ROU assets and operating lease liabilities, but an immaterial impact on the Company’s consolidated statements of operations, consolidated statements of stockholders’ equity, and consolidated statements of cash flows. Upon adoption we recognized total ROU assets of $236.1 million with a corresponding liability of $272.3 million. The ROU asset balance was adjusted by the reclassification of pre-existing prepaid expenses and other assets and deferred rent balances of $5.1 million and $41.3 million, respectively. In August 2017, the FASB issued guidance amending and simplifying accounting for hedging activities. The guidance refined and expanded strategies that qualify for hedge accounting and simplify the application of hedge accounting in certain situations. The guidance is effective for fiscal years beginning after December 15, 2018. The Company adopted this guidance in its fiscal year beginning May 1, 2019. The provisionsadoption of the guidance are to be applied using a modified retrospective approach. The Company is still evaluating the effect this guidance willdid not have an impact on the consolidated financial statements. Based on our initial assessment, the Company expects that upon adoption it will report an increase in assets and liabilities on our consolidated balance sheet as a result of recognizingright-of-use assets and lease liabilities related to lease agreements. 10
| KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS July 31, 2019 (continued) |
Recently Proposed Accounting Standards - Not Yet Adopted In AugustJune 2016, the FASB issued guidance on accounting for measurement of credit losses on financial Instruments, which amends the classificationimpairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of certain cash receipts and cash payments in the statement of cash flows.financial instruments, including trade receivables. 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 arestandard is effective for reporting periodsfiscal years beginning after December 15, 2017, with early adoption permitted.2019. The Company plans towill adopt this guidance in its fiscal year beginning May 1, 2018. The provisions of the guidance are to be applied using a retrospective transition method. The adoption of this guidance is not anticipated to have a material impact on the consolidated financial statements. In January 2017, the FASB issued guidance 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 effective for annual years beginning after December 15, 2017, including interim periods, with early adoption permitted. The Company plans to adopt this guidance in its fiscal year beginning May 1, 2018. The provisions of the guidance are to be applied prospectively.2020. The adoption of this guidance is not anticipated to have a material impact on the consolidated financial statements.
In January 2017, the FASB issued guidance simplifying the test for goodwill impairment. The new guidance simplifies the test for goodwill impairment by removing Step 2 from the goodwill impairment test. Companies will now perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value not to exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments of this standard are effective for goodwill impairment tests in fiscal | | | | | | | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
January 31, 2018 (continued)
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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 March 2017,August 2018, the FASB issued guidance amending the disclosure requirements for fair value measurements. The amendment removes and modifies disclosures that changes the presentation of net periodic pension costare currently required 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.adds additional disclosures that are deemed relevant. The amendments of this standard are effective for fiscal years beginning after December 15, 2017, including interim periods within those years.2019. The Company will adopt this guidance in its fiscal year beginning May 1, 2018. 2020.The adoptionCompany is currently evaluating the impact of adopting this standard is not anticipated to have a material impact on the consolidated financial statements.guidance. In May 2017,August 2018, the FASB issued guidance clarifying the scope of modificationamending accounting for stock compensation.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 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This pronouncement isare effective for annual reporting periods beginningfiscal years ending after December 15, 2017, but2019 with early adoption is permitted. The Company will adopt this guidance in its fiscal year beginning May 1, 2018. The Company is currently evaluating the impact of adopting this guidance. 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 February 2018, the FASB issued ASU2018-02 which provides companies the option to reclassify stranded tax effects within accumulated other comprehensive income (loss), net to retained earnings resulting from the Tax Cuts and Jobs Act (the “Tax Act”). 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), net to retained earnings and to disclose a policy for releasing the income tax effects from accumulated other comprehensive income (loss), net. The guidance is effective for annual reporting periods beginning after December 15, 2018, but early adoption is permitted. If companies elect to reclassify the stranded tax effects the guidance allows it to be recorded in the period of adoption or retrospectively to each period in which the effect of the Tax Act is recognized.2020. The Company is currently evaluating the impact of adopting this guidance.
2. Basic and Diluted Earnings (Loss) Per Share Accounting Standards Codification 260,Earnings Per Share, requires companies to treat unvested share-based payment awards that havenon-forfeitable rights to dividends prior to vesting as a separate class of securities in calculating earnings per share. We haveThe Company has granted and expectexpects to continue to grant to certain employees under ourits restricted stock agreements grants that containnon-forfeitable rights to dividends. Such grants are considered participating securities. Therefore, we arethe Company is required to apply thetwo-class method in calculating earnings per share. Thetwo-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 thetwo-class method. Basic earnings (loss) per common share was computed using thetwo-class method by dividing basic net earnings (loss) attributable to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per common share was computed using thetwo-class method by dividing diluted net earnings (loss) attributable to common stockholders by the weighted-average number of common shares outstanding plus dilutive common equivalent shares. Dilutive common equivalent shares include allin-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 the three and nine months ended JanuaryJuly 31, 2019 and 2018, restricted stock awards of 0.60.7 million were outstanding, but not included in the computation of diluted earnings per share because they were anti-dilutive. During the threeshares and nine months ended January 31, 2017, restricted stock awards of 0.51.8 million and 0.6 millionshares were outstanding, respectively, but not included in the computation of diluted earnings (loss) per share because they were anti-dilutive. 11
| | | | | | | KORN/KORN FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS JanuaryJuly 31, 20182019 (continued)
| | |
The following table summarizes basic and diluted earnings (loss) per common share attributable to common stockholders: | | | | | | | | | | | | | | | | | | | Three Months Ended January 31, | | | Nine Months Ended January 31, | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | | (in the thousands, except per share data) | | Net income attributable to Korn/Ferry International | | $ | 27,247 | | | $ | 23,897 | | | $ | 92,619 | | | $ | 57,257 | | Less: distributed and undistributed earnings to nonvested restricted stockholders | | | 295 | | | | 227 | | | | 982 | | | | 505 | | | | | | | | | | | | | | | | | | | Basic net earnings attributable to common stockholders | | | 26,952 | | | | 23,670 | | | | 91,637 | | | | 56,752 | | Add: undistributed earnings to nonvested restricted stockholders | | | 235 | | | | 172 | | | | 804 | | | | 356 | | Less: reallocation of undistributed earnings to nonvested restricted stockholders | | | 232 | | | | 171 | | | | 793 | | | | 353 | | | | | | | | | | | | | | | | | | | Diluted net earnings attributable to common stockholders | | $ | 26,955 | | | $ | 23,671 | | | $ | 91,648 | | | $ | 56,755 | | | | | | | | | | | | | | | | | | | | | | | | Weighted-average common shares outstanding: | | | | | | | | | | | | | | | | | Basic weighted-average number of common shares outstanding | | | 55,252 | | | | 56,173 | | | | 55,479 | | | | 56,325 | | Effect of dilutive securities: | | | | | | | | | | | | | | | | | Restricted stock | | | 738 | | | | 505 | | | | 744 | | | | 540 | | Stock options | | | 3 | | | | 20 | | | | 6 | | | | 24 | | ESPP | | | 4 | | | | 4 | | | | 7 | | | | 28 | | | | | | | | | | | | | | | | | | | Diluted weighted-average number of common shares outstanding | | | 55,997 | | | | 56,702 | | | | 56,236 | | | | 56,917 | | | | | | | | | | | | | | | | | | | | | | | | Net earnings per common share: | | | | | | | | | | | | | | | | | Basic earnings per share | | $ | 0.49 | | | $ | 0.42 | | | $ | 1.65 | | | $ | 1.01 | | | | | | | | | | | | | | | | | | | Diluted earnings per share | | $ | 0.48 | | | $ | 0.42 | | | $ | 1.63 | | | $ | 1.00 | | | | | | | | | | | | | | | | | | |
3. Stockholders’ Equity
The following table summarizes the changes in stockholders’ equity for the three months ended January 31, 2018:
| | | | | | | | | | | | | | | Total Korn/Ferry International Stockholders’ Equity | | | Noncontrolling Interest | | | Total Stockholders’ Equity | | | | (in thousands) | | Balance as of October 31, 2017 | | $ | 1,132,014 | | | $ | 2,709 | | | $ | 1,134,723 | | Comprehensive income (loss): | | | | | | | | | | | | | Net income | | | 27,247 | | | | 180 | | | | 27,427 | | Foreign currency translation adjustments | | | 17,793 | | | | 46 | | | | 17,839 | | Deferred compensation and pension plan adjustments, net of tax | | | 361 | | | | — | | | | 361 | | Unrealized gain on interest rate swap, net of tax | | | 1,077 | | | | — | | | | 1,077 | | Dividends paid to shareholders | | | (5,705 | ) | | | — | | | | (5,705 | ) | Purchase of stock | | | (3,503 | ) | | | — | | | | (3,503 | ) | Issuance of stock | | | 3,412 | | | | — | | | | 3,412 | | Stock-based compensation | | | 5,263 | | | | — | | | | 5,263 | | | | | | | | | | | | | | | Balance as of January 31, 2018 | | $ | 1,177,959 | | | $ | 2,935 | | | $ | 1,180,894 | | | | | | | | | | | | | | |
| | | | | | | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
January 31, 2018 (continued)
| | |
| | Three Months Ended July 31, | | | | 2019 | | | 2018 | | | | (in thousands, except per share data) | | Net income (loss) attributable to Korn Ferry | | $ | 42,951 | | | $ | (38,611 | ) | Less: distributed and undistributed earnings to nonvested restricted stockholders | | | 444 | | | | 59 | | Basic net earnings (loss) attributable to common stockholders | | | 42,507 | | | | (38,670 | ) | Add: undistributed earnings to nonvested restricted stockholders | | | 386 | | | | — | | Less: reallocation of undistributed earnings to nonvested restricted stockholders | | | 384 | | | | — | | Diluted net earnings (loss) attributable to common stockholders | | $ | 42,509 | | | $ | (38,670 | ) | | | | | | | | | | Weighted-average common shares outstanding: | | | | | | | | | Basic weighted-average number of common shares outstanding | | | 55,266 | | | | 55,378 | | Effect of dilutive securities: | | | | | | | | | Restricted stock | | | 357 | | | | — | | ESPP | | | 12 | | | | — | | Diluted weighted-average number of common shares outstanding | | | 55,635 | | | | 55,378 | | | | | | | | | | | Net earnings (loss) per common share: | | | | | | | | | Basic earnings (loss) per share | | $ | 0.77 | | | $ | (0.70 | ) | Diluted earnings (loss) per share | | $ | 0.76 | | | $ | (0.70 | ) |
The following table summarizes the changes in stockholders’ equity for the nine months ended January 31, 2018:
| | | | | | | | | | | | | | | Total Korn/Ferry International Stockholders’ Equity | | | Noncontrolling Interest | | | Total Stockholders’ Equity | | | | (in thousands) | | Balance as of April 30, 2017 | | $ | 1,083,439 | | | $ | 3,609 | | | $ | 1,087,048 | | Comprehensive income (loss): | | | | | | | | | | | | | Net income | | | 92,619 | | | | 969 | | | | 93,588 | | Foreign currency translation adjustments | | | 29,858 | | | | (85 | ) | | | 29,773 | | Deferred compensation and pension plan adjustments, net of tax | | | 1,065 | | | | — | | | | 1,065 | | Unrealized gain on interest rate swap, net of tax | | | 1,470 | | | | — | | | | 1,470 | | Dividends paid to shareholders | | | (17,242 | ) | | | — | | | | (17,242 | ) | Dividends paid to noncontrolling interest | | | — | | | | (1,558 | ) | | | (1,558 | ) | Purchase of stock | | | (36,225 | ) | | | — | | | | (36,225 | ) | Issuance of stock | | | 7,998 | | | | — | | | | 7,998 | | Stock-based compensation | | | 14,977 | | | | — | | | | 14,977 | | | | | | | | | | | | | | | Balance as of January 31, 2018 | | $ | 1,177,959 | | | $ | 2,935 | | | $ | 1,180,894 | | | | | | | | | | | | | | |
The following table summarizes the changes in stockholders’ equity for the three months ended January 31, 2017:
| | | | | | | | | | | | | | | Total Korn/Ferry International Stockholders’ Equity | | | Noncontrolling Interest | | | Total Stockholders’ Equity | | | | (in thousands) | | Balance as of October 31, 2016 | | $ | 1,050,553 | | | $ | 3,591 | | | $ | 1,054,144 | | Comprehensive income (loss): | | | | | | | | | | | | | Net income | | | 23,897 | | | | 481 | | | | 24,378 | | Foreign currency translation adjustments | | | (1,321 | ) | | | (262 | ) | | | (1,583 | ) | Deferred compensation and pension plan adjustments, net of tax | | | 465 | | | | — | | | | 465 | | Dividends paid to shareholders | | | (5,796 | ) | | | — | | | | (5,796 | ) | Dividends paid to noncontrolling interest | | | — | | | | (1,229 | ) | | | (1,229 | ) | Purchase of stock | | | (9,578 | ) | | | — | | | | (9,578 | ) | Issuance of stock | | | 2,778 | | | | — | | | | 2,778 | | Stock-based compensation | | | 4,406 | | | | — | | | | 4,406 | | Tax benefit from exercise of stock options and vesting of restricted stock | | | 17 | | | | — | | | | 17 | | | | | | | | | | | | | | | Balance as of January 31, 2017 | | $ | 1,065,421 | | | $ | 2,581 | | | $ | 1,068,002 | | | | | | | | | | | | | | |
The following table summarizes the changes in stockholders’ equity for the nine months ended January 31, 2017:
| | | | | | | | | | | | | | | Total Korn/Ferry International Stockholders’ Equity | | | Noncontrolling Interest | | | Total Stockholders’ Equity | | | | (in thousands) | | Balance as of April 30, 2016 | | $ | 1,045,300 | | | $ | 2,001 | | | $ | 1,047,301 | | Comprehensive income (loss): | | | | | | | | | | | | | Net income | | | 57,257 | | | | 2,245 | | | | 59,502 | | Foreign currency translation adjustments | | | (19,580 | ) | | | (436 | ) | | | (20,016 | ) | Deferred compensation and pension plan adjustments, net of tax | | | 1,392 | | | | — | | | | 1,392 | | Dividends paid to shareholders | | | (17,546 | ) | | | — | | | | (17,546 | ) | Dividends paid to noncontrolling interest | | | — | | | | (1,229 | ) | | | (1,229 | ) | Purchase of stock | | | (20,695 | ) | | | — | | | | (20,695 | ) | Issuance of stock | | | 5,746 | | | | — | | | | 5,746 | | Stock-based compensation | | | 13,497 | | | | — | | | | 13,497 | | Tax benefit from exercise of stock options and vesting of restricted stock | | | 50 | | | | — | | | | 50 | | | | | | | | | | | | | | | Balance as of January 31, 2017 | | $ | 1,065,421 | | | $ | 2,581 | | | $ | 1,068,002 | | | | | | | | | | | | | | |
| | | | | | | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
January 31, 2018 (continued)
| | |
4.3. Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) 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.income (loss). Accumulated other comprehensive income (loss), net of taxes, is recorded as a component of stockholders’ equity. The components of accumulated other comprehensive income (loss), net were as follows: | | July 31, 2019 | | | April 30, 2019 | | | | (in thousands) | | Foreign currency translation adjustments | | $ | (65,632 | ) | | $ | (60,270 | ) | Deferred compensation and pension plan adjustments, net of tax | | | (16,343 | ) | | | (16,838 | ) | Interest rate swap unrealized (loss) gain, net of tax | | | (139 | ) | | | 456 | | Accumulated other comprehensive loss, net | | $ | (82,114 | ) | | $ | (76,652 | ) |
| | | | | | | | | | | January 31, 2018 | | | April 30, 2017 | | | | (in thousands) | | Foreign currency translation adjustments | | $ | (25,501 | ) | | $ | (55,359 | ) | Deferred compensation and pension plan adjustments, net of tax | | | (14,062 | ) | | | (15,127 | ) | Interest rate swap unrealized gain (loss), net of taxes | | | 892 | | | | (578 | ) | | | | | | | | | | Accumulated other comprehensive loss, net | | $ | (38,671 | ) | | $ | (71,064 | ) | | | | | | | | | |
The following table summarizes the changes in each component of accumulated other comprehensive income (loss) for the three months ended July 31, 2019: | | 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 April 30, 2019 | | $ | (60,270 | ) | | $ | (16,838 | ) | | $ | 456 | | | $ | (76,652 | ) | Unrealized losses arising during the period | | | (5,362 | ) | | | — | | | | (491 | ) | | | (5,853 | ) | Reclassification of realized net losses (gains) to net income | | | — | | | | 495 | | | | (104 | ) | | | 391 | | Balance as of July 31, 2019 | | $ | (65,632 | ) | | $ | (16,343 | ) | | $ | (139 | ) | | $ | (82,114 | ) |
12
| KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS July 31, 2019 (continued) |
The following table summarizes the changes in each component of accumulated other comprehensive income (loss), net for the three months ended JanuaryJuly 31, 2018: | | | | | | | | | | | | | | | | | | | 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 October 31, 2017 | | $ | (43,294 | ) | | $ | (14,423 | ) | | $ | (185 | ) | | $ | (57,902 | ) | Unrealized gains arising during the period | | | 17,793 | | | | — | | | | 973 | | | | 18,766 | | Reclassification of realized net losses to net income | | | — | | | | 361 | | | | 104 | | | | 465 | | | | | | | | | | | | | | | | | | | Balance as of January 31, 2018 | | $ | (25,501 | ) | | $ | (14,062 | ) | | $ | 892 | | | $ | (38,671 | ) | | | | | | | | | | | | | | | | | | | The following table summarizes the changes in each component of accumulated other comprehensive income (loss), net for the nine months ended January 31, 2018: | | | | 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 April 30, 2017 | | $ | (55,359 | ) | | $ | (15,127 | ) | | $ | (578 | ) | | $ | (71,064 | ) | Unrealized gains arising during the period | | | 29,858 | | | | — | | | | 1,061 | | | | 30,919 | | Reclassification of realized net losses to net income | | | — | | | | 1,065 | | | | 409 | | | | 1,474 | | | | | | | | | | | | | | | | | | | Balance as of January 31, 2018 | | $ | (25,501 | ) | | $ | (14,062 | ) | | $ | 892 | | | $ | (38,671 | ) | | | | | | | | | | | | | | | | | |
| | Foreign Currency Translation | | | Deferred Compensation and Pension Plan (1) | | | Unrealized Gains on Interest Rate Swap (2) | | | Accumulated Other Comprehensive Income (Loss) | | | | (in thousands) | | Balance as of April 30, 2018 | | $ | (32,399 | ) | | $ | (9,073 | ) | | $ | 1,337 | | | $ | (40,135 | ) | Unrealized (losses) gains arising during the period | | | (14,562 | ) | | | — | | | | 149 | | | | (14,413 | ) | Reclassification of realized net losses (gains) to net loss | | | — | | | | 273 | | | | (16 | ) | | | 257 | | Effect of adoption of accounting standard | | | — | | | | (2,396 | ) | | | 199 | | | | (2,197 | ) | Balance as of July 31, 2018 | | $ | (46,961 | ) | | $ | (11,196 | ) | | $ | 1,669 | | | $ | (56,488 | ) |
(1) | The tax effect on the reclassifications of realized net losses was $0.2 million and $0.7$0.1 million for the three and nine months ended JanuaryJuly 31, 2019 and 2018, respectively. |
(2) | The tax effect on unrealized (losses) gains was $0.6$(0.2) million and $0.6$0.1 million for the three and nine months ended JanuaryJuly 31, 2019 and 2018, respectively. The tax effect on the reclassification of realized net losses to net income was $0.1 million and $0.3 million for the three and nine months ended January 31, 2018, respectively. |
| | | | | | | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
January 31, 2018 (continued)
| | |
The following table summarizes the changes in each component of accumulated other comprehensive income (loss), net for the three months ended January 31, 2017:
| | | | | | | | | | | | | | | Foreign Currency Translation | | | Deferred Compensation and Pension Plan (1) | | | Accumulated Other Comprehensive Income (Loss) | | | | (in thousands) | | Balance as of October 31, 2016 | | $ | (54,598 | ) | | $ | (20,645 | ) | | $ | (75,243 | ) | Unrealized losses arising during the period | | | (1,321 | ) | | | — | | | | (1,321 | ) | Reclassification of realized net losses to net income | | | — | | | | 465 | | | | 465 | | | | | | | | | | | | | | | Balance as of January 31, 2017 | | $ | (55,919 | ) | | $ | (20,180 | ) | | $ | (76,099 | ) | | | | | | | | | | | | | |
The following table summarizes the changes in each component of accumulated other comprehensive income (loss), net for the nine months ended January 31, 2017:
| | | | | | | | | | | | | | | Foreign Currency Translation | | | Deferred Compensation and Pension Plan (1) | | | Accumulated Other Comprehensive Income (Loss) | | | | (in thousands) | | Balance as of April 30, 2016 | | $ | (36,339 | ) | | $ | (21,572 | ) | | $ | (57,911 | ) | Unrealized losses arising during the period | | | (19,580 | ) | | | — | | | | (19,580 | ) | Reclassification of realized net losses to net income | | | — | | | | 1,392 | | | | 1,392 | | | | | | | | | | | | | | | Balance as of January 31, 2017 | | $ | (55,919 | ) | | $ | (20,180 | ) | | $ | (76,099 | ) | | | | | | | | | | | | | |
(1) | The tax effect on the reclassifications of realized net losses was $0.3 million and $0.9 million for the three and nine months ended January 31, 2017, respectively. |
5.4. 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 incomeoperations for the periods indicated: | | | | | | | | | | | | | | | | | | | Three Months Ended January 31, | | | Nine Months Ended January 31, | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | | (in thousands) | | Restricted stock | | $ | 5,263 | | | $ | 4,406 | | | $ | 14,977 | | | $ | 13,497 | | ESPP | | | 254 | | | | 175 | | | | 823 | | | | 604 | | | | | | | | | | | | | | | | | | | Total stock-based compensation expense,pre-tax | | | 5,517 | | | | 4,581 | | | | 15,800 | | | | 14,101 | | Tax benefit from stock-based compensation expense | | | (2,750 | ) | | | (1,111 | ) | | | (5,798 | ) | | | (3,778 | ) | | | | | | | | | | | | | | | | | | Total stock-based compensation expense, net of tax | | $ | 2,767 | | | $ | 3,470 | | | $ | 10,002 | | | $ | 10,323 | | | | | | | | | | | | | | | | | | |
| | Three Months Ended July 31, | | | | 2019 | | | 2018 | | | | (in thousands) | | Restricted stock | | $ | 5,091 | | | $ | 5,369 | | ESPP | | | 371 | | | | 345 | | Total stock-based compensation expense | | $ | 5,462 | | | $ | 5,714 | |
Stock Incentive PlansPlan At the Company’s 2016 Annual Meeting of Stockholders, held on October 6, 2016, the Company’s stockholders approved an amendment and restatement to the Korn/Korn Ferry International Amended and Restated 2008 Stock Incentive Plan (the 2016 amendment and restatement being “The Third A&R 2008 Plan”), which among other things, increased the number of shares under the plan by 5,500,000, shares, increasing the current maximum number of shares that may be issued under the plan to 11,200,000 shares, subject to certain changes in the Company’s capital structure and other extraordinary events. The Third A&R 2008 Plan provides for the grant of awards to eligible participants, designated as either nonqualified or incentive stock options, restricted stock and restricted 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. | | | | | | | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
January 31, 2018 (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 inconjunction with the Company’sperformance 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 isare 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 the 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.13
| KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS July 31, 2019 (continued) |
Restricted stock activity during the ninethree months ended JanuaryJuly 31, 20182019 is summarized below: | | Shares | | | Weighted- Average Grant Date Fair Value | | | | (in thousands, except per share data) | | Non-vested, April 30, 2019 | | | 1,460 | | | $ | 38.42 | | Granted | | | 551 | | | $ | 38.86 | | Vested | | | (584 | ) | | $ | 24.15 | | Forfeited/expired | | | (18 | ) | | $ | 17.95 | | Non-vested, July 31, 2019 | | | 1,409 | | | $ | 44.78 | |
| | | | | | | | | | | Shares | | | Weighted- Average Grant Date Fair Value | | | | (in thousands, except per share data) | | Non-vested, April 30, 2017 | | | 1,581 | | | $ | 29.74 | | Granted | | | 623 | | | $ | 37.46 | | Vested | | | (419 | ) | | $ | 26.01 | | Forfeited | | | (68 | ) | | $ | 33.28 | | | | | | | | | | | Non-vested, January 31, 2018 | | | 1,717 | | | $ | 33.31 | | | | | | | | | | |
As of JanuaryJuly 31, 2018,2019, there were 0.7 million shares and 0.20.5 million shares outstanding relating to market-based and performance-based restricted stock units respectively, with total unrecognized compensation totaling $9.9 million and $4.3 million, respectively.$17.9 million. As of JanuaryJuly 31, 2018,2019, there was $35.1$51.2 million of total unrecognized compensation cost related to allnon-vested awards of restricted stock, which is expected to be recognized over a weighted-average period of 2.42.8 years. During the three and nine months ended JanuaryJuly 31, 2019 and 2018, 4,653221,654 shares and 105,024199,795 shares of restricted stock totaling $0.2$8.6 million and $3.6$13.1 million, respectively, were repurchased by the Company, at the option of employees, to pay for taxes related to vesting of restricted stock. During the three and nine months ended January 31, 2017, 7,151 shares and 193,668 shares of restricted stock totaling $0.2 million and $4.4 million, respectively, were repurchased by the Company, at the option of employees,employee, to pay for taxes related to 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 at 85% of the fair market price of the common stock on the last day of the enrollment period. Employees may not purchase more than $25,000 in stock during any calendar year. The maximum number of shares that may be issued under the ESPP is 3.0 million shares. During the three and nine months ended JanuaryJuly 31, 2019 and 2018, employees purchased 82,464126,604 shares at $35.17$34.06 per share and 198,74975,106 shares at $31.77 per share, respectively. During the three and nine months ended January 31, 2017, employees purchased 93,130 shares at $25.01 per share and 207,141 shares at $20.93$52.64 per share, respectively. As of JanuaryJuly 31, 2018,2019, the ESPP had approximately 1.10.8 million shares remaining available for future issuance. Common Stock During the nine months ended January 31, 2018, the Company issued 41,075 shares of common stock, as a result of the exercise of stock options, with cash proceeds from the exercise of $0.6 million. No stock options were exercised during the three months ended JanuaryJuly 31, 2018. During the three and nine months ended January 31, 2017, the Company issued 2,510 shares and | | | | | | | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
January 31, 2018 (continued)
| | |
46,600 shares of common stock, respectively, as a result of the exercise of stock options, with cash proceeds from the exercise of $0.03 million and $0.6 million, respectively.
During the three and nine months ended January 31, 2018,2019, the Company repurchased (on the open market) 80,800 shares and 974,079market or through privately negotiated transactions) 324,100 shares of the Company’s common stock for $3.3 million and $32.6 million, respectively.$12.7 million. During the three and nine months ended JanuaryJuly 31, 2017,2018, 0 shares were repurchased by the Company repurchased (on the open market) 383,598 shares and 719,098 shares of the Company’s common stock for $9.4 million and $16.3 million, respectively.market or through privately negotiated transactions).
6.5. Financial Instruments
The following tables show the Company’s financial instruments and balance sheet classification as of JanuaryJuly 31, 20182019 and April 30, 2017:2019: | | July 31, 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 | | | Other Accrued Liabilities | | | | (in thousands) | | Level 1: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash | | $ | 378,070 | | | $ | — | | | $ | — | | | $ | 378,070 | | | $ | 378,070 | | | $ | — | | | $ | — | | | $ | — | | Money market funds | | | 46,567 | | | | — | | | | — | | | | 46,567 | | | | 46,567 | | | | — | | | | — | | | | — | | Mutual funds (1) | | | 136,258 | | | | 7,168 | | | | (770 | ) | | | 142,656 | | | | — | | | | 8,508 | | | | 134,148 | | | | — | | Total | | $ | 560,895 | | | $ | 7,168 | | | $ | (770 | ) | | $ | 567,293 | | | $ | 424,637 | | | $ | 8,508 | | | $ | 134,148 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Level 2: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency forward contracts | | $ | — | | | $ | 840 | | | $ | (1,411 | ) | | $ | (571 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | (571 | ) | Interest rate swap | | $ | — | | | $ | — | | | $ | (185 | ) | | $ | (185 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | (185 | ) |
14
| KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS July 31, 2019 (continued) |
| | | January 31, 2018 | | | April 30, 2019 | | | | Fair Value Measurement | | Balance Sheet Classification | | | Fair Value Measurement | | | Balance Sheet Classification | | | | Cost | | | Unrealized Gains | | | Unrealized Losses | | Fair Value | | Cash and Cash Equivalents | | | Marketable Securities, Current | | | Marketable Securities, Non-current | | | Income Taxes & Other Receivables | | | Other Accrued Liabilities | | | Cost | | | Unrealized Gains | | | Unrealized Losses | | | Fair Value | | | Cash and Cash Equivalents | | | Marketable Securities, Current | | | Marketable Securities, Non- current | | | Income Taxes & Other Receivables | | | | (in thousands) | | | (in thousands) | | Level 1: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash | | $ | 388,962 | | | $ | — | | | $ | — | | | $ | 388,962 | | | $ | 388,962 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 579,998 | | | $ | — | | | $ | — | | | $ | 579,998 | | | $ | 579,998 | | | $ | — | | | $ | — | | | $ | — | | Money market funds | | | 1,028 | | | | — | | | | — | | | 1,028 | | | 1,028 | | | | — | | | | — | | | | — | | | | — | | | | 46,362 | | | | — | | | | — | | | | 46,362 | | | | 46,362 | | | | — | | | | — | | | | — | | Mutual funds (1) | | | 124,202 | | | | 15,489 | | | | (688 | ) | | 139,003 | | | | — | | | | 14,807 | | | | 124,196 | | | | — | | | | — | | | | 135,439 | | | | 6,301 | | | | (989 | ) | | | 140,751 | | | | — | | | | 8,288 | | | | 132,463 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 514,192 | | | $ | 15,489 | | | $ | (688 | ) | | $ | 528,993 | | | $ | 389,990 | | | $ | 14,807 | | | $ | 124,196 | | | $ | — | | | $ | — | | | $ | 761,799 | | | $ | 6,301 | | | $ | (989 | ) | | $ | 767,111 | | | $ | 626,360 | | | $ | 8,288 | | | $ | 132,463 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Level 2: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency forward contracts | | $ | — | | | $ | 814 | | | $ | (1,992 | ) | | $ | (1,178 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | 78 | | | $ | (1,256 | ) | | $ | — | | | $ | 821 | | | $ | (722 | ) | | $ | 99 | | | $ | — | | | $ | — | | | $ | — | | | $ | 99 | | Interest rate swap | | $ | — | | | $ | 1,390 | | | $ | — | | | $ | 1,390 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,390 | | | $ | — | | | $ | — | | | $ | 619 | | | $ | — | | | $ | 619 | | | $ | — | | | $ | — | | | $ | — | | | $ | 619 | | | | | | | | | | | | | | | | | | | | | | | | | April 30, 2017 | | | | | 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 | | | Other Accrued Liabilities | | | | | (in thousands) | | | Level 1: | | | | | | | | | | | | | | | | | | | | Cash | | $ | 409,824 | | | $ | — | | | $ | — | | | $ | 409,824 | | | $ | 409,824 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | Money market funds | | | 1,058 | | | | — | | | | — | | | 1,058 | | | 1,058 | | | | — | | | | — | | | | — | | | | — | | | Mutual funds (1) | | | 113,818 | | | | 6,697 | | | | (578 | ) | | 119,937 | | | | — | | | | 4,363 | | | | 115,574 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 524,700 | | | $ | 6,697 | | | $ | (578 | ) | | $ | 530,819 | | | $ | 410,882 | | | $ | 4,363 | | | $ | 115,574 | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Level 2: | | | | | | | | | | | | | | | | | | | | Foreign currency forward contracts | | $ | — | | | $ | 129 | | | $ | (846 | ) | | $ | (717 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (717 | ) | | Interest rate swap | | $ | — | | | $ | — | | | $ | (947 | ) | | $ | (947 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (947 | ) | |
(1) | These investments are held in trust for settlement of the Company’s vested obligations of $122.3$133.7 million and $99.5$122.3 million as of JanuaryJuly 31, 20182019 and April 30, 2017,2019, respectively, under the ECAP (see Note 7 — Deferred Compensation and Retirement Plans). Unvested obligations under the deferred compensation plans totaled $17.3 million and $24.6 million as of July 31, 2019 and April 30, 2019, respectively. During the three and nine months ended JanuaryJuly 31, 2019 and 2018, the fair value of the investments increased; therefore, the Company recognized incomea gain of $7.2$1.9 million and $14.0$4.0 million, respectively, which was recorded in other income, net. During the three and nine months ended January 31, 2017, the fair value of the investments increased; therefore, the Company recognized income of $3.9 million and $7.1 million, respectively, which was recorded in other income, net. |
Investments in marketable securities classified as trading are based upon investment selections the employee electionselects from apre-determined set of securities in the ECAP, and the Company invests in marketable securities to mirror these elections. As of JanuaryJuly 31, 20182019 and April 30, 2017,2019, the Company’s investments in marketable securities classified as trading consistconsisted of mutual funds for which market prices are readily available. | | | | | | | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
January 31, 2018 (continued)
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Designated Derivatives - Interest Rate Swap Agreement In March 2017, the Company entered into an interest rate swap contract with a notional amount of $129.8 million, to hedge the variability to changes in cash flows attributable to interest rate risks caused by changes in interest rates related to its variable rate debt. The Company has designated the swap as a cash flow hedge. The notional amount will be amortized so that the amount is always half of the principal balance of the debt outstanding. As of JanuaryJuly 31, 2018,2019, the notional amount was $122.0$103.1 million. The interest rate swap agreement matures on June 15, 2021, and locks the interest rates on halfa portion of the debt outstanding at 1.919%, exclusive of the credit spread on the debt. The fair value of the derivative designated as a cash flow hedge instrument iswas as follows: | | | | | | | | | | | | January 31, 2018 | | | April 30, 2017 | | | July 31, 2019 | | | April 30, 2019 | | | | (in thousands) | | | (in thousands) | | Derivative asset: | | | | | | | | | | | | | Interest rate swap contract | | $ | 1,390 | | | $ | — | | | $ | — | | | $ | 619 | | Derivative liability: | | | | | | | | | | | | | Interest rate swap contract | | $ | — | | | $ | 947 | | | $ | 185 | | | $ | — | |
During the three and nine months ended JanuaryJuly 31, 2019 and 2018, the Company recognized the following gains and losses on the interest rate swap: | | | | | | | | | | | Three Months Ended | | | Nine Months Ended | | | | January 31, 2018 | | | | (in thousands) | | Gains recognized in other comprehensive income (net of tax effects of $553 and $609, respectively) | | $ | 973 | | | $ | 1,061 | | Losses reclassified from accumulated other comprehensive income into interest expense, net | | $ | 167 | | | $ | 667 | |
| | Three Months Ended July 31, | | | | 2019 | | | 2018 | | | | (in thousands) | | (Losses) gains recognized in other comprehensive income (net of tax effects of $(172) and $53, respectively) | | $ | (491 | ) | | $ | 149 | | Gains reclassified from accumulated other comprehensive income into interest expense, net | | $ | 141 | | | $ | 22 | |
As the critical terms of the hedging instrument and the hedged forecasted transaction are the same, the Company has concluded that 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 the amount included in accumulated other comprehensive income as of January 31, 2018 that will be reclassified into interest expense, net within the following 12 months is less than $0.1 million in income. The cash flows related to the interest rate swap contract are included in net cash provided by operating activities.
Non-Designated Derivatives – 15
| KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS July 31, 2019 (continued) |
Foreign Currency Forward Contracts Not Designated as Hedges The fair value of derivatives not designated as hedge instruments are as follows: | | July 31, 2019 | | | April 30, 2019 | | | | (in thousands) | | Derivative assets: | | | | | | | | | Foreign currency forward contracts | | $ | 840 | | | $ | 821 | | Derivative liabilities: | | | | | | | | | Foreign currency forward contracts | | $ | 1,411 | | | $ | 722 | |
| | | | | | | | | | | January 31, 2018 | | | April 30, 2017 | | | | (in thousands) | | Derivative assets: | | | | | | | | | Total gross amount of foreign currency forward contracts | | $ | 814 | | | $ | — | | Gross derivatives offset on the balance sheet (1) | | | (736 | ) | | | — | | | | | | | | | | | Net amounts presented on the balance sheet | | $ | 78 | | | $ | — | | | | | | | | | | | | | | Derivative liabilities: | | | | | | | | | Total gross amount of foreign currency forward contracts | | $ | 1,992 | | | $ | 846 | | Gross derivatives offset on the balance sheet (1) | | | (736 | ) | | | (129 | ) | | | | | | | | | | Net amounts presented on the balance sheet | | $ | 1,256 | | | $ | 717 | | | | | | | | | | |
(1) | These amounts represent the impact of netting derivative assets and derivative liabilities when a legally enforceable master netting agreement exists and fair value of adjustments related to our counterparty credit risk. |
As of JanuaryJuly 31, 2018,2019, the total notional amounts of the forward contracts purchased and sold were $19.7$69.4 million and $57.2$66.7 million, respectively. As of April 30, 2017,2019, the total notional amounts of the forward contracts purchased and sold were $19.4 | | | | | | | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
January 31, 2018 (continued)
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$51.4 million and $70.0$40.0 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 a master netting agreement. During the three and nine months ended JanuaryJuly 31, 2018,2019, the Company incurred losses of $1.9$1.6 million, and $4.2 million, respectively, related to forward contracts, which is recorded in general and administrative expenses in the accompanying consolidated statements of income.operations. These foreign currency losses offset foreign currency gains that result from transactions denominated in a currency other than the Company’s functional currency. During the three and nine months ended JanuaryJuly 31, 2017,2018, the Company incurred gains of $1.1$0.1 million, and $1.3 million, respectively, related to forward contracts.contracts, which is recorded in general and administrative expenses in the accompanying consolidated statements of operations. 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 net cash used in operating activities. 6. Leases The Company’s lease portfolio is comprised of operating leases for office space and equipment and finance leases for equipment. Equipment leases are comprised of vehicles and office equipment. The majority of the Company’s leases include both lease and non-lease components. Non-lease components primarily include maintenance, insurance, taxes and other utilities. The Company has decided to combine fixed payments for non-lease components with its lease payments and account for them as a single lease component, which increases its ROU assets and lease liabilities. Some of the leases include one or more options to renew or terminate the lease at the Company’s discretion. Generally, the renewal and termination options are not included in the ROU assets and lease liabilities as they are not reasonably certain of exercise. The Company has elected not to recognize a ROU asset or lease liability for leases with an initial term of 12 months or less. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of the future minimum lease payments. The Company applies the portfolio approach when determining the incremental borrowing rate since it has a centrally managed treasury function. The Company’s incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments in a similar economic environment. Operating leases contain both office and equipment leases, have remaining terms that range from less than one year to 11 years, some of which also include options to extend or terminate the lease. Finance leases are comprised of equipment leases and have remaining terms that range from less than one year to 5 years. Finance lease assets are included in property and equipment, net while finance lease liabilities are included in other accrued liabilities and other liabilities. The components of lease expense were as follows: | | Three Months Ended July 31, 2019 | | | | (in thousands) | | Finance lease cost | | | | | Amortization of ROU assets | | $ | 470 | | Interest on lease liabilities | | | 40 | | | | | 510 | | Operating lease cost | | | 14,227 | | Short-term lease cost | | | 279 | | Variable lease cost | | | 2,893 | | Sublease income | | | (54 | ) | Total lease cost | | $ | 17,855 | |
16
| KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS July 31, 2019 (continued) |
Supplemental cash flow information related to leases was as follows: | | Three Months Ended July 31, 2019 | | | | (in thousands) | | Cash paid for amounts included in the measurement of lease liabilities: | | | | | Operating cash flows from operating leases | | $ | 14,909 | | Financing cash flows from finance leases | | $ | 432 | | | | | | | ROU assets obtained in exchange for lease obligations: | | | | | Operating leases | | $ | 935 | | Finance leases | | $ | 513 | |
Supplemental balance sheet information related to leases was as follows: | | Three Months Ended July 31, 2019 | | | | (in thousands) | | Finance Leases: | | | | | | | | | | Property and equipment, at cost | | $ | 4,519 | | Accumulated depreciation | | | (473 | ) | Property and equipment, net | | $ | 4,046 | | | | | | | Other accrued liabilities | | | 1,715 | | Other liabilities | | | 2,366 | | Total finance lease liabilities | | $ | 4,081 | | | | | | | Weighted average remaining lease terms: | | | | | Operating leases | | 6.2 years | | Finance leases | | 2.8 years | | | | | | | Weighted average discount rate: | | | | | Operating leases | | | 4.8 | % | Finance leases | | | 4.1 | % |
Maturities of lease liabilities were as follows: Year Ending April 30, | | Operating | | | Financing | | | | (in thousands) | | 2020 (excluding the three months ended July 31, 2019) | | $ | 44,919 | | | $ | 1,438 | | 2021 | | | 54,799 | | | | 1,462 | | 2022 | | | 47,188 | | | | 984 | | 2023 | | | 40,144 | | | | 326 | | 2024 | | | 34,803 | | | | 112 | | Thereafter | | | 74,369 | | | | — | | Total lease payments | | | 296,222 | | | | 4,322 | | Less: imputed interest | | | 41,765 | | | | 241 | | Total | | $ | 254,457 | | | $ | 4,081 | |
17
| KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS July 31, 2019 (continued) |
7. Deferred Compensation and Retirement Plans The Company has several deferred compensation and retirement plans for eligible consultants and vice presidents that provide defined benefits to participants based on the deferral of current compensation or contributions made by the Company subject to vesting and retirement or termination provisions. Among these plans is a defined benefit pension plan for certain Hay Group employees in the United States.U.S.. The assets of this plan are held separately from the assets of the sponsorssponsor in self-administered funds. The plan is funded consistent with local statutory requirements. All other defined benefit obligations from other plans are unfunded. The components of net periodic benefit costs are as follows: | | Three Months Ended July 31, | | | | 2019 | | | 2018 | | | | (in thousands) | | Service cost | | $ | 5,456 | | | $ | 3,646 | | Interest cost | | | 1,393 | | | | 1,296 | | Amortization of actuarial loss | | | 745 | | | | 446 | | Expected return on plan assets (1) | | | (363 | ) | | | (392 | ) | Net periodic service credit amortization | | | (77 | ) | | | (77 | ) | Net periodic benefit costs (2) | | $ | 7,154 | | | $ | 4,919 | |
| | | | | | | | | | | | | | | | | | | Three Months Ended January 31, | | | Nine Months Ended January 31, | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | | (in thousands) | | Service cost | | $ | 3,235 | | | $ | 1,793 | | | $ | 8,526 | | | $ | 3,981 | | Interest cost | | | 958 | | | | 1,062 | | | | 2,876 | | | | 3,185 | | Amortization of actuarial loss | | | 577 | | | | 763 | | | | 1,731 | | | | 2,289 | | Expected return on plan assets (1) | | | (398 | ) | | | (389 | ) | | | (1,195 | ) | | | (1,169 | ) | | | | | | | | | | | | | | | | | | Net periodic benefit costs | | $ | 4,372 | | | $ | 3,229 | | | $ | 11,938 | | | $ | 8,286 | | | | | | | | | | | | | | | | | | |
(1) | The expected long-term rate of return on plan assets is 6.50%was 6.00% and 6.25% for JanuaryJuly 31, 2019 and 2018, and 2017.respectively. |
(2) | The service cost, interest cost and the other components of net periodic benefit costs are included in compensation and benefits expense, interest expense, net and other income, net, respectively, on the consolidated statements of operations. |
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 undersetting aside funds to cover such plans. The gross CSV of these contracts of $185.0 $219.1million and $180.3$219.2 million as of JanuaryJuly 31, 20182019 and April 30, 2017,2019, respectively, iswas offset by outstanding policy loans of $66.8$92.3 million and $67.2$93.2 million in the accompanying consolidated balance sheets as of JanuaryJuly 31, 20182019 and April 30, 2017,2019, respectively. The CSV value of the underlying COLI investments increased by $1.8$2.3 million and $6.0$1.3 million during the three and nine months ended JanuaryJuly 31, 2019 and 2018, respectively, and is recorded as a decrease in compensation and benefits expense in the accompanying consolidated statements of income. The CSV value of the underlying COLI investments increased by $0.1 million and $3.3 million during the three and nine months ended January 31, 2017, respectively, and is recorded as a decrease in compensation and benefits expense in the accompanying consolidated statements of income.operations. The Company’s ECAP is intended to provide certain employees an opportunity to defer salary and/or bonus on apre-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-yearfour-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”‘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 sheet.sheets. The ECAP is accounted for whereby the changes in the fair value of the vested amounts owed to the participants are adjusted with a corresponding charge (or credit) to compensation and benefits costs. During the three and nine months ended JanuaryJuly 31, 2019 and 2018, deferred compensation liability increased; therefore, the Company recognized an increase in compensation expense of $7.2$2.3 million and $14.4$4.2 million, respectively. Offsetting the increaseincreases in compensation and benefits expense was an increase in the fair value of marketable securities classified as trading (held in trust to satisfy obligations underof the ECAP)ECAP liabilities) of $7.2$1.9 million and $14.0$4.0 million during the three and nine months ended JanuaryJuly 31, 2019 and 2018, respectively, recorded in other income, net on the consolidated statements of income. During the three and nine months ended January 31, 2017, deferred compensation liability increased; therefore, the Company recognized an increase in compensation expense of $4.1 million and $6.7 million, respectively. Offsetting the increase in compensation and benefits expense was an increase in the fair value of marketable securities classified as trading (held in trust to satisfy obligations under the ECAP) of $3.9 million and $7.1 million during the | | | | | | | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
January 31, 2018 (continued)
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three and nine months ended January 31, 2017, respectively, recorded in other income, net on the consolidated statements of incomeoperations (see Note 6 —5—Financial Instruments).
8. Restructuring Charges, NetFee Revenue During fiscal 2016,Substantially all fee revenue is derived from talent and organizational advisory services and the sale of products, fees for professional services related to executive and professional recruitment performed on a retained basis and RPO, standalone or as part of a solution.
Contract Balances A contract asset (unbilled receivables) is recorded when the Company implemented a restructuring plantransfers control of products or services before there is an unconditional right to payment. A contract liability (deferred revenue) is recorded when cash is received in order to rationalize its cost structure by eliminating redundant positions and consolidating office space due to the acquisitionadvance of Legacy Hay on December 1, 2015. The Company continued the implementationperformance of the fiscal 2016 restructuring planobligation. Deferred revenue represents the future performance obligations to transfer control of products or services for which we have already received consideration. Deferred revenue is presented in fiscal 2018 in order to integrate the Hay Group entities that were acquired in fiscal 2016 by consolidating premises. Changes in the restructuring liability during the three months ended January 31, 2018 are as follows:
| | | | | | | | | | | | | | | Severance | | | Facilities | | | Total | | | | (in thousands) | | Liability as of October 31, 2017 | | $ | 1,541 | | | $ | 4,716 | | | $ | 6,257 | | Reductions for cash payments | | | (231 | ) | | | (1,063 | ) | | | (1,294 | ) | Exchange rate fluctuations | | | 123 | | | | 55 | | | | 178 | | | | | | | | | | | | | | | Liability as of January 31, 2018 | | $ | 1,433 | | | $ | 3,708 | | | $ | 5,141 | | | | | | | | | | | | | | | Changes in the restructuring liability during the nine months ended January 31, 2018 are as follows: | | | | Severance | | | Facilities | | | Total | | | | (in thousands) | | Liability as of April 30, 2017 | | $ | 5,341 | | | $ | 8,354 | | | $ | 13,695 | | Restructuring charges, net | | | — | | | | 78 | | | | 78 | | Reductions for cash payments | | | (4,178 | ) | | | (5,328 | ) | | | (9,506 | ) | Exchange rate fluctuations | | | 270 | | | | 604 | | | | 874 | | | | | | | | | | | | | | | Liability as of January 31, 2018 | | $ | 1,433 | | | $ | 3,708 | | | $ | 5,141 | | | | | | | | | | | | | | |
As of January 31, 2018 and April 30, 2017, the restructuring liability is included in the current portion of other accrued liabilities on the consolidated balance sheets, except for $1.6 million and $4.6 million, respectively, of facilities costs which primarily relate to commitments under operating leases, net of sublease income, which are included in other long-term liabilities.sheet.
The restructuring liability by segment is summarized below:18
| | | | | | | | | | | | | | | January 31, 2018 | | | | Severance | | | Facilities | | | Total | | | | (in thousands) | | Executive Search | | | | | | | | | | | | | North America | | $ | — | | | $ | 262 | | | $ | 262 | | Asia Pacific | | | — | | | | 5 | | | | 5 | | | | | | | | | | | | | | | Total Executive Search | | | — | | | | 267 | | | | 267 | | Hay Group | | | 1,433 | | | | 3,340 | | | | 4,773 | | Futurestep | | | — | | | | 101 | | | | 101 | | | | | | | | | | | | | | | Liability as of January 31, 2018 | | $ | 1,433 | | | $ | 3,708 | | | $ | 5,141 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | April 30, 2017 | | | | Severance | | | Facilities | | | Total | | | | (in thousands) | | Executive Search | | | | | | | | | | | | | North America | | $ | 134 | | | $ | 250 | | | $ | 384 | | Europe, Middle East and Africa (“EMEA”) | | | 393 | | | | — | | | | 393 | | Asia Pacific | | | — | | | | 6 | | | | 6 | | Latin America | | | — | | | | 87 | | | | 87 | | | | | | | | | | | | | | | Total Executive Search | | | 527 | | | | 343 | | | | 870 | | Hay Group | | | 4,814 | | | | 7,879 | | | | 12,693 | | Futurestep | | | — | | | | 132 | | | | 132 | | | | | | | | | | | | | | | Liability as of April 30, 2017 | | $ | 5,341 | | | $ | 8,354 | | | $ | 13,695 | | | | | | | | | | | | | | |
| | | | | | | KORN/KORN FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS JanuaryJuly 31, 20182019 (continued)
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The following table outlines our contract asset and liability balances as of July 31, 2019 and April 30, 2019: | | July 31, 2019 | | | April 30, 2019 | | | | (in thousands) | | Contract assets (unbilled receivables) | | $ | 72,508 | | | $ | 60,595 | | Contract liabilities (deferred revenue) | | $ | 112,676 | | | $ | 112,999 | |
During the three months ended July 31, 2019, we recognized revenue of $44.8 million that was 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 July 31, 2019, the aggregate transaction price allocated to the performance obligations that are unsatisfied for contracts with an expected duration of greater than one year at inception was $556.7 million. Of the $556.7 million of remaining performance obligations, the Company expects to recognize approximately $264.5 million as fee revenue in fiscal 2020, $163.6 million in fiscal 2021, $99.4 million in fiscal 2022 and the remaining $29.2 million in fiscal 2023 and thereafter. However, this amount should not be considered an indication of the Company’s future revenue as contracts with an initial term of one year or less are not included. Further, the Company’s 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 10—Segments. The following table provides further disaggregation of fee revenue by industry: | | Three Months Ended July 31, | | | | 2019 | | | 2018 | | | | Dollars | | | % | | | Dollars | | | % | | | | (dollars in thousands) | | Industrial | | $ | 139,907 | | | | 28.9 | % | | $ | 135,730 | | | | 29.1 | % | Financial Services | | | 86,876 | | | | 17.9 | | | | 81,390 | | | | 17.5 | | Life Sciences/Healthcare | | | 82,114 | | | | 16.9 | | | | 79,160 | | | | 17.0 | | Consumer Goods | | | 71,833 | | | | 14.8 | | | | 71,586 | | | | 15.4 | | Technology | | | 69,095 | | | | 14.3 | | | | 62,819 | | | | 13.5 | | Education/Non-Profit | | | 30,761 | | | | 6.4 | | | | 30,579 | | | | 6.6 | | General | | | 3,963 | | | | 0.8 | | | | 4,304 | | | | 0.9 | | Fee Revenue | | $ | 484,549 | | | | 100.0 | % | | $ | 465,568 | | | | 100.0 | % |
9. BusinessIncome Taxes The provision for income tax was an expense of $14.5 million in the three months ended July 31, 2019 compared to a benefit of $16.1 million in the three months ended July 31, 2018. This reflects a 24.9% (provision) and 29.5% (benefit) tax rate for the three months ended July 31, 2019 and 2018, respectively. The Company’s effective tax rate for the three months ended July 31, 2019 was higher than the U.S. federal statutory rate of 21.0% primarily due to U.S. state income taxes and taxable income outside the U.S. that is subject to higher statutory tax rates, partially offset by an excess tax benefit recorded in connection with stock-based awards that vested in the current quarter, which was discrete to the quarter. The excess tax benefit is the amount by which the Company’s tax deduction for these awards, based on the fair market value of the awards on the date of vesting, exceeds the expense recorded in the Company’s financial statements over the awards’ vesting period. The Company’s effective tax rate (benefit) for the three months ended July 31, 2018 was higher than the U.S. federal statutory due 19
| KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS July 31, 2019 (continued) |
to the trademark impairment charge and the excess tax benefit on vested stock-based awards, both of which were recorded as discrete to the quarter. 10. Segments The Company currently operates in threethrough 3 global businesses:business segments: Advisory, Executive Search Hay Group and Futurestep. TheRPO & Professional Search. Advisory assists clients to synchronize strategy and talent by addressing four fundamental needs: Organizational Strategy, Assessment and Succession, Leadership Development and Rewards and Benefits, all underpinned by a comprehensive array of one of the world-leading IP, products and tools. Executive Search segment focuses on recruiting Board of Directorboard level, chief executive andC-level other senior executive and general management positions, in addition to research-based interviewing and onboardingassessment solutions, for clients predominantly in the consumer goods, financial services, industrial, life sciences/healthcare and technology industries. Hay Group assists clientsRPO & Professional Search uses data-backed insight and IP, matched with ongoing assessment, compensationstrategic collaboration and developmentinnovative technology, to meet people challenges head on—and succeed. Solutions span all aspects of their senior executivesRPO, Professional Search and management teams, and addresses four fundamental needs: Talent Strategy, Succession Management, Leadership Development and Rewards, Motivation and Engagement, all underpinned by a comprehensive array of world-leading intellectual property, products and tools. Futurestep 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. TheProject Recruitment. Executive Search business segment is managed by geographic regional leaders and Hay GroupAdvisory and FuturestepRPO & Professional Search worldwide operations are managed by their Chief Executive Officers. The Executive Search geographic regional leaders and the Chief Executive Officers of Hay GroupAdvisory and FuturestepRPO & Professional Search report directly to the Chief Executive Officer of the Company. The Company also operates a Corporate segment to record global expenses of the Company. The Company evaluates performance and allocates resources based on the Company’s chief operating decision maker’s review of (1) fee revenue and (2) adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”). To the extent that such charges occur, Adjusted EBITDA excludes restructuring charges, net, integration/acquisition costs, certain separation costs and certainnon-cash charges (goodwill, intangible asset and other than temporary impairment). The accounting policies for the reportable segments are the same as those described in the summary of significant accounting policies in Note 1—Organization and Summary of Significant Accounting Policies, except the items described above are excluded from EBITDA to arrive at Adjusted EBITDA. For the nine months ended January 31, 2017, Adjusted EBITDA includes deferred revenue adjustment related to the Legacy Hay acquisition, reflecting revenue that the Hay Group would have realized if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value andwrite-off deferred revenue where no future services are required to be performed to earn that revenue. Financial highlights by business segment are as follows: | | Three Months Ended July 31, 2019 | | | | | | | | Executive Search | | | | | | | | | | | | | | | | Advisory | | | North America | | | EMEA | | | Asia Pacific | | | Latin America | | | Subtotal | | | RPO & Professional Search | | | Corporate | | | Consolidated | | | | (in thousands) | | Fee revenue | | $ | 195,526 | | | $ | 111,722 | | | $ | 46,530 | | | $ | 27,362 | | | $ | 7,585 | | | $ | 193,199 | | | $ | 95,824 | | | $ | — | | | $ | 484,549 | | Total revenue | | $ | 199,320 | | | $ | 115,446 | | | $ | 47,312 | | | $ | 27,668 | | | $ | 7,587 | | | $ | 198,013 | | | $ | 98,865 | | | $ | — | | | $ | 496,198 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income attributable to Korn Ferry | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 42,951 | | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 699 | | Other income, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (1,826 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,057 | | Income tax provision | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 14,453 | | Operating income (loss) | | $ | 25,791 | | | $ | 30,322 | | | $ | 7,311 | | | $ | 6,993 | | | $ | 1,010 | | | $ | 45,636 | | | $ | 15,041 | | | $ | (26,134 | ) | | | 60,334 | | Depreciation and amortization | | | 8,053 | | | | 901 | | | | 456 | | | | 346 | | | | 328 | | | | 2,031 | | | | 992 | | | | 1,701 | | | | 12,777 | | Other income (loss), net | | | 726 | | | | 1,140 | | | | 12 | | | | 15 | | | | 57 | | | | 1,224 | | | | 74 | | | | (198 | ) | | | 1,826 | | EBITDA and Adjusted EBITDA | | $ | 34,570 | | | $ | 32,363 | | | $ | 7,779 | | | $ | 7,354 | | | $ | 1,395 | | | $ | 48,891 | | | $ | 16,107 | | | $ | (24,631 | ) | | $ | 74,937 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended January 31, 2018 | | | | Executive Search | | | | | | | | | | | | | | | | North America | | | EMEA | | | Asia Pacific | | | Latin America | | | Subtotal | | | Hay Group | | | Futurestep | | | Corporate | | | Consolidated | | | | (in thousands) | | Fee revenue | | $ | 102,716 | | | $ | 46,782 | | | $ | 24,493 | | | $ | 6,425 | | | $ | 180,416 | | | $ | 198,056 | | | $ | 69,109 | | | $ | — | | | $ | 447,581 | | Total revenue | | $ | 106,332 | | | $ | 47,763 | | | $ | 24,942 | | | $ | 6,456 | | | $ | 185,493 | | | $ | 201,961 | | | $ | 73,316 | | | $ | — | | | $ | 460,770 | | | | | | | | | | | | Net income attributable to Korn/Ferry International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 27,247 | | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 180 | | Other income, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (7,689 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,665 | | Equity in earnings of unconsolidated subsidiaries, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (97 | ) | Income tax provision | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 26,316 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss) | | $ | 21,313 | | | $ | 7,329 | | | $ | 5,289 | | | $ | 408 | | | $ | 34,339 | | | $ | 27,079 | | | $ | 10,056 | | | $ | (22,852 | ) | | | 48,622 | | Depreciation and amortization | | | 990 | | | | 458 | | | | 361 | | | | 113 | | | | 1,922 | | | | 7,882 | | | | 733 | | | | 1,688 | | | | 12,225 | | Other income, net | | | 585 | | | | 37 | | | | 185 | | | | 40 | | | | 847 | | | | 370 | | | | 2 | | | | 6,470 | | | | 7,689 | | Equity in earnings of unconsolidated subsidiaries, net | | | 97 | | | | — | | | | — | | | | — | | | | 97 | | | | — | | | | — | | | | — | | | | 97 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EBITDA | | | 22,985 | | | | 7,824 | | | | 5,835 | | | | 561 | | | | 37,205 | | | | 35,331 | | | | 10,791 | | | | (14,694 | ) | | | 68,633 | | Integration/acquisition costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,593 | | | | — | | | | 80 | | | | 1,673 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA | | $ | 22,985 | | | $ | 7,824 | | | $ | 5,835 | | | $ | 561 | | | $ | 37,205 | | | $ | 36,924 | | | $ | 10,791 | | | $ | (14,614 | ) | | $ | 70,306 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
20
| | | | | | | KORN/KORN FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS JanuaryJuly 31, 20182019 (continued)
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended January 31, 2017 | | | | Executive Search | | | | | | | | | | | | | | | | North America | | | EMEA | | | Asia Pacific | | | Latin America | | | Subtotal | | | Hay Group | | | Futurestep | | | Corporate | | | Consolidated | | | | (in thousands) | | Fee revenue | | $ | 84,827 | | | $ | 39,147 | | | $ | 21,012 | | | $ | 7,835 | | | $ | 152,821 | | | $ | 175,662 | | | $ | 53,435 | | | $ | — | | | $ | 381,918 | | Total revenue | | $ | 87,975 | | | $ | 39,965 | | | $ | 21,336 | | | $ | 7,856 | | | $ | 157,132 | | | $ | 178,962 | | | $ | 58,101 | | | $ | — | | | $ | 394,195 | | | | | | | | | | | | Net income attributable to Korn/Ferry International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 23,897 | | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 481 | | Other income, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (4,200 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,402 | | Equity in earnings of unconsolidated subsidiaries, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (113 | ) | Income tax provision | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 8,075 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss) | | $ | 17,718 | | | $ | 8,175 | | | $ | 2,086 | | | $ | 1,352 | | | $ | 29,331 | | | $ | 15,988 | | | $ | 6,549 | | | $ | (21,326 | ) | | | 30,542 | | Depreciation and amortization | | | 996 | | | | 226 | | | | 268 | | | | (21 | ) | | | 1,469 | | | | 8,061 | | | | 789 | | | | 1,455 | | | | 11,774 | | Other income (loss), net | | | 316 | | | | 19 | | | | 60 | | | | 61 | | | | 456 | | | | 122 | | | | (2 | ) | | | 3,624 | | | | 4,200 | | Equity in earnings of unconsolidated subsidiaries, net | | | 113 | | | | — | | | | — | | | | — | | | | 113 | | | | — | | | | — | | | | — | | | | 113 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EBITDA | | | 19,143 | | | | 8,420 | | | | 2,414 | | | | 1,392 | | | | 31,369 | | | | 24,171 | | | | 7,336 | | | | (16,247 | ) | | | 46,629 | | Restructuring charges, net | | | — | | | | — | | | | 893 | | | | 309 | | | | 1,202 | | | | 2,519 | | | | 80 | | | | — | | | | 3,801 | | Integration/acquisition costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,364 | | | | — | | | | 1,466 | | | | 4,830 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA | | $ | 19,143 | | | $ | �� 8,420 | | | $ | 3,307 | | | $ | 1,701 | | | $ | 32,571 | | | $ | 30,054 | | | $ | 7,416 | | | $ | (14,781 | ) | | $ | 55,260 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nine Months Ended January 31, 2018 | | | | Executive Search | | | | | | | | | | | | | | | | North America | | | EMEA | | | Asia Pacific | | | Latin America | | | Subtotal | | | Hay Group | | | Futurestep | | | Corporate | | | Consolidated | | | | (in thousands) | | Fee revenue | | $ | 296,093 | | | $ | 128,249 | | | $ | 71,983 | | | $ | 22,048 | | | $ | 518,373 | | | $ | 577,462 | | | $ | 196,018 | | | $ | — | | | $ | 1,291,853 | | Total revenue | | $ | 305,866 | | | $ | 130,894 | | | $ | 73,009 | | | $ | 22,114 | | | $ | 531,883 | | | $ | 589,093 | | | $ | 210,179 | | | $ | — | | | $ | 1,331,155 | | | | | | | | | | | | Net income attributable to Korn/Ferry International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 92,619 | | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 969 | | Other income, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (14,847 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 7,904 | | Equity in earnings of unconsolidated subsidiaries, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (187 | ) | Income tax provision | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 54,145 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss) | | $ | 66,253 | | | $ | 20,349 | | | $ | 12,811 | | | $ | 2,961 | | | $ | 102,374 | | | $ | 72,532 | | | $ | 27,702 | | | $ | (62,005 | ) | | | 140,603 | | Depreciation and amortization | | | 2,923 | | | | 1,345 | | | | 1,052 | | | | 331 | | | | 5,651 | | | | 24,110 | | | | 2,313 | | | | 4,807 | | | | 36,881 | | Other income, net | | | 1,157 | | | | 136 | | | | 384 | | | | 99 | | | | 1,776 | | | | 459 | | | | 10 | | | | 12,602 | | | | 14,847 | | Equity in earnings of unconsolidated subsidiaries, net | | | 187 | | | | — | | | | — | | | | — | | | | 187 | | | | — | | | | — | | | | — | | | | 187 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EBITDA | | | 70,520 | | | | 21,830 | | | | 14,247 | | | | 3,391 | | | | 109,988 | | | | 97,101 | | | | 30,025 | | | | (44,596 | ) | | | 192,518 | | Restructuring charges (recoveries), net | | | — | | | | — | | | | 313 | | | | — | | | | 313 | | | | (241 | ) | | | 6 | | | | — | | | | 78 | | Integration/acquisition costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | 6,455 | | | | — | | | | 199 | | | | 6,654 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA | | $ | 70,520 | | | $ | 21,830 | | | $ | 14,560 | | | $ | 3,391 | | | $ | 110,301 | | | $ | 103,315 | | | $ | 30,031 | | | $ | (44,397 | ) | | $ | 199,250 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
January 31, 2018 (continued)
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| | Three Months Ended July 31, 2018 | | | | | | | | Executive Search | | | | | | | | | | | | | | | | Advisory | | | North America | | | EMEA | | | Asia Pacific | | | Latin America | | | Subtotal | | | RPO & Professional Search | | | Corporate | | | Consolidated | | | | (in thousands) | | Fee revenue | | $ | 195,375 | | | $ | 112,097 | | | $ | 46,654 | | | $ | 26,295 | | | $ | 7,878 | | | $ | 192,924 | | | $ | 77,269 | | | $ | — | | | $ | 465,568 | | Total revenue | | $ | 200,147 | | | $ | 115,757 | | | $ | 47,749 | | | $ | 26,625 | | | $ | 7,903 | | | $ | 198,034 | | | $ | 80,181 | | | $ | — | | | $ | 478,362 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss attributable to Korn Ferry | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | (38,611 | ) | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 19 | | Other income, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (4,520 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,103 | | Income tax benefit | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (16,110 | ) | Operating income (loss) | | $ | (83,079 | ) | | $ | 26,514 | | | $ | 6,969 | | | $ | 6,641 | | | $ | 754 | | | $ | 40,878 | | | $ | 11,645 | | | $ | (24,563 | ) | | | (55,119 | ) | Depreciation and amortization | | | 7,431 | | | | 979 | | | | 370 | | | | 370 | | | | 107 | | | | 1,826 | | | | 761 | | | | 1,713 | | | | 11,731 | | Other income (loss), net | | | 570 | | | | 3,501 | | | | 340 | | | | 175 | | | | 37 | | | | 4,053 | | | | 105 | | | | (208 | ) | | | 4,520 | | EBITDA | | | (75,078 | ) | | | 30,994 | | | | 7,679 | | | | 7,186 | | | | 898 | | | | 46,757 | | | | 12,511 | | | | (23,058 | ) | | | (38,868 | ) | Integration/acquisition costs | | | 3,027 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 80 | | | | 3,107 | | Tradename write-offs | | | 106,555 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 106,555 | | Adjusted EBITDA | | $ | 34,504 | | | $ | 30,994 | | | $ | 7,679 | | | $ | 7,186 | | | $ | 898 | | | $ | 46,757 | | | $ | 12,511 | | | $ | (22,978 | ) | | $ | 70,794 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nine Months Ended January 31, 2017 | | | | Executive Search | | | | | | | | | | | | | | | | North America | | | EMEA | | | Asia Pacific | | | Latin America | | | Subtotal | | | Hay Group | | | Futurestep | | | Corporate | | | Consolidated | | | | (in thousands) | | Fee revenue | | $ | 259,361 | | | $ | 109,296 | | | $ | 60,108 | | | $ | 26,645 | | | $ | 455,410 | | | $ | 539,086 | | | $ | 164,960 | | | $ | — | | | $ | 1,159,456 | | Deferred revenue adjustment due to acquisition | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,535 | | | | — | | | | — | | | | 3,535 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted fee revenue | | $ | 259,361 | | | $ | 109,296 | | | $ | 60,108 | | | $ | 26,645 | | | $ | 455,410 | | | $ | 542,621 | | | $ | 164,960 | | | | — | | | $ | 1,162,991 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total revenue | | $ | 269,302 | | | $ | 111,721 | | | $ | 61,445 | | | $ | 26,766 | | | $ | 469,234 | | | $ | 552,822 | | | $ | 180,026 | | | $ | — | | | $ | 1,202,082 | | | | | | | | | | | | Net income attributable to Korn/Ferry International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 57,257 | | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,245 | | Other income, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (7,580 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 8,199 | | Equity in earnings of unconsolidated subsidiaries, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (221 | ) | Income tax provision | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 21,706 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss) | | $ | 60,458 | | | $ | 21,049 | | | $ | 6,216 | | | $ | 5,966 | | | $ | 93,689 | | | $ | 31,188 | | | $ | 21,849 | | | $ | (65,120 | ) | | | 81,606 | | Depreciation and amortization | | | 2,816 | | | | 666 | | | | 757 | | | | 267 | | | | 4,506 | | | | 24,102 | | | | 2,081 | | | | 4,281 | | | | 34,970 | | Other income (loss), net | | | 512 | | | | (37 | ) | | | 171 | | | | 158 | | | | 804 | | | | 346 | | | | (4 | ) | | | 6,434 | | | | 7,580 | | Equity in earnings of unconsolidated subsidiaries, net | | | 221 | | | | — | | | | — | | | | — | | | | 221 | | | | — | | | | — | | | | — | | | | 221 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EBITDA | | | 64,007 | | | | 21,678 | | | | 7,144 | | | | 6,391 | | | | 99,220 | | | | 55,636 | | | | 23,926 | | | | (54,405 | ) | | | 124,377 | | Restructuring charges, net | | | 1,706 | | | | 128 | | | | 1,515 | | | | 669 | | | | 4,018 | | | | 24,007 | | | | 80 | | | | 216 | | | | 28,321 | | Integration/acquisition costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | 11,993 | | | | — | | | | 6,684 | | | | 18,677 | | Deferred revenue adjustment due to acquisition | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,535 | | | | — | | | | — | | | | 3,535 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA | | $ | 65,713 | | | $ | 21,806 | | | $ | 8,659 | | | $ | 7,060 | | | $ | 103,238 | | | $ | 95,171 | | | $ | 24,006 | | | $ | (47,505 | ) | | $ | 174,910 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
10.11. Long-Term Debt
On June 15, 2016,December 19, 2018, the Company entered into a senior secured $400 millionan Amended and Restated Credit Agreement (the “Credit Agreement”) with a syndicate of banks and Wells Fargo Bank, National Association as administrative agent.agent to among other things, provide for enhanced financial flexibility. The Credit Agreement provides for, among other things: (a) a senior secured term loan facility in an aggregate principal amount of $275$650.0 million (the “Term Facility”), (b) afive-year senior secured revolving credit facility (the “Revolver”) and together with the Term Facility, the “Credit Facilities”) in an aggregate principal amount of $125 million, (c) annual term loan amortization of 7.5%, 7.5%, 10.0%, 10.0% and 10.0%, with the remaining principal due at maturity, (d)(b) certain customary affirmative and negative covenants, including a maximum consolidated total leverage ratio (as defined below) and a minimum interest coverage ratio and (e) an expanded definition of permittedadd-backs to Adjusted EBITDA in recognition ofratio. The Credit Agreement permits the accelerated integration actions. The Company’s credit agreement permits payment of dividends to stockholders and Company share repurchases so long as the pro forma leverage ratio is no greater than 2.503.25 to 1.00, and the pro forma domestic liquidity is at least $50.0 million. The Company drew down $275$226.9 million on the term loanRevolver and used $140 million of the proceeds topay-off the its term loan that was outstanding under its prior credit facility as of April 30, 2016.December 19, 2018. The payoff of the term loan under the prior credit facility and draw down on the 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. The principal balance of the Revolver is due on the date of its termination. 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 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 FacilitiesAgreement may fluctuate between LIBOR plus 1.25% per annum to LIBOR plus 2.00% per annum, in the case of LIBOR borrowings (or between the alternate base rate plus 0.25% per annum and the alternate base rate plus 1.00% per annum, in the alternative), based upon the Company’s total funded debt to adjustedAdjusted EBITDA ratio (as set forth in the Credit Agreement, the “consolidated leverage ratio”) at such time. In addition, the Company will be required to pay to the lenders a quarterly commitment fee ranging from 0.20% to 0.35% per annum on the average daily unused amount of the Term Facility,Revolver, based upon the Company’s consolidated leverage ratio at such time, and fees relating to the issuance of letters of credit. During the three and nine months ended JanuaryJuly 31, 2019 and 2018, the average interest rate on the Term Facilityour long-term debt arrangements was 2.65%3.69% and 2.49%, respectively. During the three and nine months ended January 31, 2017, the average rate on the Term Facility was 2.06% and 2.29%3.24%, respectively. | | | | | | | KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
January 31, 2018 (continued)
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Both the Revolver and the Term Facility mature on June 15, 2021 and may be prepaid and terminated early by the Company at any time without premium or penalty (subject to customary LIBOR breakage fees). The Term Facility is payable in quarterly installments with principal payments totalling $15.5 million made during the nine months ended January 31, 2018. As of JanuaryJuly 31, 2018, $244.12019 and April 30, 2019, $226.9 million was outstanding under the Term Facility compared to $259.5 million as of April 30, 2017.Revolver. The current and long-term portion of unamortized debt issuance costs associated with the long-term debt was $2.9were $3.8 million and $3.5$4.0 million as of JanuaryJuly 31, 20182019 and April 30, 2017,2019, respectively. The fair value of the Company’s Term FacilityRevolver is based on borrowing rates currently required of loans with similar terms, maturity and credit risk. The carrying amount of the Term FacilityRevolver approximates fair value because the base interest rate charged varies with market conditions and the credit spread is commensurate with current market spreads for issuers of similar risk. The fair value of the Term FacilityRevolver is classified as a Level 2 liability in the fair value hierarchy. As of JanuaryJuly 31, 2018,2019, the Company was in compliance with its debt covenants.
As of January 31, 2018 and April 30, 2017, the Company had no borrowings under the Revolver. The Company had $2.9 million and $3.0 million of standby letters of credits issued under its long-term debt arrangements as of January 31, 2018 and April 30, 2017, respectively. The Company had a total of $7.3$419.9 million available under the Revolver after the Company drew down $226.9 million and $8.1after $3.2 million of standby letters of creditscredit were issued as of July 31, 2019. The Company had a total of $420.2 million
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| KORN FERRY AND SUBSIDIARIES NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS July 31, 2019 (continued) |
available under the Revolver after the Company drew down $226.9 million and after $2.9 million of standby letters of credit were issued as of April 30, 2019. The Company had a total of $8.9 million and $8.5 million of standby letters with other financial institutions as of JanuaryJuly 31, 20182019 and April 30, 2017,2019, respectively. The standby letters of credits were generally issued as a result of entering into office premise leases. 11. Income Taxes
The current fiscal year effective tax rate was significantly impacted by the December 22, 2017 enactment of the Tax Act into law in the United States. The most significant impacts of the Tax Act on the Company include (1) a reduction in the U.S. corporate federal statutory income tax rate from 35.0% to 21.0% effective January 1, 2018, and (2) aone-time tax on accumulated foreign earnings (the “Transition Tax”), which is applicable at a rate of 15.5% on cash and other specified assets and 8% on other residual earnings. Because our fiscalyear-end is April 30, 2018, the Company’s fiscal 2018 statutory federal tax rate is 30.4%.
As a result of the enactment of the Tax Act, the Company recorded a provisional tax charge of $16.3 million for the Transition Tax and a provisional tax benefit of $5.8 million from the remeasurement of our U.S. federal deferred tax assets and liabilities at the rate at which we expect these deferred tax balances to be realized (30.4% in fiscal 2018 and 21.0% thereafter). The amounts recorded as a result of the enactment of the Tax Act, specifically the impact of the Transition Tax and the remeasurement of deferred tax balances, are provisional estimates. Additional information and analysis are required to finalize the impact that the Tax Act will have on our financial results, including the final determination of foreign cash and other specified assets at the end of fiscal 2018, refinement of the computation of foreign subsidiaries earnings and the final determination of deferred tax balances subject to remeasurement. Additionally, anticipated future guidance from the Internal Revenue Service, state tax agencies, the Financial Accounting Standards Board and the Securities and Exchange Commission could result in changes to these provisional amounts. The Company will continue to appropriately refine these amounts within the measurement period allowed by Staff Accounting Bulletin (“SAB”) No.118, which will be completed no later than December 22, 2018.
12. Subsequent EventsEvent Quarterly Dividend Declaration On March 5, 2018,September 4, 2019, the Board of Directors of the Company declared a cash dividend of $0.10 per share with a payment date of April 13, 2018October 15, 2019 to holders of the Company’s common stock of record at the close of business on March 26, 2018.September 27, 2019. The declaration and payment of future dividends under the quarterly dividend policy will be at the discretion of the Board of Directors and will depend upon many factors, including the Company’s earnings, capital requirements, financial conditions, the terms of the Company’s indebtedness and other factors that the Board of Directors may deem to be relevant. The Board of Directors may amend, revoke or suspend the dividend policy at any time and for any reason.
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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-lookingForward-Looking Statements
This Quarterly Report onForm 10-Q may contain certain statements that we believe are, or may be considered to be, “forward-looking” statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements generally can be identified by use of statements that include phrases such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “may,” “will,” “likely,” “estimates,” “potential,” “continue” or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals also are forward-looking statements. All of these forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those contemplated by the relevant forward-looking statement. The principal risk factors that could cause actual performance and future actions to differ materially from the forward-looking statements include, but are not limited to, changes in demand for our services as a result of automation, dependence on and costs of attracting and retaining qualified and experienced consultants, maintaining our relationships with customers and suppliers and retaining key employees, maintaining our brand name and professional reputation, the expected timing of the consummation of the Plan (as defined below), the impact of the Plan’s rebranding on the Company’s products and services, the costs of the Plan, potential legal liability and regulatory developments, portability of client relationships, global and local political or economic developments in or affecting countries where we have operations, currency fluctuations in our international operations, risks related to growth, restrictions imposed byoff-limits agreements, competition, consolidation in industries, reliance on information processing systems, cyber security vulnerabilities, changes to data security, data privacy, and data protection laws, dependence on third parties for the execution of critical functions, limited protection of our intellectual property (“IP”), our ability to enhance and develop new technology, our ability to successfully recover from a disaster or other business continuity problems, employment liability risk, an impairment in the carrying value of goodwill and other intangible assets, the effects of the Tax Cuts and Jobs Act (the “Tax Act”) and other future changes in tax laws, treaties, or regulations on our business and our company, deferred tax assets that we may not be able to use, our ability to develop new products and services, the impact of the withdrawal of the United Kingdom from the European Union, changes in our accounting estimates and assumptions, tax accounting effects of the Tax Act, alignment of our cost structure, risks related to the integration of recently acquired businesses, the utilization and billing rates of our consultants, seasonality, expansion of social media platforms, 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 of the Company’s Annual Report on Form10-K for the fiscal year ended April 30, 20172019 (“Form10-K”) and Item 1A of this Quarterly Report on Form10-Q.. Readers are urged to consider these factors carefully in evaluating the forward-looking statements. The forward-looking statements included in this Quarterly Report on Form10-Q are made only as of the date of this Quarterly Report on Form10-Q, and we undertake no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances. The following presentation of management’s discussion and analysis of our financialcondition and results of operations should be read together with our consolidatedfinancial statements and related notes included in this Quarterly Report onForm 10-Q. We also make available on the Investor Relations portion of our website at www.kornferry.com earnings slides and other important information, which we encourage you to review. Executive Summary Korn/Korn Ferry International (referred to herein as the “Company,” “Korn Ferry,” or in the first person notations “we,” “our,” and “us”) is a global organizational consulting firm. Our services includeWe currently operate through three global segments: Korn Ferry Advisory (“Advisory”), Executive Search advisory solutions and products through Hay Group (formerly known asKorn Ferry RPO and Professional Search (“RPO & Professional Search”). Advisory assists clients to synchronize strategy and talent by addressing four fundamental needs: Organizational Strategy, Assessment and Succession, Leadership & Talent Consulting (“Legacy LTC”) which was combined with HG (Luxembourg) S.à.r.l (“Legacy Hay”) in December 2015)Development, and recruitment fornon-executive professionalsRewards and recruitment process outsourcing (“RPO”) through Futurestep. The Company also operatesBenefits, all underpinned by a Corporate segment to record global expensescomprehensive array of one of the Company. Approximately 71% of the executive searches we performed in fiscal 2017 were forworld-leading IP, products and tools. Executive Search focuses on recruiting board level, chief executive and other senior executive and general management positions. Our 3,589 executive searchpositions, in addition to research-based interviewing and assessment solutions, for clients predominantly in fiscal 2017 included manythe consumer goods, financial services, industrial, life sciences/healthcare and technology industries. 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 world’s largest and most prestigious public and private companies, including approximately 57% of the Fortune 500, middle market and emerging growth companies, as well as government and nonprofit organizations. We have built strong client loyalty, with 82% of assignments performed (without giving effect to Legacy Hay assignments) during fiscal 2017 having been on behalf of clients for whom we had conducted assignments in the previous three fiscal years. Approximately 61% of our revenues were generated from clients that utilize multiple lines of business.Company.
| ▪ | Approximately 71% of the executive searches we performed in fiscal 2019 were for board level, chief executive and other senior executive and general management positions. Our 3,993 search engagement clients in fiscal 2019 included many of the world’s largest and most prestigious public and private companies. |
| ▪ | We have built strong client loyalty, with 90% of the assignments performed during fiscal 2019 having been on behalf of clients for whom we had conducted assignments in the previous three fiscal years. |
| ▪ | Approximately 70% of our revenues were generated from clients that utilize multiple lines of business. |
Superior performance comes from having the right conditions for success in two key areas – the organization and its people. Organizational conditions encourage people to put forth their best effort and invest their energy towards achieving the organization’s purpose. We can help operationalize a client’s complete strategy or address any combination of five broad categories:
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| ▪ | A pillar of our growth strategy is the Products business. In fiscal 2019, product sales comprised 31% of our Advisory revenue. Our subscription services delivered online, help us generate long-term relationships with our clients through large scale and technology-based human resources programs. We continue to seek ways to further scale these highly profitable products to our global clients. |
| ▪ | In fiscal 2019, Korn Ferry was recognized as a top five RPO provider in the Baker’s Dozen list, marking our 12th consecutive year on the list. Through decades of experience, we have enhanced our RPO solution to deliver quality candidates that drive our clients’ business strategies. We leverage proprietary IP and data sets to guide clients on the critical skills and competencies to look for, compensation information to align with market demand, and assessment tools to ensure candidate fit. |
While most organizations can develop a sound strategy, they often struggle with how to make it stick. That is where we come in: synchronizing an organization’s strategy with its talent to drive superior performance. We help companies design their organization—the structure, roles and 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 our five core solution sets: Organizational Strategy | | We map talent strategy to business strategy by designing operating models and organizational structures that align to them, helping organizations put their plans into action. We make sure they have the right people, in the right roles, engaged and enabled to do the right things. | | | Assessment and Succession | | We provide actionable, research-backed insights that allow organizations to understand the true capabilities of their people so they can make decisions that ensure the right leaders are ready — ready—when and where they are needed — needed—in the future. | | | Talent Acquisition | | From executive search to recruitment process outsourcing,RPO, we integrate scientific research with our practical experience and industry-specific expertise to recruit professionals of all levels and functions for client organizations. | | | Leadership Development | | We activate purpose, vision and strategy throughhelp leaders at all levels of an organization achieve their vision, purpose and organizations.strategy. We combine expertise, science and proven techniques with forward thinking and creativity to build leadership experiences that help entry- to senior-level leaders grow and deliver superior results. | | | Rewards and Benefits | | We help organizations align reward with strategy.design rewards to achieve their strategic objectives. We help them pay their people fairly for doing the right things — things—with rewards they value — value—at a cost the organization can afford. |
On June 12, 2018, the Company’s Board of Directors approved the One Korn Ferry rebranding plan for the Company (the “Plan”). This Plan includes going to market under a single, master brand architecture, solely as Korn Ferry and sunsetting all the Company’s sub-brands, including Futurestep, Hay Group and Lominger, among others. This integrated go-to-market approach was a key driver in our fee revenue growth in fiscal year 2018, which led to the decision to further integrate our go-to-market activities under one master brand — Korn Ferry. As a result, the Company discontinued the use of all sub-brands and changed its name, effective January 1, 2019, to “Korn Ferry.” Two of the Company’s former sub-brands, Hay Group and Lominger came to Korn Ferry through acquisitions. In connection with the accounting for these acquisitions, $106.6 million of the purchase price was allocated to indefinite-lived tradename intangible assets. As a result of the decision to discontinue their use, the Company took a one-time, non-cash write-off of tradenames of $106.6 million during the three months ended July 31, 2018. The Company currently operates inthrough three global business segments: Executive Search, Hay Group and Futurestep.segments. See Note 9 —Business 10—Segments,in the Notes to Consolidated Unaudited Financial Statements for discussion of the Company’s global business segments. The Company evaluates performance and allocates resources based on the chief operating decision maker’s review of (1) fee revenue and (2) adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”). To the extent that such charges occur, Adjusted EBITDA excludes restructuring charges, (recoveries), net, integration/acquisition costs, and certain separation costs and certainnon-cash charges (goodwill, intangible asset and other than temporary impairment). For the nine months ended January 31, 2017, Adjusted EBITDA includes a deferred revenue adjustment related to the Legacy Hay acquisition, reflecting revenue that Hay Group would have realized if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value andwrite-off deferred revenue where no future services are required to be performed to earn that revenue. During the three and nine months ended January 31, 2018 andIn the three months ended JanuaryJuly 31, 2017, management no longer has adjusted fee revenue.2018, Adjusted EBITDA excluded $106.6 million of write-off of tradenames related to the Plan. 24
EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin arenon-GAAP financial measures. They have limitations as analytical tools, should not be viewed as a substitute for financial information determined in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”), and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. In addition, they may not necessarily be comparable tonon-GAAP performance measures that may be presented by other companies. Management believes the presentation of thesenon-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 thesenon-GAAP financial measures facilitates comparisons to Korn Ferry’s historical performance and the identification of operating trends that may otherwise be distorted by certain charges and other items that may not be indicative of Korn Ferry’s ongoing operating results.the factors discussed above. Korn Ferry includes thesenon-GAAP financial measures because management believes it is useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn Ferry’s ongoing operations and financial and operational decision-making. The accounting policies for the reportable segments are the same as those described in the summary of significant accounting policies in the accompanying consolidated financial statements, except that the above noted items are excluded from EBITDA to arrive at Adjusted EBITDA. Management further believes that EBITDA is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures, effective tax rates and tax attributes and capitalized asset values, all of which can vary substantially from company to company. Similarly, adjusted fee revenue, which includes revenue that Hay Group 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 andwrite-off deferred revenue where no future services are required to be performed to earn that revenue, is anon-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 that will provide better comparability in the current and future 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 meaningfulperiod-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 $447.6$484.5 million during the three months ended JanuaryJuly 31, 2018,2019, an increase of $65.7$18.9 million, or 17%4%, compared to $381.9$465.6 million in the three months ended JanuaryJuly 31, 2017, with increases in2018. Exchange rates unfavorably impacted fee revenue by $11.3 million, or 2%, in all business segments.the three months ended July 31, 2019 compared to the year-ago quarter. During the three months ended JanuaryJuly 31, 2018,2019, we recorded operating income of $48.6$60.3 million, an increase of $115.4 million, as compared to operating loss of $55.1 million in the three months ended July 31, 2018, with the Advisory, Executive
Search Hay Group and FuturestepRPO & Professional Search segments contributing $34.3$25.8 million, $27.1$45.6 million and $10.1$15.0 million, respectively, offset by Corporate expenses of $22.9$26.1 million. Net income attributable to Korn Ferry increased $3.3 million duringin the three months ended JanuaryJuly 31, 20182019 was $43.0 million, an increase of $81.6 million as compared to $27.2net loss attributable to Korn Ferry of $38.6 million from $23.9 million forin theyear-ago quarter. During the three months ended JanuaryJuly 31, 2018,2019, Adjusted EBITDA was $70.3$74.9 million, an increase of $4.1 million from Adjusted EBITDA of $70.8 million in the year-ago quarter, with the Advisory, Executive Search Hay Group and FuturestepRPO & Professional Search segments contributing $37.2$34.6 million, $36.9$48.9 million and $10.8$16.1 million, respectively, offset by Corporate expenses net of other income of $14.6$24.6 million. Adjusted EBITDA was $70.3 million, an increase of $15.0 million during the three months ended January 31, 2018, from Adjusted EBITDA of $55.3 million in theyear-ago quarter. Our cash, cash equivalents and marketable securities decreased $1.8by $199.8 million to $529.0$567.3 million at JanuaryJuly 31, 2018,2019, compared to $530.8$767.1 million at April 30, 2017.2019. This decrease iswas mainly due to annual bonuses earned in fiscal 20172019 and paid during the first quarter of fiscal 2018,2020, sign-on and retention payments, stock repurchases$10.7 million in the open market, payments for the purchase of property and equipment, $12.7 million for stock repurchases in the open market, $8.6 million paid in tax withholding on restricted stock vestings and $6.1 million in dividends paid during fiscal 2018 and principal payments on our term loan, partially offset by cash provided by operating activities.the three months ended July 31, 2019. As of JanuaryJuly 31, 2018,2019, we held marketable securities to settle obligations under our Executive Capital Accumulation Plan (“ECAP”) with a cost value of $124.2$136.3 million and a fair value of $139.0$142.7 million. Our vested obligations for which these assets were held in trust totaled $122.3$133.7 million as of JanuaryJuly 31, 20182019 and our unvested obligations totaled $29.7$17.3 million. Our working capital increased from April 30, 2017 to January 31, 2018decreased by $40.1$22.4 million to $425.2$563.5 million as of JanuaryJuly 31, 2018.2019, as compared to $585.9 million at April 30, 2019. We believe that cash on hand and funds from operations and other forms of liquidity will be sufficient to meet our anticipated working capital, capital expenditures, general corporate requirements, repayment of the debt obligations incurred in connection with the Legacy Hay acquisition, the retention pool obligations pursuant to the Legacy Hay acquisition and dividend payments under our dividend policy in the next twelve months. We had no outstanding borrowings$419.9 million and $420.2 million available for borrowing under our revolving credit facilityRevolver at JanuaryJuly 31, 20182019 and April 30, 2017.2019, respectively. As of JanuaryJuly 31, 20182019 and April 30, 2017,2019, there was $2.9$3.2 million and $3.0$2.9 million respectively, of standby letters of credit issued, respectively, under our long-term debt arrangements. We had a total of $7.3$8.9 million and $8.1$8.5 million of standby letters of credits with other financial institutions as of JanuaryJuly 31, 20182019 and April 30, 2017,2019, respectively. 25
Results of Operations The following table summarizes the results of our operations as a percentage of fee revenue: (Numbers may not total exactly due to rounding) | | | | | | | | | | | | | | | | | | | Three Months Ended January 31, | | | Nine months Ended January 31, | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | Fee revenue | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | Reimbursedout-of-pocket engagement expenses | | | 2.9 | | | | 3.2 | | | | 3.0 | | | | 3.7 | | | | | | | | | | | | | | | | | | | Total revenue | | | 102.9 | | | | 103.2 | | | | 103.0 | | | | 103.7 | | Compensation and benefits | | | 69.4 | | | | 68.7 | | | | 68.6 | | | | 68.7 | | General and administrative expenses | | | 13.1 | | | | 14.9 | | | | 13.6 | | | | 14.3 | | Reimbursed expenses | | | 2.9 | | | | 3.2 | | | | 3.0 | | | | 3.7 | | Cost of services | | | 3.9 | | | | 4.3 | | | | 4.1 | | | | 4.5 | | Depreciation and amortization | | | 2.7 | | | | 3.1 | | | | 2.9 | | | | 3.0 | | Restructuring charges, net | | | — | | | | 1.0 | | | | — | | | | 2.4 | | | | | | | | | | | | | | | | | | | Operating income | | | 10.9 | | | | 8.0 | | | | 10.9 | | | | 7.0 | | | | | | | | | | | | | | | | | | | Net income | | | 6.1 | % | | | 6.4 | % | | | 7.2 | % | | | 5.1 | % | | | | | | | | | | | | | | | | | | Net income attributable to Korn/Ferry International | | | 6.1 | % | | | 6.3 | % | | | 7.2 | % | | | 4.9 | % | | | | | | | | | | | | | | | | | |
| | Three Months Ended July 31, | | | | 2019 | | | 2018 | | Fee revenue | | | 100.0 | % | | | 100.0 | % | Reimbursed out-of-pocket engagement expenses | | | 2.4 | | | | 2.7 | | Total revenue | | | 102.4 | | | | 102.7 | | Compensation and benefits | | | 67.8 | | | | 69.1 | | General and administrative expenses | | | 13.6 | | | | 36.2 | | Reimbursed expenses | | | 2.4 | | | | 2.7 | | Cost of services | | | 3.5 | | | | 3.9 | | Depreciation and amortization | | | 2.6 | | | | 2.5 | | Operating income (loss) | | | 12.5 | | | | (11.8 | ) | Net income (loss) | | | 9.0 | % | | | (8.3 | %) | Net income (loss) attributable to Korn Ferry | | | 8.9 | % | | | (8.3 | %) |
The following tables summarize the results of our operations by business segment: (Numbers may not total exactly due to rounding) | | | Three Months Ended January 31, | | Nine months Ended January 31, | | | Three Months Ended July 31, | | | | 2018 | | 2017 | | 2018 | | 2017 | | | 2019 | | | 2018 | | | | Dollars | | % | | Dollars | | % | | Dollars | | % | | Dollars | | % | | | Dollars | | | % | | | Dollars | | | % | | | | (in thousands) | | | (dollars in thousands) | | Fee revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Advisory | | | $ | 195,526 | | | | 40.3 | % | | $ | 195,375 | | | | 42.0 | % | Executive Search: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | North America | | $ | 102,716 | | | 22.9 | % | | $ | 84,827 | | | 22.2 | % | | $ | 296,093 | | | 22.9 | % | | $ | 259,361 | | | 22.4 | % | | | 111,722 | | | | 23.1 | | | | 112,097 | | | | 24.1 | | EMEA | | | 46,782 | | | 10.5 | | | 39,147 | | | 10.3 | | | 128,249 | | | 9.9 | | | 109,296 | | | 9.4 | | | | 46,530 | | | | 9.6 | | | | 46,654 | | | | 10.0 | | Asia Pacific | | | 24,493 | | | 5.5 | | | 21,012 | | | 5.5 | | | 71,983 | | | 5.6 | | | 60,108 | | | 5.2 | | | | 27,362 | | | | 5.6 | | | | 26,295 | | | | 5.6 | | Latin America. | | | 6,425 | | | 1.4 | | | 7,835 | | | 2.0 | | | 22,048 | | | 1.7 | | | 26,645 | | | 2.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Latin America | | | | 7,585 | | | | 1.6 | | | | 7,878 | | | | 1.7 | | Total Executive Search | | | 180,416 | | | 40.3 | | | 152,821 | | | 40.0 | | | 518,373 | | | 40.1 | | | 455,410 | | | 39.3 | | | | 193,199 | | | | 39.9 | | | | 192,924 | | | | 41.4 | | Hay Group | | | 198,056 | | | 44.3 | | | 175,662 | | | 46.0 | | | 577,462 | | | 44.7 | | | 539,086 | | | 46.5 | | | Futurestep | | | 69,109 | | | 15.4 | | | 53,435 | | | 14.0 | | | 196,018 | | | 15.2 | | | 164,960 | | | 14.2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | RPO & Professional Search | | | | 95,824 | | | | 19.8 | | | | 77,269 | | | | 16.6 | | Total fee revenue | | | 447,581 | | | 100.0 | % | | 381,918 | | | 100.0 | % | | 1,291,853 | | | 100.0 | % | | 1,159,456 | | | 100.0 | % | | | 484,549 | | | | 100.0 | % | | | 465,568 | | | | 100.0 | % | | | | | | | | | | | | | | | | | | | | | | | Reimbursedout-of-pocket engagement expenses | | | 13,189 | | | | | 12,277 | | | | | 39,302 | | | | | 42,626 | | | | | | | | | | | | | | | | | | | | | | | | | | | Reimbursed out-of-pocket engagement expense | | | | 11,649 | | | | | | | | 12,794 | | | | | | Total revenue | | $ | 460,770 | | | | | $ | 394,195 | | | | | $ | 1,331,155 | | | | | $ | 1,202,082 | | | | | $ | 496,198 | | | | | | | $ | 478,362 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended January 31, | | Nine months Ended January 31, | | | | | 2018 | | 2017 | | 2018 | | 2017 | | | | | Dollars | | Margin (1) | | Dollars | | Margin (1) | | Dollars | | Margin (1) | | Dollars | | Margin (1) | | | | | (in thousands) | | | Operating Income | | | | | | | | | | | | | | | | | | Executive Search: | | | | | | | | | | | | | | | | | | North America | | $ | 21,313 | | | 20.7 | % | | $ | 17,718 | | | 20.9 | % | | $ | 66,253 | | | 22.4 | % | | $ | 60,458 | | | 23.3 | % | | EMEA | | | 7,329 | | | 15.7 | | | 8,175 | | | 20.9 | | | 20,349 | | | 15.9 | | | 21,049 | | | 19.3 | | | Asia Pacific | | | 5,289 | | | 21.6 | | | 2,086 | | | 9.9 | | | 12,811 | | | 17.8 | | | 6,216 | | | 10.3 | | | Latin America. | | | 408 | | | 6.4 | | | 1,352 | | | 17.3 | | | 2,961 | | | 13.4 | | | 5,966 | | | 22.4 | | | | | | | | | | | | | | | | | | | | | | | | | Total Executive Search | | | 34,339 | | | 19.0 | | | 29,331 | | | 19.2 | | | 102,374 | | | 19.7 | | | 93,689 | | | 20.6 | | | Hay Group | | | 27,079 | | | 13.7 | | | 15,988 | | | 9.1 | | | 72,532 | | | 12.6 | | | 31,188 | | | 5.8 | | | Futurestep | | | 10,056 | | | 14.6 | | | 6,549 | | | 12.3 | | | 27,702 | | | 14.1 | | | 21,849 | | | 13.2 | | | Corporate | | | (22,852 | ) | | | — | | | (21,326 | ) | | | — | | | (62,005 | ) | | | — | | | (65,120 | ) | | | — | | | | | | | | | | | | | | | | | | | | | | | | | Total operating income | | $ | 48,622 | | | 10.9 | % | | $ | 30,542 | | | 8.0 | % | | $ | 140,603 | | | 10.9 | % | | $ | 81,606 | | | 7.0 | % | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended July 31, | | | | 2019 | | | 2018 | | | | Dollars | | | Margin (1) | | | Dollars | | | Margin (1) | | | | (dollars in thousands) | | Operating income (loss) | | | | | | | | | | | | | | | | | Advisory | | $ | 25,791 | | | | 13.2 | % | | $ | (83,079 | ) | | | (42.5 | %) | Executive Search: | | | | | | | | | | | | | | | | | North America | | | 30,322 | | | | 27.1 | | | | 26,514 | | | | 23.7 | | EMEA | | | 7,311 | | | | 15.7 | | | | 6,969 | | | | 14.9 | | Asia Pacific | | | 6,993 | | | | 25.6 | | | | 6,641 | | | | 25.3 | | Latin America | | | 1,010 | | | | 13.3 | | | | 754 | | | | 9.6 | | Total Executive Search | | | 45,636 | | | | 23.6 | | | | 40,878 | | | | 21.2 | | RPO & Professional Search | | | 15,041 | | | | 15.7 | | | | 11,645 | | | | 15.1 | | Corporate | | | (26,134 | ) | | | | | | | (24,563 | ) | | | | | Total operating income (loss) | | $ | 60,334 | | | | 12.5 | % | | $ | (55,119 | ) | | | (11.8 | %) |
(1) | Margin calculated as a percentage of fee revenue by business segment. |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended January 31, 2018 | | | | Executive Search | | | | | | | | | | | | | | | | North America | | | EMEA | | | Asia Pacific | | | Latin America | | | Subtotal | | | Hay Group | | | Futurestep | | | Corporate | | | Consolidated | | | | (in thousands) | | Fee revenue | | $ | 102,716 | | | $ | 46,782 | | | $ | 24,493 | | | $ | 6,425 | | | $ | 180,416 | | | $ | 198,056 | | | $ | 69,109 | | | $ | — | | | $ | 447,581 | | Total revenue | | $ | 106,332 | | | $ | 47,763 | | | $ | 24,942 | | | $ | 6,456 | | | $ | 185,493 | | | $ | 201,961 | | | $ | 73,316 | | | $ | — | | | $ | 460,770 | | | | | | | | | | | | Net income attributable to Korn/Ferry International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 27,247 | | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 180 | | Other income, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (7,689 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,665 | | Equity in earnings of unconsolidated subsidiaries, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (97 | ) | Income tax provision | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 26,316 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss) | | $ | 21,313 | | | $ | 7,329 | | | $ | 5,289 | | | $ | 408 | | | $ | 34,339 | | | $ | 27,079 | | | $ | 10,056 | | | $ | (22,852 | ) | | | 48,622 | | Depreciation and amortization | | | 990 | | | | 458 | | | | 361 | | | | 113 | | | | 1,922 | | | | 7,882 | | | | 733 | | | | 1,688 | | | | 12,225 | | Other income, net | | | 585 | | | | 37 | | | | 185 | | | | 40 | | | | 847 | | | | 370 | | | | 2 | | | | 6,470 | | | | 7,689 | | Equity in earnings of unconsolidated subsidiaries, net | | | 97 | | | | — | | | | — | | | | — | | | | 97 | | | | — | | | | — | | | | — | | | | 97 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EBITDA | | | 22,985 | | | | 7,824 | | | | 5,835 | | | | 561 | | | | 37,205 | | | | 35,331 | | | | 10,791 | | | | (14,694 | ) | | | 68,633 | | Integration/acquisition costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,593 | | | | — | | | | 80 | | | | 1,673 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA | | $ | 22,985 | | | $ | 7,824 | | | $ | 5,835 | | | $ | 561 | | | $ | 37,205 | | | $ | 36,924 | | | $ | 10,791 | | | $ | (14,614 | ) | | $ | 70,306 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA margin | | | 22.4 | % | | | 16.7 | % | | | 23.8 | % | | | 8.7 | % | | | 20.6 | % | | | 18.6 | % | | | 15.6 | % | | | | | | | 15.7 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended January 31, 2017 | | | | Executive Search | | | | | | | | | | | | | | | | North America | | | EMEA | | | Asia Pacific | | | Latin America | | | Subtotal | | | Hay Group | | | Futurestep | | | Corporate | | | Consolidated | | | | (in thousands) | | Fee revenue | | $ | 84,827 | | | $ | 39,147 | | | $ | 21,012 | | | $ | 7,835 | | | $ | 152,821 | | | $ | 175,662 | | | $ | 53,435 | | | $ | — | | | $ | 381,918 | | Total revenue | | $ | 87,975 | | | $ | 39,965 | | | $ | 21,336 | | | $ | 7,856 | | | $ | 157,132 | | | $ | 178,962 | | | $ | 58,101 | | | $ | — | | | $ | 394,195 | | | | | | | | | | | | Net income attributable to Korn/Ferry International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 23,897 | | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 481 | | Other income, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (4,200 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,402 | | Equity in earnings of unconsolidated subsidiaries, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (113 | ) | Income tax provision | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 8,075 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss) | | $ | 17,718 | | | $ | 8,175 | | | $ | 2,086 | | | $ | 1,352 | | | $ | 29,331 | | | $ | 15,988 | | | $ | 6,549 | | | $ | (21,326 | ) | | | 30,542 | | Depreciation and amortization | | | 996 | | | | 226 | | | | 268 | | | | (21 | ) | | | 1,469 | | | | 8,061 | | | | 789 | | | | 1,455 | | | | 11,774 | | Other income (loss), net | | | 316 | | | | 19 | | | | 60 | | | | 61 | | | | 456 | | | | 122 | | | | (2 | ) | | | 3,624 | | | | 4,200 | | Equity in earnings of unconsolidated subsidiaries, net | | | 113 | | | | — | | | | — | | | | — | | | | 113 | | | | — | | | | — | | | | — | | | | 113 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EBITDA | | | 19,143 | | | | 8,420 | | | | 2,414 | | | | 1,392 | | | | 31,369 | | | | 24,171 | | | | 7,336 | | | | (16,247 | ) | | | 46,629 | | Restructuring charges, net | | | — | | | | — | | | | 893 | | | | 309 | | | | 1,202 | | | | 2,519 | | | | 80 | | | | — | | | | 3,801 | | Integration/acquisition costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,364 | | | | — | | | | 1,466 | | | | 4,830 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA | | $ | 19,143 | | | $ | 8,420 | | | $ | 3,307 | | | $ | 1,701 | | | $ | 32,571 | | | $ | 30,054 | | | $ | 7,416 | | | $ | (14,781 | ) | | $ | 55,260 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA margin | | | 22.6 | % | | | 21.5 | % | | | 15.7 | % | | | 21.7 | % | | | 21.3 | % | | | 17.1 | % | | | 13.9 | % | | | | | | | 14.5 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended July 31, 2019 | | | | | | | | Executive Search | | | | | | | | | | | | | | | | Advisory | | | North America | | | EMEA | | | Asia Pacific | | | Latin America | | | Subtotal | | | RPO & Professional Search | | | Corporate | | | Consolidated | | | | (in thousands) | | Fee revenue | | $ | 195,526 | | | $ | 111,722 | | | $ | 46,530 | | | $ | 27,362 | | | $ | 7,585 | | | $ | 193,199 | | | $ | 95,824 | | | $ | — | | | $ | 484,549 | | Total revenue | | $ | 199,320 | | | $ | 115,446 | | | $ | 47,312 | | | $ | 27,668 | | | $ | 7,587 | | | $ | 198,013 | | | $ | 98,865 | | | $ | — | | | $ | 496,198 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income attributable to Korn Ferry | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 42,951 | | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 699 | | Other income, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (1,826 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,057 | | Income tax provision | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 14,453 | | Operating income (loss) | | $ | 25,791 | | | $ | 30,322 | | | $ | 7,311 | | | $ | 6,993 | | | $ | 1,010 | | | $ | 45,636 | | | $ | 15,041 | | | $ | (26,134 | ) | | | 60,334 | | Depreciation and amortization | | | 8,053 | | | | 901 | | | | 456 | | | | 346 | | | | 328 | | | | 2,031 | | | | 992 | | | | 1,701 | | | | 12,777 | | Other income (loss), net | | | 726 | | | | 1,140 | | | | 12 | | | | 15 | | | | 57 | | | | 1,224 | | | | 74 | | | | (198 | ) | | | 1,826 | | EBITDA and Adjusted EBITDA | | $ | 34,570 | | | $ | 32,363 | | | $ | 7,779 | | | $ | 7,354 | | | $ | 1,395 | | | $ | 48,891 | | | $ | 16,107 | | | $ | (24,631 | ) | | $ | 74,937 | | EBITDA and Adjusted EBITDA margin | | | 17.7 | % | | | 29.0 | % | | | 16.7 | % | | | 26.9 | % | | | 18.4 | % | | | 25.3 | % | | | 16.8 | % | | | | | | | 15.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nine months Ended January 31, 2018 | | | | Executive Search | | | | | | | | | | | | | | | | North America | | | EMEA | | | Asia Pacific | | | Latin America | | | Subtotal | | | Hay Group | | | Futurestep | | | Corporate | | | Consolidated | | | | (in thousands) | | Fee revenue | | $ | 296,093 | | | $ | 128,249 | | | $ | 71,983 | | | $ | 22,048 | | | $ | 518,373 | | | $ | 577,462 | | | $ | 196,018 | | | $ | — | | | $ | 1,291,853 | | Total revenue | | $ | 305,866 | | | $ | 130,894 | | | $ | 73,009 | | | $ | 22,114 | | | $ | 531,883 | | | $ | 589,093 | | | $ | 210,179 | | | $ | — | | | $ | 1,331,155 | | | | | | | | | | | | Net income attributable to Korn/Ferry International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 92,619 | | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 969 | | Other income, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (14,847 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 7,904 | | Equity in earnings of unconsolidated subsidiaries, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (187 | ) | Income tax provision | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 54,145 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss) | | $ | 66,253 | | | $ | 20,349 | | | $ | 12,811 | | | $ | 2,961 | | | $ | 102,374 | | | $ | 72,532 | | | $ | 27,702 | | | $ | (62,005 | ) | | | 140,603 | | Depreciation and amortization | | | 2,923 | | | | 1,345 | | | | 1,052 | | | | 331 | | | | 5,651 | | | | 24,110 | | | | 2,313 | | | | 4,807 | | | | 36,881 | | Other income, net | | | 1,157 | | | | 136 | | | | 384 | | | | 99 | | | | 1,776 | | | | 459 | | | | 10 | | | | 12,602 | | | | 14,847 | | Equity in earnings of unconsolidated subsidiaries, net | | | 187 | | | | — | | | | — | | | | — | | | | 187 | | | | — | | | | — | | | | — | | | | 187 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | EBITDA | | | 70,520 | | | | 21,830 | | | | 14,247 | | | | 3,391 | | | | 109,988 | | | | 97,101 | | | | 30,025 | | | | (44,596 | ) | | | 192,518 | | Restructuring charges (recoveries), net | | | — | | | | — | | | | 313 | | | | — | | | | 313 | | | | (241 | ) | | | 6 | | | | — | | | | 78 | | Integration/acquisition costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | 6,455 | | | | — | | | | 199 | | | | 6,654 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA | | $ | 70,520 | | | $ | 21,830 | | | $ | 14,560 | | | $ | 3,391 | | | $ | 110,301 | | | $ | 103,315 | | | $ | 30,031 | | | $ | (44,397 | ) | | $ | 199,250 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA margin | | | 23.8 | % | | | 17.0 | % | | | 20.2 | % | | | 15.4 | % | | | 21.3 | % | | | 17.9 | % | | | 15.3 | % | | | | | | | 15.4 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nine months Ended January 31, 2017 | | | | Executive Search | | | | | | | | | | | | | | | | North America | | | EMEA | | | Asia Pacific | | | Latin America | | | Subtotal | | | Hay Group | | | Futurestep | | | Corporate | | | Consolidated | | | | (in thousands) | | Fee revenue | | $ | 259,361 | | | $ | 109,296 | | | $ | 60,108 | | | $ | 26,645 | | | $ | 455,410 | | | $ | 539,086 | | | $ | 164,960 | | | $ | — | | | $ | 1,159,456 | | Deferred revenue adjustment due to acquisition | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,535 | | | | — | | | | — | | | | 3,535 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted fee revenue | | $ | 259,361 | | | $ | 109,296 | | | $ | 60,108 | | | $ | 26,645 | | | $ | 455,410 | | | $ | 542,621 | | | $ | 164,960 | | | $ | — | | | $ | 1,162,991 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total revenue | | $ | 269,302 | | | $ | 111,721 | | | $ | 61,445 | | | $ | 26,766 | | | $ | 469,234 | | | $ | 552,822 | | | $ | 180,026 | | | $ | — | | | $ | 1,202,082 | | | | | | | | | | | | Net income attributable to Korn/Ferry International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 57,257 | | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,245 | | Other income, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (7,580 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 8,199 | | Equity in earnings of unconsolidated subsidiaries, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (221 | ) | Income tax provision | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 21,706 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income (loss) | | $ | 60,458 | | | $ | 21,049 | | | $ | 6,216 | | | $ | 5,966 | | | $ | 93,689 | | | $ | 31,188 | | | $ | 21,849 | | | $ | (65,120 | ) | | | 81,606 | | Depreciation and amortization | | | 2,816 | | | | 666 | | | | 757 | | | | 267 | | | | 4,506 | | | | 24,102 | | | | 2,081 | | | | 4,281 | | | | 34,970 | | Other income (loss), net | | | 512 | | | | (37 | ) | | | 171 | | | | 158 | | | | 804 | | | | 346 | | | | (4 | ) | | | 6,434 | | | | 7,580 | | Equity in earnings of unconsolidated subsidiaries, net | | | 221 | | | | — | | | | — | | | | — | | | | 221 | | | | — | | | | — | | | | — | | | | 221 | | | | | | | | | | | | | | | | | | | | | | | | �� | | | | | | | | | | | | | | | EBITDA | | | 64,007 | | | | 21,678 | | | | 7,144 | | | | 6,391 | | | | 99,220 | | | | 55,636 | | | | 23,926 | | | | (54,405 | ) | | | 124,377 | | Restructuring charges, net | | | 1,706 | | | | 128 | | | | 1,515 | | | | 669 | | | | 4,018 | | | | 24,007 | | | | 80 | | | | 216 | | | | 28,321 | | Integration/acquisition costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | 11,993 | | | | — | | | | 6,684 | | | | 18,677 | | Deferred revenue adjustment due to acquisition | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,535 | | | | — | | | | — | | | | 3,535 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA | | $ | 65,713 | | | $ | 21,806 | | | $ | 8,659 | | | $ | 7,060 | | | $ | 103,238 | | | $ | 95,171 | | | $ | 24,006 | | | $ | (47,505 | ) | | $ | 174,910 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adjusted EBITDA margin | | | 25.3 | % | | | 20.0 | % | | | 14.4 | % | | | 26.5 | % | | | 22.7 | % | | | 17.5 | % | | | 14.6 | % | | | | | | | 15.0 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended July 31, 2018 | | | | | | | | Executive Search | | | | | | | | | | | | | | | | Advisory | | | North America | | | EMEA | | | Asia Pacific | | | Latin America | | | Subtotal | | | RPO & Professional Search | | | Corporate | | | Consolidated | | | | (in thousands) | | Fee revenue | | $ | 195,375 | | | $ | 112,097 | | | $ | 46,654 | | | $ | 26,295 | | | $ | 7,878 | | | $ | 192,924 | | | $ | 77,269 | | | $ | — | | | $ | 465,568 | | Total revenue | | $ | 200,147 | | | $ | 115,757 | | | $ | 47,749 | | | $ | 26,625 | | | $ | 7,903 | | | $ | 198,034 | | | $ | 80,181 | | | $ | — | | | $ | 478,362 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss attributable to Korn Ferry | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | (38,611 | ) | Net income attributable to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 19 | | Other income, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (4,520 | ) | Interest expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,103 | | Income tax benefit | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (16,110 | ) | Operating income (loss) | | $ | (83,079 | ) | | $ | 26,514 | | | $ | 6,969 | | | $ | 6,641 | | | $ | 754 | | | $ | 40,878 | | | $ | 11,645 | | | $ | (24,563 | ) | | | (55,119 | ) | Depreciation and amortization | | | 7,431 | | | | 979 | | | | 370 | | | | 370 | | | | 107 | | | | 1,826 | | | | 761 | | | | 1,713 | | | | 11,731 | | Other income (loss), net | | | 570 | | | | 3,501 | | | | 340 | | | | 175 | | | | 37 | | | | 4,053 | | | | 105 | | | | (208 | ) | | | 4,520 | | EBITDA | | | (75,078 | ) | | | 30,994 | | | | 7,679 | | | | 7,186 | | | | 898 | | | | 46,757 | | | | 12,511 | | | | (23,058 | ) | | | (38,868 | ) | Integration/acquisition costs | | | 3,027 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 80 | | | | 3,107 | | Tradename write-offs | | | 106,555 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 106,555 | | Adjusted EBITDA | | $ | 34,504 | | | $ | 30,994 | | | $ | 7,679 | | | $ | 7,186 | | | $ | 898 | | | $ | 46,757 | | | $ | 12,511 | | | $ | (22,978 | ) | | $ | 70,794 | | Adjusted EBITDA margin | | | 17.7 | % | | | 27.6 | % | | | 16.5 | % | | | 27.3 | % | | | 11.4 | % | | | 24.2 | % | | | 16.2 | % | | | | | | | 15.2 | % |
Three Months Ended JanuaryJuly 31, 20182019 Compared to Three Months Ended JanuaryJuly 31, 20172018 Fee Revenue Fee Revenue.Fee revenue increased by $65.7$18.9 million, or 17%4%, to $447.6$484.5 million in the three months ended JanuaryJuly 31, 20182019 compared to $381.9$465.6 million in theyear-ago quarter. Exchange rates favorablyunfavorably impacted fee revenue by $15.8$11.3 million, or 4%2%, in the three months ended JanuaryJuly 31, 20182019 compared to theyear-ago quarter. The higher fee revenue was attributable to organic growth in all linesRPO & Professional Search. Advisory. Advisory reported fee revenue of business.$195.5 million, an increase of $0.1 million, in the three months ended July 31, 2019 compared to $195.4 million in the year-ago quarter. Exchange rates unfavorably impacted fee revenue by $5.6 million, or 3%, in the three months ended July 31, 2019 compared to the year-ago quarter. Executive Search.Executive Search reported fee revenue of $180.4$193.2 million, an increase of $27.6$0.3 million, in the three months ended July 31, 2019 compared to $192.9 million in the year-ago quarter. Exchange rates unfavorably impacted fee revenue by $3.7 million, or 18%2%, in the three months ended JanuaryJuly 31, 20182019 compared to $152.8 million in theyear-ago quarter. As detailed below, Executive Search fee revenue was higherincreased in North America, EMEA and Asia Pacific regions, partially offset by lower fee revenue in the Latin America regionall other regions in the three months ended JanuaryJuly 31, 20182019 as compared to theyear-ago quarter. The higher fee revenue in Executive Search was mainly due to a 10% increase in the number of engagements billed and 4% increase in the weighted-average fees billed per engagement (calculated using local currency) during the three months ended January 31, 2018 compared to theyear-ago quarter. Exchange rates favorably impacted fee revenue by $5.6 million, or 4%, in the three months ended January 31, 2018, compared to theyear-ago quarter. North America reported fee revenue of $102.7 million, an increase of $17.9 million, or 21%, in the three months ended January 31, 2018 compared to $84.8 million in theyear-ago quarter. North America’s fee revenue was higher due to a 16% increase in the number of engagements billed and a 4% increase in the weighted-average fees billed per engagement (calculated using local currency) during the three months ended January 31, 2018 compared to theyear-ago quarter. The overall increase in fee revenue was driven by the increase in
27
fee revenue from consumer, life sciences/healthcare, technology, industrial and financial services, partially offset by decreases in the technology, consumer and education/non-profit sectors. Exchange rates favorably impacted North America reported fee revenue by $0.5of $111.7 million, or 1%a decrease of $0.4 million, in the three months ended JanuaryJuly 31, 20182019 compared to $112.1 million in theyear-ago quarter. Exchange rates unfavorably impacted fee revenue by $0.2 million in three months ended July 31, 2019 compared to the year-ago quarter. EMEAEurope, the Middle East, and Africa (“EMEA”) reported fee revenue of $46.8$46.5 million, an increasea decrease of $7.7$0.2 million, in the three months ended July 31, 2019 compared to $46.7 million in the year-ago quarter. Exchange rates unfavorably impacted fee revenue by $2.1 million, or 20%4%, in the three months ended JanuaryJuly 31, 20182019 compared to $39.1 millionthe year-ago quarter. The performance in theyear-ago quarter. Exchange rates favorably impacted United Kingdom and Switzerland were the primary contributors to the decrease in fee revenue, partially offset by $3.9increases in the Netherlands and United Arab Emirates in the three months ended July 31, 2019 compared to the year-ago quarter.
Asia Pacific reported fee revenue of $27.4 million, an increase of $1.1 million, or 10%4%, in the three months ended JanuaryJuly 31, 2018,2019 compared to $26.3 million in theyear-ago quarter. Exchange rates unfavorably impacted fee revenue by $0.9 million, or 3%, in the three months ended July 31, 2019 compared to the year-ago quarter. The rest of the changeincrease in fee revenue was due to a 15%12% increase in the number of engagements billed during the three months ended July 31, 2019 compared to the year-ago quarter, offset by a 5%4% decrease in the weighted-average fees billed per engagement (calculated using local currency) during the three months ended January 31, 2018 compared to theyear-ago quarter.. The performance in France, United Kingdom, Germany, and Denmark were the primary contributors to the increase in fee revenue in the three months ended January 31, 2018 compared to theyear-ago quarter. In terms of business sectors, industrial and consumer had the largest increase in fee revenue in the three months ended January 31, 2018 compared to theyear-ago quarter. Asia Pacific reported fee revenue of $24.5 million, an increase of $3.5 million, or 17%, in the three months ended January 31, 2018 compared to $21.0 million in theyear-ago quarter. The effect of exchange rates on fee revenue was $1.1 million, or 5%, in the three months ended January 31, 2018 compared to theyear-ago quarter. The increase in fee revenue was due to a 11% increase in the number of engagements billed in the three months ended January 31, 2018 compared to theyear-ago quarter. The performance in China, Australia,Hong Kong, Japan, and Singapore were the primary contributors to the increase in fee revenue, partially offset by a decrease in fee revenue in China in the three months ended JanuaryJuly 31, 20182019 compared to theyear-ago quarter. Life sciences/ healthcare, financial services, and technology were the main sectors contributing to the increase in fee revenue in the three months ended January 31, 2018, as compared to theyear-ago quarter.
Latin America reported fee revenue of $6.4$7.6 million, a decrease of $1.4 million, or 18%, in the three months ended January 31, 2018 compared to $7.8 million in theyear-ago quarter. The effect of exchange rates on fee revenue was minimal. The decrease in fee revenue in the region is due to lower fee revenue in Mexico in the three months ended January 31, 2018, compared to theyear-ago quarter, partially offset by higher fee revenue in Argentina. Industrial and financial services were the main sectors contributing to the decline in fee revenue. Hay Group.Hay Group reported fee revenue of $198.1 million, an increase of $22.4 million, or 13%, in the three months ended January 31, 2018 compared to $175.7 million in theyear-ago quarter. Exchange rates favorably impacted fee revenue by $7.8 million, or 4%, compared to theyear-ago quarter. Fee revenue from consulting services was higher by $15.6 million in the three months ended January 31, 2018 compared to theyear-ago quarter, with the remaining increase of $6.8 million generated by our products business.
Futurestep.Futurestep reported fee revenue of $69.1 million, an increase of $15.7 million, or 29%, in the three months ended January 31, 2018 compared to $53.4 million in theyear-ago quarter. Exchange rates favorably impacted fee revenue by $2.4$0.3 million, or 4%, in the three months ended JanuaryJuly 31, 2018.2019 compared to $7.9 million in the year-ago quarter. Exchange rates unfavorably impacted fee revenue by $0.5 million, or 6%, in the three months ended July 31, 2019 compared to the year-ago quarter. The decrease in fee revenue in the region was due to lower fee revenue in Colombia and Brazil, offset by higher fee revenue in Chile in the three months ended July 31, 2019 compared to the year-ago quarter.
RPO & Professional Search. RPO & Professional Search reported fee revenue of $95.8 million, an increase of $18.5 million, or 24%, in the three months ended July 31, 2019 compared to $77.3 million in the year-ago quarter. Exchange rates unfavorably impacted fee revenue by $2.1 million, or 3% in the three months ended July 31, 2019 compared to the year-ago quarter. Higher fee revenues in RPO and professional search& Professional Search of $9.9$11.9 million and $6.0$6.6 million, respectively, drove the increase in fee revenue. Compensation and Benefits Compensation and benefits expense increased $48.4by $6.6 million, or 18%2%, to $310.8$328.5 million in the three months ended JanuaryJuly 31, 20182019 from $262.4$321.9 million in theyear-ago quarter. Exchange rates unfavorablyfavorably impacted compensation and benefits expenses by $9.9$6.9 million, or 4%2%, in the three months ended JanuaryJuly 31, 20182019 compared to theyear-ago quarter. The increase in
compensation and benefits was primarily due to a 9%an increase in average headcount, which contributed $25.6 millionpartially offset by a decrease in higher salaries and related payroll taxes, $3.4 million increase in amortization of long-term incentive awards, $1.8 million in vacationperformance-related bonus expense and $1.4 million in employee insurance costs. The rest of the change was due to an increase in performance related bonus expense of $15.7 million due to higher fee revenues and an increasea decrease in the amounts owed under certain deferred compensation and retirement plans of $4.8 million that was driven by increases in the fair value of participants’ accounts in the three months ended JanuaryJuly 31, 20182019 compared to theyear-ago quarter. The increases in compensation and benefits were partially offset by a decline in integration costs of $2.6 million. Executive Search compensation and benefits expense increased by $21.7 million, or 21%, to $123.7 million in the three months ended January 31, 2018 compared to $102.0 million in theyear-ago quarter. The increase was primarily due to higher salaries and related payroll taxes of $6.7 million due to a 6% increase in average headcount reflecting our continued growth-related investment back into the business. Also contributing tooffsetting the increase in compensation and benefits expense was a $7.2decrease of $3.1 million increaseof integration and acquisition costs and higher income generated from a change in performance related bonus expenseour cash surrender value (“CSV”) of the company-owned life insurance (“COLI”) of $1.0 million in the three months ended July 31, 2019 compared to theyear-ago quarter, an increase of $3.5 quarter.
Advisory compensation and benefits expense decreased by $2.1 million, or 2%, to $123.6 million in expenses associated with our deferredthe three months ended July 31, 2019 from $125.7 million in the year-ago quarter. Exchange rates favorably impacted compensation and retirement plans (including the increasesbenefits by $3.3 million, or 3%, in the fair value of participants’ accounts),three months ended July 31, 2019 compared to the year-ago quarter. The decrease in compensation and $2.4 million increase in amortization of long-term incentive awards. The increase in performance related bonusbenefits expense was due to thea lower performance-related bonus expense and a decrease in integration and acquisition costs. The decreases in compensation and benefits expense was partially offset by higher salaries and payroll taxes and vacation expense driven by an increase in headcount by 4%, in the three months ended July 31, 2019 compared to the year-ago quarter. Advisory compensation and benefits expense, as a percentage of fee revenue.revenue, decreased to 63% in the three months ended July 31, 2019 from 64% in the year-ago quarter. Executive Search compensation and benefits expense decreased by $4.0 million, or 3%, to $124.9 million in the three months ended July 31, 2019 compared to $128.9 million in the year-ago quarter. Exchange rates favorably impacted compensation and benefits by $2.3 million, or 2%, in the three months ended July 31, 2019 compared to the year-ago quarter. The decrease was primarily due to a lower performance-related bonus expense. Executive Search compensation and benefits expense, as a percentage of fee revenue, was 69% and 67%decreased to 65% in the three months ended JanuaryJuly 31, 2018 and 2017, respectively.2019 from 67% in the year-ago quarter. Hay Group28
RPO & Professional Search compensation and benefits expense increased $13.9by $13.8 million, or 12%25%, to $125.5$68.7 million in the three months ended JanuaryJuly 31, 20182019 from $111.6$54.9 million in theyear-ago quarter. The increase was primarily due to higher average consultant headcount of 6% compared to theyear-ago quarter which contributed $10.5 million in higher salaries and related payroll taxes and an increase in performance-related bonus expense of $2.6 million due to higher fee revenues, offset by $1.8 million in lower integration costs. Hay GroupExchange rates favorably impacted compensation and benefits expense, as a percentage of fee revenue, was 63% and 64%by $1.2 million, or 2%, in the three months ended JanuaryJuly 31, 2018 and 2017, respectively. Futurestep compensation and benefits expense increased $12.3 million, or 34%,2019 compared to $49.0 million in the three months ended January 31, 2018 from $36.7 million in theyear-ago quarter. The increase was due to higher salaries and related payroll taxes of $7.4 million due toresulting from a 31% increase in the average headcount in the three months ended JanuaryJuly 31, 20182019 compared to theyear-ago quarter. The higher average headcount 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 relatedperformance-related bonus expense of $4.6 million. Futurestepexpense. RPO & Professional Search compensation and benefits expense, as a percentage of fee revenue, was 71% and 69%increased to 72% in the three months ended JanuaryJuly 31, 2018 and 2017, respectively.2019 from 71% in the year-ago quarter.
Corporate compensation and benefits expense increaseddecreased by $0.4$1.1 million, or 3%9%, to $12.5$11.3 million in the three months ended JanuaryJuly 31, 20182019 from $12.1$12.4 million in theyear-ago quarter. The decrease was primarily due to the change in the CSV of COLI in the three months ended July 31, 2019 compared to the year-ago quarter. General and Administrative Expenses General and administrative expenses increased $1.7was $65.8 million, a decrease of $102.9 million, or 3%61%, to $58.5 million in the three months ended JanuaryJuly 31, 20182019 compared to $56.8$168.7 million in theyear-ago quarter. Exchange rates unfavorablyfavorably impacted general and administrative expenses by $1.8$2.2 million, or 3%1%, duringin the three months ended JanuaryJuly 31, 20182019 compared to theyear-ago quarter. The increasedecrease in general and administrative expenses was due to increasesthe write-off of $2.1 million and $0.9tradenames of $106.6 million in legalthe year-ago quarter with no such charge in the current quarter. General and other professional fees and business development expense, respectively, offset byadministrative expenses, as a declinepercentage of $0.6 millionfee revenue, was 14% in integration costs and a decrease in foreign exchange loss of $0.5 million during the three months ended JanuaryJuly 31, 20182019 compared to 36% in theyear-ago quarter. GeneralExcluding the tradename write-offs, general and administrative expenses as a percentage of fee revenue was 13% in the three months ended JanuaryJuly 31, 2018 compared to 15% in the three months ended January 31, 2017.2018. Executive SearchAdvisory general and administrative expenses increased $1.3 million, or 7%, to $19.3was $25.1 million in the three months ended JanuaryJuly 31, 2018 from $18.02019 compared to $131.0 million in theyear-ago quarter. The increase in general and administrative expensesdecrease of $105.9 million was mainly due to increasesthe write-off of $0.4 million and $0.9tradenames of $106.6 million in legal and other professional fees and other general and administrative expenses, respectively, during the three months ended January 31, 2018 compared toyear-ago quarter with no such charge in theyear-ago current quarter. Executive SearchAdvisory general and administrative expenses, as a percentage of fee revenue, was 11%decreased to 13% in the three months ended JanuaryJuly 31, 2018 compared to 12%2019 from 67% in the three months ended January 31, 2017.
Hay Group general and administrative expenses decreased $0.8 million, or 3%, to $24.0 million inyear-ago quarter. Excluding the three months ended January 31, 2018 from $24.8 million in theyear-ago quarter. The decrease in general and administrative expenses was due to generating a foreign exchange gain of $0.1 million in the three months ended January 31, 2018 compared to a foreign exchange loss of $1.0 million in theyear-ago quarter. This was offset by an increase in legal and other professional fees of $0.4 million. Hay Grouptradename write-offs, general and administrative expenses as a percentage of fee revenue was 12% in the three months ended JanuaryJuly 31, 2018 compared to 14%2018.
Executive Search general and administrative expenses was $19.9 million, a decrease of $0.6 million, or 3%, in the three months ended JanuaryJuly 31, 2017. Futurestep general2019 compared to $20.5 million in the year-ago quarter. The decrease was primarily due to lower legal and administrative expenses was $6.5 million inother professional fees during the three months ended JanuaryJuly 31, 20182019 compared to $6.2 million in theyear-ago quarter. FuturestepExecutive Search general and administrative expenses, as a percentage of fee revenue, was 9%decreased to 10% in the three months ended JanuaryJuly 31, 20182019 from 11% in the year-ago quarter.
RPO & Professional Search general and administrative expenses was $7.7 million in the three months ended July 31, 2019 compared to 12%$6.8 million in theyear-ago quarter.
The increase was primarily due to an increase in premise and office expense. RPO & Professional Search general and administrative expenses, as a percentage of fee revenue, decreased to 8% in the three months ended July 31, 2019 from 9% in the year-ago quarter. Corporate general and administrative expenses increased $0.9$2.6 million, or 12%25%, to $8.7$13.1 million in the three months ended JanuaryJuly 31, 20182019 compared to $7.8$10.5 million in theyear-ago quarter. The increase in general and administrative expenses was primarily due to an increase of $1.2 millionincreases in both marketing and business development expenses and legal and other professional fees, offset by a decline of $0.6 million in integration costs and a decrease of $0.8 million in premise and office expense. The rest of the change was primarily due to generating foreign exchange loss of $0.8 millionexpenses during the three months ended JanuaryJuly 31, 20182019 compared to a foreign exchange gain of $0.2 million in theyear-ago quarter. Cost of Services Expense Cost of services expense consists primarily ofnon-billable contractor and product costs related to the delivery of various services and products, primarily in FuturestepRPO & Professional Search and Hay Group.Advisory. Cost of services expense increased $1.0 million, or 6%, to $17.5was $17.1 million in the three months ended JanuaryJuly 31, 20182019 compared to $16.5$18.3 million in theyear-ago quarter. Cost of services expense, as a percentage of fee revenue, was 4% infor both the three months ended JanuaryJuly 31, 20182019 and 2017.2018. Depreciation and Amortization Expenses Depreciation and amortization expenses were $12.2$12.8 million, an increase of $0.4$1.1 million, or 3%9%, in the three months ended JanuaryJuly 31, 20182019 compared to $11.8$11.7 million in theyear-ago quarter. The increase relates primarily to technology investments made in the current and prior year in software and computer equipment, in addition to increases in leasehold improvements and furniture and fixtures. Restructuring Charges, Net29
During the three months ended January 31, 2018, no restructuring charges were incurred.
During the three months ended January 31, 2017, we continued the implementation of the fiscal 2016 restructuring plan to integrate Legacy Hay entities that were acquired in fiscal 2016 and recorded $3.8 million of restructuring charges, net relating to the consolidation of premises.
Operating Income (Loss) Operating income was $48.6increased by $115.4 million, or 209%, to $60.3 million in the three months ended JanuaryJuly 31, 2018 as2019 compared to $30.5an operating loss of $55.1 million in theyear-ago quarter. ThisThe increase in operating income resulted fromwas primarily driven by the write-off of tradenames of $106.6 million in the year-ago quarter and higher fee revenue of $65.7 million and a decrease in restructuring charges, net of $3.8 million, offset by increases of $48.4 million in compensation and benefits expense, $1.7 million in general and administrative expenses and $1.0 million in cost of services expense. Executive Search operating income increased $5.0 million, or 17%, to $34.3 million in the three months ended January 31, 2018 as compared to $29.3 million in theyear-ago quarter. The increase in Executive Search operating income was driven by higher fee revenue of $27.6 million and a decrease in restructuring charges, net of $1.2$18.9 million, offset by increases in compensation and benefits expense, generalmarketing and administrative expenses,business development expense and depreciationpremise and amortization expensesoffice expense.
Advisory operating income was $25.8 million in the three months ended July 31, 2019, an increase of $21.7$108.9 million, $1.3or 131%, as compared to an operating loss of $83.1 million in the year-ago quarter. The change in operating income was primarily due to the tradename write-off of $106.6 million in the prior-year quarter and $0.5a decrease in compensation and benefits expense. Advisory operating income, as a percentage of fee revenue, was 13% compared to operating loss, as a percentage of fee revenue, of 43% in the year-ago quarter. Excluding the tradename write-offs, operating income as a percentage of fee revenue, was 12% in the three months ended July 31, 2018. Executive Search operating income increased $4.7 million, respectively.or 11%, to $45.6 million in the three months ended July 31, 2019 as compared to $40.9 million in the year-ago quarter.The increase in Executive Search operating income was mainly driven by lower compensation and benefits expense. Executive Search operating income, as a percentage of fee revenue, was 19%24% and 21% in both the three months ended JanuaryJuly 31, 2019 and 2018, and 2017.respectively. Hay GroupRPO & Professional Search operating income was $27.1$15.0 million, an increase of $11.1$3.4 million, or 69%29%, in the three months ended JanuaryJuly 31, 20182019 as compared to operating income of $16.0$11.6 million in theyear-ago quarter. The increase in operating income was primarilymainly driven by an increase inhigher fee revenue, of $22.4 million and a decrease in restructuring charges, net of $2.5 million, offset by an increase of $13.9 millionincreases in compensation and benefits expense. Hay Groupexpense and general and administrative expenses. RPO & Professional Search operating income, as a percentage of fee revenue, was 14% in the three months ended January 31, 201816% compared to 9% in theyear-ago quarter.
Futurestep operating income was $10.1 million, an increase of $3.6 million, in the three months ended January 31, 2018 as compared to $6.5 million in theyear-ago quarter. The increase in operating income was driven by higher fee revenue of $15.7 million, offset by an increase in compensation and benefits expense of $12.3 million. Futurestep operating income, as a percentage of fee revenue, was 15% in the three months ended January 31, 2018 compared to 12% in theyear-ago quarter.
Net Income (Loss) Attributable to Korn Ferry Net income attributable to Korn Ferry increased by $3.3$81.6 million to $27.2$43.0 million in the three months ended JanuaryJuly 31, 20182019 as compared to $23.9a net loss of $38.6 million in theyear-ago quarter. The increase was primarily due to lower general and administrative expenses of $102.9 million and a higher total revenue of $66.6$17.8 million, offset by an income tax provision of $14.5 million compared to a benefit of $16.1 million, and an increase in other income, netcompensation and benefits expense of $3.5$6.6 million offset by higher operating expenses of $48.4 million and an increase induring the income tax provision of $18.2 millionthree months ended July 31, 2019 compared to theyear-ago quarter. Net income attributable to Korn Ferry, as a percentage of fee revenue, was 6%9% in both the three months ended JanuaryJuly 31, 2018 and 2017, respectively.2019 as compared to net loss attributable to Korn Ferry, as a percentage of fee revenue, of 8% in the three months ended July 31, 2018. Adjusted EBITDA Adjusted EBITDA increased by $15.0$4.1 million to $70.3$74.9 million in the three months ended JanuaryJuly 31, 20182019 as compared to $55.3$70.8 million in theyear-ago quarter. This increase was driven by higher fee revenue and a decrease in cost of $65.7 million and an increase of $3.5 million in other income, net due to the change in fair value of our marketable securities,services, offset by increases of $51.0 million in compensation and benefits expense (excluding integration costs), $2.3 million in general and administrative expenses
(excluding integration cost)expense (excluding write-off of trade names), and $1.0 milliona decrease in costother income, net due to lower gains generated from the change in the fair value of services expense.our marketable securities during the three months ended July 31, 2019 compared to the year-ago quarter. Adjusted EBITDA, as a percentage of fee revenue, was 16%15% in both the three months ended July 31, 2019 and 2018.
Advisory Adjusted EBITDA was $34.6 million in the three months ended JanuaryJuly 31, 20182019, an increase of $0.1 million, as compared to 14%$34.5 million in theyear-ago quarter. Advisory Adjusted EBITDA, as a percentage of fee revenue, was 18% in both the three months ended July 31, 2019 and 2018. Executive Search Adjusted EBITDA increased $4.6$2.1 million, or 14%4%, to $37.2$48.9 million in the three months ended JanuaryJuly 31, 20182019 as compared to $32.6$46.8 million in the three months ended January 31, 2017.year-ago quarter. The increase was driven by higher fee revenue of $27.6 million during the three months ended January 31, 2018 compared to theyear-ago quarter, offset by increases of $21.7 milliondecreases in compensation and benefits expense and $1.3 million in general and administrative expenses. expenses, offset by a decrease in other income, net, during the three months ended July 31, 2019 compared to the year-ago quarter.Executive Search Adjusted EBITDA, as a percentage of fee revenue, was 21%25% in both the three months ended JanuaryJuly 31, 2018 and 2017.2019 as compared to 24% in the three months ended July 31, 2018. Hay GroupRPO & Professional Search Adjusted EBITDA was $36.9$16.1 million in the three months ended JanuaryJuly 31, 2018,2019, an increase of $6.8$3.6 million, or 23%29%, as compared to $30.1$12.5 million in theyear-ago quarter. The increase was driven by higher fee revenue, of $22.4 million, offset by increases of $15.7 million in compensation and benefits expense (excluding integration costs)and general and administrative expenses during the three months ended JanuaryJuly 31, 20182019 compared to theyear-ago quarter. Hay GroupRPO & Professional Search Adjusted EBITDA, as a percentage of fee revenue, was 19%17% in the three months ended JanuaryJuly 31, 2018 as2019 compared to 17%16% in theyear-ago quarter.
Futurestep Adjusted EBITDA30
Other Income, Net Other income, net was $10.8$1.8 million in the three months ended JanuaryJuly 31, 2018, an increase of $3.4 million, as2019 compared to $7.4 million in theyear-ago quarter. The increase was driven by higher fee revenue of $15.7 million, offset by increases of $12.3 million in compensation and benefits expense during the three months ended January 31, 2018 compared to theyear-ago quarter. Futurestep Adjusted EBITDA, as a percentage of fee revenue, was 16% in the three months ended January 31, 2018 compared to 14% in theyear-ago quarter. Other Income, Net
Other income, net was $7.7$4.5 million in the three months ended January 31, 2018 as compared to $4.2 million in theyear-ago quarter. The increasedecrease was primarily due to the changesmaller gains in the fair value of our marketable securities where there was a larger gain during the three months ended JanuaryJuly 31, 20182019 compared to theyear-ago quarter.
Interest Expense, Net Interest expense, net primarily relates to our term loan facilitycredit agreement and borrowings under our COLI policies, which isare partially offset by interest earned on cash and cash equivalent balances. Interest expense, net was $2.7$4.1 million in both the three months ended JanuaryJuly 31, 2018 as compared to $2.4 million in theyear-ago quarter.2019 and 2018. Income Tax Provision (Benefit) The provision for income tax was $26.3$14.5 million in the three months ended JanuaryJuly 31, 20182019 compared to $8.1a benefit of $16.1 million in theyear-ago quarter. This reflects a 49%24.9% (provision) and 25%a 29.5% (benefit) effective tax rate for the three months ended JanuaryJuly 31, 20182019 and 2017,2018, respectively. The current fiscal yearCompany’s effective tax rate was significantly impacted24.9% (provision) for the three months ended July 31, 2019 compared to the U.S. federal statutory rate of 21.0%. This difference is primarily due to U.S. state income taxes and taxable income outside the U.S. that is subject to higher statutory tax rates, partially offset by an excess tax benefit recorded in connection with stock-based awards that vested in the December 22, 2017 enactmentcurrent quarter, which was recorded discrete to the current quarter. The Company’s effective tax rate was 29.5% (benefit) for the three months ended July 31, 2018 compared to the U.S. federal statutory rate of 21.0%. This difference is primarily due to the Tax Cutstrademark write-offs and Jobs Act (the “Tax Act”) as a resultthe excess tax benefit on vested stock-based awards, both of which Korn Ferrywere recorded a provisional tax charge of $16.3 million for aone-time tax on accumulated foreign earnings (the “Transition Tax”) and a provisional tax benefit of $5.8 million fromas discrete to the remeasurement of our U.S. federal deferred tax assets and liabilities. Korn Ferry will continue to appropriately refine these amounts within the measurement period allowed by SAB No.118, which will be completed no later than December 22,three months ended July 31, 2018. 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 sucha subsidiary not held by Korn Ferry that are included in the consolidated results of operations. Net income attributable to noncontrolling interest for the three months ended JanuaryJuly 31, 20182019 was $0.2$0.7 million as compared to $0.5 milliona minimal amount for the three months ended JanuaryJuly 31, 2017. Nine Months Ended January 31, 2018 Compared to Nine Months Ended January 31, 2017
Fee Revenue
Fee Revenue.Fee revenue went up by $132.4 million, or 11%, to $1,291.9 million in the nine months ended January 31, 2018 compared to $1,159.5 million in theyear-ago period. Exchange rates favorably impacted fee revenue by $17.7 million, or 2%, in the three months ended January 31, 2018 compared to theyear-ago period. The higher fee revenue was attributable to organic growth in all lines of business.
Executive Search.Executive Search reported fee revenue of $518.4 million, an increase of $63.0 million, or 14%, in the nine months ended January 31, 2018 compared to $455.4 million in theyear-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 the nine months ended January 31, 2018 as compared to theyear-ago period. The higher fee revenue in Executive Search was mainly due to an 8% increase in the number of engagements billed and a 4% increase in the weighted-average fees billed per engagement (calculated using local currency) during the nine months ended January 31, 2018 compared to theyear-ago period. Exchange rates favorably impacted fee revenue by $6.4 million, or 1%, in the nine months ended January 31, 2018, compared to theyear-ago period.
North America reported fee revenue of $296.1 million, an increase of $36.7 million, or 14%, in the nine months ended January 31, 2018 compared to $259.4 million in theyear-ago period. North America’s fee revenue was higher due to a 10% increase in the number of engagements billed and a 4% increase in the weighted-average fees billed per engagement (calculated using local currency) during the nine months ended January 31, 2018 compared to theyear-ago period. All of the business sectors contributed to the growth in fee revenue in the nine months ended January 31, 2018 as compared to theyear-ago period, with industrial and technology contributing the most. The effect of exchange rates on fee revenue was minimal in the nine months ended January 31, 2018, compared to theyear-ago period.
EMEA reported fee revenue of $128.2 million, an increase of $18.9 million, or 17%, in the nine months ended January 31, 2018 compared to $109.3 million in theyear-ago period. The favorable effect of exchange rates on fee revenue was $4.2 million, or 4%, in the three months ended January 31, 2018, compared to theyear-ago period. The increase in fee revenue was due to a 16% increase in the number of engagements billed, offset by a 2% decrease in the weighted-average fees billed per engagement (calculated using local currency) during the nine months ended January 31, 2018 compared to theyear-ago period. The performance in the United Kingdom, France, Germany, and Italy were the primary contributors to the increase in fee revenue in the nine months ended January 31, 2018 compared to theyear-ago period. All of the business sectors contributed to the growth in fee revenue in the nine months ended January 31, 2018 as compared to theyear-ago period, with industrial contributing the most.
Asia Pacific reported fee revenue of $72.0 million, an increase of $11.9 million, or 20%, in the nine months ended January 31, 2018 compared to $60.1 million in theyear-ago period. The favorable effect of exchange rates on fee revenue was $1.2 million, or 2%, compared to theyear-ago period. The increase in fee revenue was due to a 9% increase in the number of engagements billed and an 8% increase in the weighted-average fees billed per engagement (calculated using local currency) in the nine months ended January 31, 2018 compared to theyear-ago period. The performance in China, Australia, Singapore, Japan and India were the primary contributors to the increase in fee revenue in the nine months ended January 31, 2018 compared to theyear-ago period, partially offset by a decline in fee revenue in Hong Kong. Financial services, technology, industrial and life sciences/healthcare were the main sectors contributing to the increase in fee revenue in the nine months ended January 31, 2018, as compared to theyear-ago period.
Latin America reported fee revenue of $22.0 million, a decrease of $4.6 million, or 17%, in the nine months ended January 31, 2018 compared to $26.6 million in theyear-ago period. The effect of exchange rates on fee revenue was minimal. The decrease in fee revenue is due to lower fee revenue in Mexico and Brazil in the nine months ended January 31, 2018, compared to theyear-ago period, partially offset by higher fee revenue in Argentina, Ecuador and Chile. Consumer goods and financial services were the main sectors contributing to the decline in fee revenue in the nine months ended January 31, 2018, compared to theyear-ago period.
Hay Group.Hay Group reported fee revenue of $577.5 million, an increase of $38.4 million, or 7%, in the nine months ended January 31, 2018 compared to $539.1 million in theyear-ago period. Exchange rates favorably impacted fee revenue by $8.5 million, or 2%, compared to theyear-ago period. Fee revenue from consulting services was higher by $25.9 million in the nine months ended January 31, 2018 compared to theyear-ago period, with the remaining increase of $12.5 million generated by our products business.
Futurestep.Futurestep reported fee revenue of $196.0 million, an increase of $31.0 million, or 19%, in the nine months ended January 31, 2018 compared to $165.0 million in theyear-ago period. Exchange rates favorably impacted fee revenue by $2.8 million, or 2%, compared to theyear-ago period. Higher fee revenues in RPO and professional search of $22.3 million and $10.2 million, respectively, drove the increase in fee revenue.
Compensation and Benefits
Compensation and benefits expense increased $89.7 million, or 11%, to $885.7 million in the nine months ended January 31, 2018 from $796.0 million in theyear-ago period. Exchange rates unfavorably impacted compensation and benefits expenses by $11.4 million, or 1%, in the nine months ended January 31, 2018 compared to theyear-ago period. The increase in compensation and benefits was primarily due to an 8% increase in the average headcount, primarily focused on fee earners, which contributed $58.3 million in higher salaries and related payroll taxes and $13.6 million more in expenses associated with our deferred compensation and retirement plans (includes the increases in the fair value of participants’ accounts) in the nine months ended January 31, 2018 compared to theyear-ago period. The rest of the change was due to $19.0 million increase in performance-related bonus expense and $7.9 million increase in amortization of long term incentive awards, offset by an $8.4 million decrease in integration costs compared to theyear-ago period.
Executive Search compensation and benefits expense increased by $48.4 million, or 16%, to $348.9 million in the nine months ended January 31, 2018 compared to $300.5 million in theyear-ago period. The increase was primarily due to higher salaries and related payroll taxes of $18.8 million due to a 6% 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 an increase of $10.5 million in expenses associated with our deferred compensation and retirement plans (includes the increases in the fair value of participants’ accounts), $9.1 million increase in performance related bonus expense compared to theyear-ago period and a $6.1 million increase in amortization of long-term incentive awards. The increase in performance related bonus expense was due to a 14% increase in fee revenue in the nine months ended January 31, 2018 compared to the year-
ago period. Executive Search compensation and benefits expense, as a percentage of fee revenue, was 67% in the nine months ended January 31, 2018 compared to 66% in theyear-ago period.
Hay Group compensation and benefits expense increased $19.5 million, or 6%, to $365.7 million in the nine months ended January 31, 2018 from $346.2 million in theyear-ago period. The change was primarily due to increases in salaries and payroll taxes of $18.6 million and $3.1 million increase in expenses associated with our deferred compensation and retirement plans (includes the increases in the fair value of participants’ accounts). Also contributing to the increase in compensation and benefits expense was an increase of $2.3 million in performance related bonus expense and employer insurance cost of $1.7 million, offset by a decrease in integration costs of $5.5 million compared toyear-ago period. Hay Group compensation and benefits expense, as a percentage of fee revenue, was 63% in the nine months ended January 31, 2018 compared to 64% in theyear-ago period.
Futurestep compensation and benefits expense increased $23.6 million, or 21%, to $138.4 million in the nine months ended January 31, 2018 from $114.8 million in theyear-ago period. The increase was due to higher salaries and related payroll taxes of $18.4 million due to a 29% increase in the average headcount in the nine months ended January 31, 2018 compared to theyear-ago period. The higher average headcount 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 expense was an increase of $6.5 million performance related bonus expense due to a 19% increase in fee revenue in the nine months ended January 31, 2018 compared to theyear-ago period. Futurestep compensation and benefits expense, as a percentage of fee revenue, was 71% in the nine months ended January 31, 2018 compared to 70% in theyear-ago period.
Corporate compensation and benefits expense decreased by $1.8 million, or 5%, to $32.7 million in the nine months ended January 31, 2018 from $34.5 million in theyear-ago period. This change was mainly due to a decrease of $2.9 million in integration costs in the nine months ended January 31, 2018 compared to theyear-ago period, offset by an increase of $1.1 million in performance related bonus expense.
General and Administrative Expenses
General and administrative expenses increased $9.1 million, or 5%, to $175.4 million in the nine months ended January 31, 2018 compared to $166.3 million in theyear-ago period. Exchange rates unfavorably impacted general and administrative expenses by $1.7 million during the nine months ended January 31, 2018 compared to theyear-ago period. The increase in general and administrative expenses was due to increases of $3.7 million, $1.9 million, $1.7 million, and $1.6 million in legal and other professional fees, premise and office expense, business development expense, and bad debt expenses, respectively, offset by a decline of $3.6 million in integration costs during the nine months ended January 31, 2018 compared to theyear-ago period. The rest of the change was primarily due to generating foreign exchange loss of $2.8 million during the nine months ended January 31, 2018 compared to a foreign exchange gain of $0.6 million in the nine months ended January 31, 2017. General and administrative expenses, as a percentage of fee revenue, was 14% in both the nine months ended January 31, 2018 and 2017.
Executive Search general and administrative expenses increased $7.3 million, or 15%, to $57.6 million in the nine months ended January 31, 2018 from $50.3 million in theyear-ago period. General and administrative expenses increased due to generating foreign exchange losses of $0.3 million during the nine months ended January 31, 2018 compared to a foreign exchange gain of $1.6 million during theyear-ago period and an increase in bad debt expense of $1.2 million. The rest of the change was due to an increase of $1.0 million in legal and other professional fees, $0.8 million more in marketing and business development to support the higher fee revenues generated in the nine months ended January 31, 2018 compared to theyear-ago period and $0.5 million increase in premise and office expense. Executive Search general and administrative expenses, as a percentage of fee revenue, was 11% in both the nine months ended January 31, 2018 and 2017.
Hay Group general and administrative expenses increased $0.9 million to $73.3 million in the nine months ended January 31, 2018 compared to $72.4 million in theyear-ago period. General and administrative expenses increased due to an increase of $1.0 million in marketing and business development to support the higher fee revenues generated in the nine months ended January 31, 2018 compared to theyear-ago period. Hay Group general and administrative expenses, as a percentage of fee revenue, was 13% in both the nine months ended January 31, 2018 and 2017.
Futurestep general and administrative expenses increased $2.6 million, or 15%, to $20.0 million in the nine months ended January 31, 2018 from $17.4 million in theyear-ago period. The increase was due primarily to increases in premise and office expense and bad debt expense of $1.0 million each in the nine months ended January 31, 2018 compared to theyear-ago period. Futurestep general and administrative expenses, as a percentage of fee revenue, was 10% in the nine months ended January 31, 2018 compared to 11% in theyear-ago period.
Corporate general and administrative expenses decreased $1.6 million, or 6%, to $24.5 million in the nine months ended January 31, 2018 compared to $26.1 million in theyear-ago period. The decrease in general and administrative expenses was due to a decrease of $3.6 million in integration costs associated with the Legacy Hay acquisition, offset by an increase in legal and other professional fees of $2.1 million during the nine months ended January 31, 2018 compared to the nine months ended January 31, 2017.
Cost of Services Expense
Cost of services expense consists primarily ofnon-billable contractor and product costs related to the delivery of various services and products, primarily in Futurestep and Hay Group. Cost of services expense was $53.2 million in the nine months ended January 31, 2018 compared to $52.3 million in the nine months ended January 31, 2017. Cost of services expense, as a percentage of fee revenue, was 4% in the nine months ended January 31, 2018 as compared to 5% in theyear-ago period.
Depreciation and Amortization Expenses
Depreciation and amortization expenses were $36.9 million, an increase of $1.9 million, or 5%, in the nine months ended January 31, 2018 compared to $35.0 million in theyear-ago period. The increase relates primarily to technology investments made in the current and prior year in software and computer equipment, in addition to increases in leasehold improvements and furniture and fixtures.
Restructuring Charges, Net
During the nine months ended January 31, 2018, we continued the implementation of the fiscal 2016 restructuring plan to integrate Legacy Hay entities that were acquired in fiscal 2016 and recorded $0.1 million of restructuring charges relating to the consolidation of premises.
During the nine months ended January 31, 2017, we continued the implementation of the fiscal 2016 restructuring plan in order to integrate the Hay Group entities that were acquired in fiscal 2016 by eliminating redundant positions and operational, general and administrative expenses and consolidating of office space. As a result, we recorded $28.3 million of restructuring charges with $11.5 million of severance costs and $16.8 million relating to the consolidation of office space during the nine months ended January 31, 2017.
Operating Income
Operating income was $140.6 million in the nine months ended January 31, 2018 as compared to $81.6 million in theyear-ago period. This increase in operating income resulted from higher fee revenue of $132.4 million and a decrease in restructuring charges, net of $28.2 million, offset by increases of $89.7 million in compensation and benefits expense, $9.1 million in general and administrative expenses, $1.9 million in depreciation and amortization expenses and $0.9 million in cost of services expense.
Executive Search operating income increased $8.7 million, or 9%, to $102.4 million in the nine months ended January 31, 2018 as compared to $93.7 million in theyear-ago period. The increase in Executive Search operating income was driven by increases in higher fee revenue of $63.0 million and a decrease in restructuring charges, net of $3.7 million, offset by increases in compensation and benefits expense, general and administrative expenses, cost of services expense and depreciation and amortization expenses of $48.4 million, $7.3 million, $1.2 million and 1.1 million, respectively. Executive Search operating income, as a percentage of fee revenue, was 20% in the nine months ended January 31, 2018 as compared to 21% in theyear-ago period.
Hay Group operating income was $72.5 million, an increase of $41.3 million, or 132%, in the nine months ended January 31, 2018 as compared to operating income of $31.2 million in theyear-ago period. The increase was primarily driven by an increase in fee revenue of $38.4 million and restructuring recoveries, net of $0.2 million during the nine months ended January 31, 2018 compared to restructuring charges, net of $24.0 million during theyear-ago period, offset by an increase of $19.5 million in compensation and benefits expense, $0.9 million in general and administrative expenses and an increase in cost of services expense of $0.9 million in the nine months ended January 31, 2018 compared to theyear-ago period. Hay Group operating income, as a percentage of fee revenue, was 13% in the nine months ended January 31, 2018 compared to 6% in theyear-ago period.
Futurestep operating income was $27.7 million, an increase of $5.9 million, in the nine months ended January 31, 2018 as compared to $21.8 million in theyear-ago period. The increase in operating income was driven by higher fee revenue of $31.0 million, offset by an increase in compensation and benefits expense of $23.6 million and general and administrative expenses of $2.6 million. Futurestep operating income, as a percentage of fee revenue, was 14% in the nine months ended January 31, 2018 compared to 13% in theyear-ago period.
Net Income Attributable to Korn Ferry
Net income attributable to Korn Ferry increased by $35.3 million to $92.6 million in the nine months ended January 31, 2018 compared to $57.3 million in theyear-ago period. The increase was due to higher total revenue of $129.1 million, an increase in other income, net of $7.2 million and a decrease in net income attributable to noncontrolling interest of $1.2 million, offset by higher operating expenses of $70.1 million and an increase in income tax provision of $32.4 million due to the enactment of the Tax Act compared to theyear-ago period. Net income attributable to Korn Ferry, as a percentage of fee revenue, was 7% for the nine months ended January 31, 2018 as compared to 5% in theyear-ago period.
Adjusted EBITDA
Adjusted EBITDA increased by $24.4 million to $199.3 million in the nine months ended January 31, 2018 as compared to $174.9 million in theyear-ago period. This increase was driven by higher adjusted fee revenue of $128.9 million and an increase of $7.2 million in other income, net primarily due to the change in the fair value of our marketable securities, offset by increases of $98.1 million in compensation and benefits expense (excluding integration costs), $12.7 million in general and administrative expenses (excluding integration costs) and $0.9 million in cost of services expense compared to theyear-ago period. Adjusted EBITDA, as a percentage of adjusted fee revenue, was 15% in both the nine months ended January 31, 2018 and 2017.
Executive Search Adjusted EBITDA increased $7.1 million, or 7%, to $110.3 million in the nine months ended January 31, 2018 as compared to $103.2 million in the nine months ended January 31, 2017. The increase was driven by higher fee revenue of $63.0 million, offset by increases of $48.4 million in compensation and benefits expense and $7.3 million in general and administrative expenses during the nine months ended January 31, 2018 compared to theyear-ago period. Executive Search Adjusted EBITDA, as a percentage of fee revenue, was 21% in the nine months ended January 31, 2018 as compared to 23% in theyear-ago period.
Hay Group Adjusted EBITDA was $103.3 million, an increase of $8.1 million, or 9%, in the nine months ended January 31, 2018 as compared to $95.2 million in theyear-ago period. The increase was driven by higher adjusted fee revenue of $34.9 million, offset by increases of $25.0 million in compensation and benefits expense (excluding integration costs), $0.9 million in general and administrative expenses and an increase in cost of services expense of $0.9 million during the nine months ended January 31, 2018 compared to theyear-ago period. Hay Group Adjusted EBITDA, as a percentage of adjusted fee revenue, was 18% in both the nine months ended January 31, 2018 and 2017.
Futurestep Adjusted EBITDA was $30.0 million in the nine months ended January 31, 2018, an increase of $6.0 million, as compared to $24.0 million in theyear-ago period. The increase was driven by higher fee revenue of $31.0 million, offset by increases of $23.6 million in compensation and benefits expense and $2.6 million in general and administrative expenses during the nine months ended January 31, 2018 compared to theyear-ago period. Futurestep Adjusted EBITDA, as a percentage of fee revenue, was 15% in both the nine months ended January 31, 2018 and 2017.
Other Income, Net
Other income, net was $14.8 million in the nine months ended January 31, 2018 as compared to $7.6 million in theyear-ago period. The increase was primarily due to the change in the fair value of our marketable securities, where there was a larger gain during the nine months ended January 31, 2018 compared to theyear-ago period.
Interest Expense, Net
Interest expense, net primarily relates to our term loan facility and borrowings under our COLI policies, which is partially offset by interest earned on cash and cash equivalent balances. Interest expense, net was $7.9 million in the nine months ended January 31, 2018 as compared to $8.2 million in theyear-ago period.
Income Tax Provision
The provision for income tax was $54.1 million in the nine months ended January 31, 2018 compared to $21.7 million in theyear-ago period. This reflects a 37% and 27% effective tax rate for the nine months ended January 31, 2018 and 2017, respectively. The current fiscal year effective tax rate was significantly impacted by the December 22, 2017 enactment of the Tax Act as a result of which, Korn Ferry recorded a provisional tax charge of $16.3 million for the Transition Tax and a provisional tax benefit of $5.8 million from the remeasurement of our U.S. federal deferred tax assets and liabilities. Korn Ferry will continue to appropriately refine these amounts within the measurement period allowed by SAB No.118, which will be completed no later than December 22, 2018.
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. Net income attributable to noncontrolling interest for the nine months ended January 31, 2018 was $1.0 million compared to $2.2 million for the nine months ended January 31, 2017.
Liquidity and Capital Resources The Company and its Board of Directors endorse a balanced approach to capital allocation. The Company’s priority is to invest in growth initiatives, such as the hiring of consultants, the continued development of intellectual propertyIP and derivative products and services, and the investment in synergistic, accretive merger and acquisition transactions that earn a return that is superior to the Company’sCompany's cost of capital. Next, the Company’s capital allocation approach contemplates the planned 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 the Annual Report on Form10-K for the fiscal year endingended April 30, 2017.2019. Additionally, the Company considers share repurchases on an opportunistic basis and subject to the terms of our credit agreement.
Credit Agreement (defined below). On June 15, 2016,December 19, 2018, we entered into a senior secured $400$650.0 million Amended and Restated Credit Agreement (the “Credit Agreement”) with a syndicate of banks and Wells Fargo Bank, National Association as administrative agent to among other things, provide for enhanced financial flexibility and in recognition of the accelerated pace of the Legacy Hay integration.flexibility. See Note 10 —11—Long-Term Debt for a description of the credit facility.Credit Agreement. We drew down $275$226.9 million on the term loanRevolver (defined below) and used $140 million of the proceeds topay-off the term loan under our prior credit facility that was outstanding as of April 30, 2016.December 19, 2018. We have $419.9 million available under the Revolver after we drew down $226.9 million and after $3.2 million of standby letters of credit were issued as of July 31, 2019. We had $3.2 million and $2.9 million and $3.0 millionin standby letters of credit issued under our long-term debt arrangements as of JanuaryJuly 31, 20182019 and April 30, 2017,2019, respectively. We had a total of $7.3$8.9 million and $8.1$8.5 million of standby letters of credits with other financial institutions as of JanuaryJuly 31, 20182019 and April 30, 2017,2019, respectively. The standby letters of credits were generally issued as a result of entering into office premise leases. As part of the Legacy Hay acquisition, the Company has committed to a $40 million retention pool (of which $23.5 million has been paid) for certain employees of Legacy Hay subject to certain circumstances. The remaining balance will be payable within 45 days after November 30, 2018.
On 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. The declaration and payment of future dividends under the quarterly dividend program will be at the discretion of the Board of Directors and will depend upon many factors, including our earnings, capital requirements, financial conditions, the terms of our indebtedness and other factors our Board of Directors may deem to be relevant. Our Board of Directors may, however, amend, revoke or suspend our dividend policy at any time and for any reason.
On December 8, 2014, theMarch 6, 2019, our Board of Directors also approved an increase into the Company’s stockshare repurchase program of approximately $200 million, which brings our available capacity to an aggregate of $150.0 million. Common stock may be repurchased from time to timerepurchase shares in the open market or privately negotiated transactions at the Company’s discretion subject to market conditions and other factors. During the third quarter of fiscal 2017, we resumed repurchasing shares through this program. Weapproximately $250 million. The Company repurchased approximately $32.6$12.7 million of the Company’s common stock during the ninethree months ended JanuaryJuly 31, 2018. As of January 31, 2018, $88.62019, leaving $238.0 million remained available for common stock repurchasesremaining under our stockshare repurchase program. No shares were repurchased by the Company during the three months ended July 31, 2018. Any decision to continue to execute our currently outstanding issuershare repurchase program will depend on our earnings, capital requirements, financial condition and other factors 31
considered relevant by our Board of Directors. Our senior secured credit agreement requires thatThe Credit Agreement permits us to pay dividends to our stockholders and make share repurchases so long as our pro forma net leverage ratio, defined as, the ratio of consolidated funded indebtedness minus up to $50 million of unrestricted cash and cash equivalents of the Company and domestic subsidiaries to consolidated adjustedAdjusted EBITDA, is no greater than 2.503.25 to 1.00, and our pro forma domestic liquidity is at least $50.0 million as a condition to consummating permitted acquisitions, paying dividends to our stockholders, including the revolving credit commitment minus amounts outstanding on the Revolver, issued letters of credit and share repurchases of our common stock.swing loans. Our performance is subject to the general level of economic activity in the geographic regions and the industries which we service. We believe, based on current economic conditions, that our cash on hand and funds from operations and the Credit Agreement we entered into on June 15, 2016 will be sufficient to meet anticipated working capital, capital expenditures, general corporate requirements, repayment of the debt, incurred in connection with the Legacy Hay acquisition, the retention pool obligations in connection with the Legacy Hay acquisition, sharesshare repurchases and dividend payments under our dividend policy during the next twelve months. However, if the national or global economy, credit market conditions and/or labor markets were to deteriorate in the future, such changes 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 Credit Agreement to meet our capital needs and/or discontinue our share repurchases and dividend policy. Cash and cash equivalents and marketable securities were $529.0$567.3 million and $530.8$767.1 million as of JanuaryJuly 31, 20182019 and April 30, 2017,2019, respectively.Net of amounts held in trust for deferred compensation plans and accrued bonuses, cash and marketable securities were $242.1$362.6 million and $245.1$382.1 million at JanuaryJuly 31, 20182019 and April 30, 2017,2019, respectively. As of JanuaryJuly 31, 20182019 and April 30, 2017,2019, we held $210.4$272.2 million and $165.8$267.0 million, respectively of cash and cash equivalents in foreign locations, net of amounts held in trust for deferred compensation plans and to pay fiscal 20182020 and 20172019 annual 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 in the nine months ended January 31, 2018.funds. The primary objectives of our investment in mutual funds are to meet the obligations under certain of our deferred compensation plans. As of JanuaryJuly 31, 20182019 and April 30, 2017,2019, marketable securities of $139.0$142.7 million (net of gross unrealized gains of $15.5$7.2 million and gross unrealized losses of $0.7$0.8 million) and $119.9$140.8 million (net of gross unrealized gains of $6.7$6.3 million and gross unrealized losses of $0.6$1.0 million), respectively, were held in trust for settlement of our obligations under certain deferred compensation plans, of which $124.2$134.1 million and $115.6$132.5 million, respectively, are classified asnon-current. These marketable securities were held to satisfy vested obligations totaling $122.3$133.7 millionand $99.5$122.3 million as of JanuaryJuly 31, 20182019 and April 30, 2017,2019, respectively. Unvested obligations under the deferred compensation plans totaled $29.7$17.3 million and $37.6$24.6 million as of JanuaryJuly 31, 20182019 and April 30, 2017,2019, respectively. The net increasedecrease in our working capital of $40.1$22.4 million as of JanuaryJuly 31, 20182019 compared to April 30, 20172019 is primarily attributable to a decrease in cash and cash equivalents and an increase in accounts receivable andoperating lease liability, current as a result the implementation of the new lease accounting standard, offset by a decrease in compensation and benefits payable offset by decreasesand an increase in accounts receivable. The decrease in cash and cash equivalents.equivalents and compensation and benefits payable was primarily due to the payment of annual bonuses earned in fiscal 2019 and paid during the first quarter of fiscal 2020. The increase in accounts receivable was due to an increase in days of sales outstanding which went from 61 days to 69 days (which is consistent with historical experience) from April 30, 20172019 to JanuaryJuly 31, 2018. The decrease in compensation and benefits payable and cash and cash equivalents was primarily due to the payment of annual
bonuses earned in fiscal 2017 and paid during the first quarter of fiscal 2018, with cash and cash equivalents also decreasing due tosign-on and retention payments made during the quarter.2019. Cash providedused by operating activities was $59.6$161.9 million in the nine three months ended JanuaryJuly 31, 2018,2019, an increase of $45.9$44.4 million, compared to $13.7$117.5 million in theyear-ago period.three months ended July 31, 2018.
Cash used in investing activities was $32.2$9.2 million in the three months ended July 31, 2019 compared to $6.6 million in the nine months ended January 31, 2018, anyear-ago quarter. An increase of $19.8 million, compared to $12.4 million in theyear-ago period. Cashcash used in investing activities was higherprimarily due to a decrease inof proceeds from sales/maturities of marketable securities, offset by lesslower cash used for the purchases of property and equipment and an increase in proceeds received from life insurance policies inproceeds during the ninethree months ended JanuaryJuly 31, 20182019 compared to theyear-ago period. quarter. Cash used in financing activities was $64.6$24.9 million in the nine three months ended JanuaryJuly 31, 20182019 compared to cash provided by financing activities of $89.1$20.6 million in theyear-ago period. three months ended July 31, 2018.The change from cash provided by financing activities toincrease in cash used in financing activities was primarily due to a decreasethe repurchase of $135.0 million in proceeds from our term loan facility netcommon stock ofpay-off of the term loan that was outstanding as of April 30, 2016, $5.2 million more in term loan payments and an increase of shares repurchased under the stock repurchase program of $16.3 $12.7 million in the ninethree months ended JanuaryJuly 31, 20182019 compared to no repurchase in theyear-ago period. quarter, offset by a decrease in cash used to make principal payments on term loan of $5.2 million and lower cash used to repurchase shares of common stock to satisfy tax withholding requirements upon the vesting of restricted stock of $4.5 million in the three months ended July 31, 2019 compared to the year-ago quarter. 32
Cash Surrender Value of Company OwnedCompany-Owned Life Insurance Policies, Net of Loans The CompanyWe purchased COLI policies or contracts insuring the lives of certain employees eligible to participate in the deferred compensation and pension plans as a means of funding benefits under such plans. As of JanuaryJuly 31, 20182019 and April 30, 2017,2019, we held contracts with gross CSV of $185.0$219.1 million and $180.3$219.2 million, respectively. Total outstanding borrowings against the CSV of COLI contracts were $66.8$92.3 million and $67.2$93.2 million as of JanuaryJuly 31, 20182019 and April 30, 2017,2019, 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 JanuaryJuly 31, 20182019 and April 30, 2017,2019, the net cash value of these policies was $118.2$126.8 million and $113.1$126.0 million, respectively.
Long-Term Debt On June 15, 2016,December 19, 2018, we entered into a senior secured $400 millionthe Credit Agreement (the “Credit Agreement”) with a syndicate of banks and Wells Fargo Bank, National Association as administrative agent.to among other things, provide for enhanced financial flexibility. The Credit Agreement provides for, among other things: (a) a senior secured term loan facility in an aggregate principal amount of $275$650.0 million (the “ Term Facility”), (b) afive-year senior secured revolving credit facility (the “Revolver”) and together with the Term Facility, the “Credit Facilities”) in an aggregate principal amount of $125 million, (c) annual term loan amortization of 7.5%, 7.5%, 10.0%, 10.0% and 10.0%, with the remaining principal due at maturity, (d)(b) certain customary affirmative and negative covenants, including a maximum consolidated total leverage ratio (as defined below) and a minimum interest coverage ratio and (e) an expanded definition of permittedadd-backs to Adjusted EBITDA in recognition of the accelerated integration actions.ratio. Our credit agreementCredit Agreement permits payment of dividends to stockholders and share repurchases so long as the pro forma net leverage ratio is no greater than 2.503.25 to 1.00, and the pro forma domestic liquidity is at least $50.0 million. We drew down $275$226.9 million on the term loanRevolver and used $140 million of the proceeds topay-off the term loan that was outstanding as of April 30, 2016.December 19, 2018. The pay-off of term loan outstanding under our prior credit facility and draw-down on the 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. The principal balance of the Revolver is due on the date of its termination. 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). At our option, loans issued under the Credit Agreement will bear interest at either LIBOR or an alternate base rate, in each case plus the applicable interest rate margin. The interest rate applicable to loans outstanding under the Credit FacilitiesAgreement may fluctuate between LIBOR plus 1.25% per annum to LIBOR plus 2.00% per annum, in the case of LIBOR borrowings (or between the alternate base rate plus 0.25% per annum and the alternate base rate plus 1.00% per annum, in the alternative), based upon our total funded debt to adjustedAdjusted EBITDA ratio (as set forth in the Credit Agreement, the “consolidated leverage ratio”) at such time. In addition, we will be required to pay to the lenders a quarterly commitment fee ranging from 0.20% to 0.35% per annum on the average daily unused amount of the Term Facility,Revolver, based upon our consolidated leverage ratio at such time, and fees relating to the issuance of letters of credit. During the three and nine months ended JanuaryJuly 31, 2019 and 2018, the average interest rate on the Term Facilityour long-term debt arrangements was 2.65%3.69% and 2.49%3.24%, respectively. During the three and nine months ended January 31, 2017, the average rate was 2.06% and 2.29%, respectively. Both the Revolver and the Term Facility mature on June 15, 2021 and may be prepaid and terminated early by us at any time without premium or penalty (subject to customary LIBOR breakage fees). The Term Facility is payable in quarterly installments with principal payments totalling $15.5 million made during the nine months ended January 31, 2018. As of JanuaryJuly 31, 2018, $244.12019 and April 30, 2019, $226.9 million was outstanding under the Term Facility compared to $259.5 million as of April 30, 2017.Revolver. The current and long-term portion of unamortized debt issuance costs associated with the long-term debt was $2.9were $3.8 million and $3.5$4.0 million as of JanuaryJuly 31, 20182019 and April 30, 2017,2019, respectively. The fair value of our Term FacilityRevolver is based on borrowing rates currently required of loans with similar terms, maturity and credit risk. The carrying amount of the Term FacilityRevolver approximates fair value because the base interest rate charged varies with market conditions and the credit spread is commensurate with current market spreads for issuers of similar risk. The fair value of the Term FacilityRevolver is classified as a Level 2 liability in the fair value hierarchy. As of JanuaryJuly 31, 2018,2019, we were in compliance with our debt covenants.
AsWe had a total of January 31, 2018 and April 30, 2017, we had no borrowings$419.9 million available under the Revolver.Revolver after we drew down $226.9 million and after $3.2 million of standby letters of credit were issued as of July 31, 2019. 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 creditscredit were issued under our long-term debt arrangements as of January 31, 2018 compared to $3.0 million as of April 30, 2017.2019. We had a total of $7.3$8.9 million and $8.1$8.5 million of standby letters of credits with other financial institutions as of JanuaryJuly 31,
2018 2019 and April 30, 2017,2019, 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 July 31, 2019. Off-Balance Sheet Arrangements We have nooff-balance sheet arrangements and have not entered into any transactions involving unconsolidated, special purpose entities. We had no material changes in contractual obligations as of JanuaryJuly 31, 2018,2019, as compared to those disclosed in our table of contractual obligations included in our Annual Report. 33
Critical Accounting Policies Preparation of this Quarterly Report onForm 10-Q requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of 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 andor determinable. In preparing our interim 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 related to revenue recognition, performance related bonuses, deferred compensation, carrying values of receivables, goodwill, intangible assets fair value of contingent consideration and recoverability of deferred income taxes as critical to an understanding of our interim consolidated financial statements because their application places the most significant demands on management’s judgment and estimates. Specific risks for these critical accounting policies are described in our Form10-K filed with the Securities Exchange Commission. There have been no material changes in our critical accounting policies since fiscal 2017.2019. Item 3.Quantitative and Qualitative Disclosures About Market Risk As a result of our global operating activities, we are exposed to certain market risks, including foreign currency exchange fluctuations and fluctuations in interest rates. We manage our exposure to these risks in the normal course of our business as described below. Foreign Currency Risk Substantially all our foreign subsidiaries’ operations are measured in their local currencies. Assets and liabilities are translated into U.S. dollars at the rates of exchange in effect at the end of each reporting period, and revenue and expenses are translated at average rates of exchange during the reporting period. Resulting translation adjustments are reported as a component of accumulated other comprehensive 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. ForeignDuring the three months ended July 31, 2019 and 2018, we recorded foreign currency losses on an after tax basis, includedof $0.7 million and $0.9 million, respectively, in net income were $1.8 milliongeneral and administrative expenses in the nine months ended January 31, 2018 as compared to foreign currency gains, on an after tax basis, included in net income were $0.4 million in the nine months ended January 31, 2017.consolidated statements of operations. Our exposure to foreign currency exchange rates is primarily driven by fluctuations involving the following currencies –— U.S. Dollar, Pound Sterling, Euro, Swiss Franc, Canadian Dollar, Euro, Pound Sterling, Swiss Franc, Korean Won,Singapore Dollar, Brazilian Real Singapore Dollar and Mexican Peso.Indonesian Rupiah. Based on balances exposed to fluctuation in exchange rates between these currencies as of JanuaryJuly 31, 2018,2019, a 10% increase or decrease equally in the value of these currencies could result in a foreign exchange gain or loss of $10.0$10.4 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 instruments pursuant to Accounting Standards Codification 815,Derivatives and Hedging. Interest Rate Risk Our exposure to interest rate risk is limited to our Term FacilityRevolver and borrowings against the CSV of COLI contracts. As of JanuaryJuly 31, 2018,2019, there was $244.1$226.9 million outstanding under the Term Facility.Revolver. At our option, loans issued under the Credit FacilitiesAgreement bear interest at either LIBOR or an alternate base rate, in each case plus the applicable interest rate margin. The interest rate applicable to loans outstanding under the Credit FacilitiesAgreement may fluctuate between LIBOR plus 1.25% per annum to LIBOR plus 2.00% per annum, in the case of LIBOR borrowings (or between the alternate base rate plus 0.25% per annum and the alternate base rate plus 1.00% per annum, in the alternative), based upon our total funded debt to adjustedAdjusted EBITDA ratio (as set forth in the Credit Agreement, the “consolidated net leverage ratio”) at such time. In addition, we are required to pay the lenders a quarterly fee ranging from 0.20% to 0.35% per annum on the average daily unused amount of the Term Facility, based upon our consolidated leverage ratio at such time and fees relating to the issuance of letters of credit. A 100 basis100-basis point increase in LIBOR rates would have increased our interest expense by approximately $0.6 million and $1.9 million for the three and nine months ended JanuaryJuly 31, 2018, respectively.2019 and July 31, 2018. During the three and nine months ended JanuaryJuly 31, 2019 and July 31, 2018, the
average interest rate on the previous term loan was 2.65%3.69% and 2.49%3.24%, respectively. We had no borrowings under the Revolver as of January 31, 2018. To mitigate thethis interest rate risk, on our Term Facility, we entered into an interest rate swap contract in March 2017 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. The notional amount is amortized so that the amount is always 50% of the principal balance of the debt outstanding. As of JanuaryJuly 31, 2018,2019, the notional amount was $122.0$103.1 million. The interest rate swap agreement matures on June 15, 2021 and locks the interest rates on 50%a portion of our outstanding debt at 1.919%, exclusive of the credit spread on the debt. We had $66.8$92.3 million and $67.2$93.2 million of borrowings against the CSV of COLI contracts as of JanuaryJuly 31, 20182019 and April 30, 2017,2019, 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. 34
Item 4.Controls and Procedures a) | Evaluation of Disclosure Controls and Procedures. |
Based on their evaluation of our disclosure controls and procedures (as defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) conducted as of the end of the period covered by this Quarterly Report on Form10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined inRules 13a-15(e) and15d-15(e) under the Exchange Act) arewere effective. b) | Changes in Internal Control over Financial Reporting. |
There were no changes in our internal control over financial reporting during the three months ended JanuaryJuly 31, 20182019 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. 35
PART II. OTHER INFORMATION Item 1.Legal Proceedings From time to time, the Company has been and iswe are involved in litigation incidentalboth as a plaintiff and a defendant, relating to its business. The Company is currentlyclaims arising out of our operations. As of the date of this report, we are not a party toengaged in any litigation, which, if resolved adversely against the Company, would,legal proceedings that are expected, individually or in the opinion of management, after consultation with legal counsel,aggregate, to have a material adverse effect on the Company’sour business, financial positioncondition or results of operations. Item 1A.Risk Factors In our Form10-K for the year ended April 30, 2017,2019, we described material risk factors facing our business. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Except as set forth below, asAs of the date of this report, there have been no material changes to the risk factors described in our Form10-K. The effects of the Tax Cuts and Jobs Act on our business and our company have not yet been fully analyzed and the final impacts could be materially different from our current estimates.
On December 22, 2017, the Tax Cuts and Jobs Act (“the “Tax Act”) was enacted into law, making significant changes to the taxation of U.S. business entities. The most significant impacts of the Tax Act on the Company include (1) a reduction in the U.S. corporate federal statutory income tax rate from 35.0% to 21.0% effective January 1, 2018, and (2) aone-time tax on accumulated foreign earnings (the “Transition Tax”), which is applicable at a rate of 15.5% on cash and other specified assets and 8% on other residual earnings. We have recorded in our consolidated financial statements provisional amounts based on our current estimates of the effects of the Tax Act in accordance with our current understanding of the Tax Act and currently available guidance. For additional information regarding the Tax Act and the provisional tax amounts recorded in our consolidated financial statements, refer to Note 11 — Income Taxesto the financial statements of this Quarterly Report. The final amounts may be significantly affected by regulations and interpretive guidance expected to be issued by the tax authorities, clarifications of the accounting treatment of various items, our additional analysis, and our refinement of our estimates of the effects of the Tax Act and, therefore, such final amounts could be materially different than our current provisional amounts, which could materially affect our tax obligations and effective tax rate.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and IssuerIssuers Purchases of Equity Securities Issuer Purchases of Equity Securities The following table summarizes common stock repurchased by us during the quarter ended JanuaryJuly 31, 2018:2019: | | Shares Purchased (1) | | | Average Price Paid Per Share | | | Shares Purchased as Part of Publicly- Announced Programs (2) | | | Approximate Dollar Value of Shares That May Yet be Purchased Under the Programs (2) | | | | | | | | | | | | | | | | May 1, 2019 — May 31, 2019 | | | 891 | | | $ | 46.34 | | | | — | | | $250.7 million | June 1, 2019— June 30, 2019 | | | 720 | | | $ | 45.73 | | | | — | | | $250.7 million | July 1, 2019— July 31, 2019 | | | 544,143 | | | $ | 39.06 | | | | 324,100 | | | $238.0 million | Total | | | 545,754 | | | $ | 39.08 | | | | 324,100 | | | |
| | | | | | | | | | | | | | | | | | | 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) | | | | | | | November 1, 2017—November 30, 2017 | | | — | | | $ | — | | | | — | | | | $91.9 million | | December 1, 2017— December 31, 2017 | | | 64,919 | | | $ | 41.10 | | | | 60,800 | | | | $89.4 million | | January 1, 2018—January 31, 2018 | | | 20,534 | | | $ | 40.66 | | | | 20,000 | | | | $88.6 million | | | | | | | | | | | | | | | | | | | Total | | | 85,453 | | | $ | 41.00 | | | | 80,800 | | | | | | | | | | | | | | | | | | | | | | |
(1) | Represents withholding of a portion of restricted shares to cover taxes on vested restricted shares and shares purchased as part of our publicly announced programs. |
(2) | On December 8, 2014, theMarch 6, 2019, our Board of Directors approved an increase into the Company’s stockshare repurchase program to an aggregate of $150.0$250 million. The shares can be repurchased in open market transactions or privately negotiated transactions at the Company’s discretion. The share repurchase program has no expiration date. We repurchased approximately $3.3$12.7 million of the Company’s common stock under the program during the thirdfirst quarter of fiscal 2018.2020. |
Our senior secured credit agreement,Credit Agreement, dated June 15, 2016,December 19, 2018, permits us to pay dividends to our stockholders and make share repurchases so long as our pro forma net leverage ratio, defined as, the ratio of consolidated funded indebtedness minus up to $50 million of unrestricted cash and cash equivalents of the Company and domestic subsidiaries to consolidated adjustedAdjusted EBITDA, is no greater than 2.503.25 to 1.00, and our pro forma domestic liquidity is at least $50.0 million. million, including the revolving credit commitment minus amounts outstanding on the revolver, issued letters of credit and swing loans. Item 6. Exhibits36
Item 6.Exhibits Exhibit Number | | | Exhibit
Number | | Description | 3.1* | | Certificate of Amendment of Restated Certificate of Incorporation of the Company, effective January 1, 2019, filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed December 13, 2018. | | 31.13.2* | | Seventh Amended and Restated Bylaws, effective January 1, 2019, filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed December 13, 2018. | | 3.3* | | Restated Certificate of Incorporation of the Company, effective January 7, 2019, filed as Exhibit 3.3 to the Company’s Quarterly Report on Form 10-Q, filed March 11, 2019. | | 31.1 | | Chief Executive Officer Certification pursuant to Rule13a-14(a) under the Exchange Act. | | 31.2 | | Chief Financial Officer Certification pursuant to Rule13a-14(a) under the Exchange Act. | | 32.1 | | Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350. | | 101.INS | | Inline XBRL Instance Document.Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | 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 | | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2019, has been formatted in Inline XBRL. | |
* | Incorporated herein by reference. |
37
SIGNATURES Pursuant to the requirements 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 | Korn/Ferry International | | | By: | | By: | | /s/ Robert P. Rozek | | | Robert P. Rozek | | | Executive Vice President, Chief Financial Officer and Chief Corporate Officer (Duly Authorized Officer, Principal Financial Officer and Principal Accounting Officer) |
Date: March 9, 2018September 6, 2019 38 44
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