10-Q 1 kfy-10q_20190131.htm 10-Q kfy-10q_20190131.htm

 

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended January 31, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________ to ___________

 

Commission File Number 001-14505

 

KORN FERRY

 

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

 

95-2623879

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

1900 Avenue of the Stars, Suite 2600, Los Angeles, California 90067

(Address of principal executive offices) (Zip Code)

(310) 552-1834

(Registrant’s telephone number, including area code)

KORN/FERRY INTERNATIONAL

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer 

 

 

Accelerated filer        

 

 

 

 

Non-accelerated filer  

 

 

Smaller reporting company 

 

 

 

Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No  

 

The number of shares outstanding of our common stock as of March 5, 2019 was 56,429,436 shares.

 

 

 


KORN FERRY

Table of Contents

Item #

 

Description

 

Page

 

 

 

 

 

 

 

Part I. Financial Information

 

 

 

 

 

 

 

Item 1.

 

Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets as of January 31, 2019 (unaudited) and April 30, 2018

 

1

 

 

 

 

 

 

 

Consolidated Statements of Income (unaudited) for the three and nine months ended January 31, 2019 and 2018

 

2

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended January 31, 2019 and 2018

 

3

 

 

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity (unaudited) for nine months ended January 31, 2019 and 2018

 

4

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the nine months ended January 31, 2019 and 2018

 

6

 

 

 

 

 

 

 

Notes to Consolidated Unaudited Financial Statements

 

7

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

26

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

43

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

44

 

 

 

 

 

 

 

Part II. Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

45

 

 

 

 

 

Item 1A.

 

Risk Factors

 

45

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

 

45

 

 

 

 

 

Item 6.

 

Exhibits

 

46

 

 

 

 

 

 

 

Signatures

 

47

 

 

 

 

 

 

 


 

Item 1. Consolidated Financial Statements

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

January 31,

2019

 

 

April 30,

2018

 

 

 

(unaudited)

 

 

 

 

 

 

 

(in thousands, except per share data)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

489,509

 

 

$

520,848

 

Marketable securities

 

 

6,414

 

 

 

14,293

 

Receivables due from clients, net of allowance for doubtful accounts of $22,046 and $17,845 at January 31, 2019 and April 30, 2018, respectively

 

 

421,812

 

 

 

384,996

 

Income taxes and other receivables

 

 

29,502

 

 

 

29,089

 

Unearned compensation

 

 

41,739

 

 

 

37,333

 

Prepaid expenses and other assets

 

 

28,106

 

 

 

27,700

 

Total current assets

 

 

1,017,082

 

 

 

1,014,259

 

 

 

 

 

 

 

 

 

 

Marketable securities, non-current

 

 

126,950

 

 

 

122,792

 

Property and equipment, net

 

 

130,266

 

 

 

119,901

 

Cash surrender value of company owned life insurance policies, net of loans

 

 

124,607

 

 

 

120,087

 

Deferred income taxes

 

 

40,530

 

 

 

25,520

 

Goodwill

 

 

580,021

 

 

 

584,222

 

Intangible assets, net

 

 

86,308

 

 

 

203,216

 

Unearned compensation, non-current

 

 

88,986

 

 

 

78,295

 

Investments and other assets

 

 

22,803

 

 

 

19,622

 

Total assets

 

$

2,217,553

 

 

$

2,287,914

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

$

31,151

 

 

$

35,196

 

Income taxes payable

 

 

24,287

 

 

 

23,034

 

Compensation and benefits payable

 

 

266,925

 

 

 

304,980

 

Current portion of long-term debt

 

 

 

 

 

24,911

 

Other accrued liabilities

 

 

163,997

 

 

 

170,339

 

Total current liabilities

 

 

486,360

 

 

 

558,460

 

 

 

 

 

 

 

 

 

 

Deferred compensation and other retirement plans

 

 

240,856

 

 

 

227,729

 

Long-term debt

 

 

222,662

 

 

 

211,311

 

Deferred tax liabilities

 

 

1,434

 

 

 

9,105

 

Other liabilities

 

 

59,201

 

 

 

61,694

 

Total liabilities

 

 

1,010,513

 

 

 

1,068,299

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock: $0.01 par value, 150,000 shares authorized, 72,440 and 71,631 shares issued at January 31, 2019 and April 30, 2018, respectively, and 56,420 and 56,517 shares outstanding at January 31, 2019 and April 30, 2018, respectively

 

 

651,683

 

 

 

683,942

 

Retained earnings

 

 

616,282

 

 

 

572,800

 

Accumulated other comprehensive loss, net

 

 

(63,271

)

 

 

(40,135

)

Total Korn Ferry stockholders' equity

 

 

1,204,694

 

 

 

1,216,607

 

Noncontrolling interest

 

 

2,346

 

 

 

3,008

 

Total stockholders' equity

 

 

1,207,040

 

 

 

1,219,615

 

Total liabilities and stockholders' equity

 

$

2,217,553

 

 

$

2,287,914

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

1


 

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

 

 

 

Three Months Ended

January 31,

 

 

Nine Months Ended

January 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(in thousands, except per share data)

 

Fee revenue

 

$

474,504

 

 

$

447,581

 

 

$

1,435,277

 

 

$

1,291,853

 

Reimbursed out-of-pocket engagement expenses

 

 

11,668

 

 

 

13,189

 

 

 

36,050

 

 

 

39,302

 

          Total revenue

 

 

486,172

 

 

 

460,770

 

 

 

1,471,327

 

 

 

1,331,155

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

321,835

 

 

 

309,527

 

 

 

979,575

 

 

 

882,102

 

General and administrative expenses

 

 

61,179

 

 

 

58,516

 

 

 

287,641

 

 

 

175,380

 

Reimbursed expenses

 

 

11,668

 

 

 

13,189

 

 

 

36,050

 

 

 

39,302

 

Cost of services

 

 

17,066

 

 

 

17,467

 

 

 

55,020

 

 

 

53,163

 

Depreciation and amortization

 

 

11,741

 

 

 

12,225

 

 

 

34,490

 

 

 

36,881

 

Restructuring charges, net

 

 

 

 

 

 

 

 

 

 

 

78

 

          Total operating expenses

 

 

423,489

 

 

 

410,924

 

 

 

1,392,776

 

 

 

1,186,906

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

62,683

 

 

 

49,846

 

 

 

78,551

 

 

 

144,249

 

Other income, net

 

 

2,401

 

 

 

7,510

 

 

 

2,292

 

 

 

14,311

 

Interest expense, net

 

 

(4,282

)

 

 

(3,710

)

 

 

(12,722

)

 

 

(11,014

)

Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries

 

 

60,802

 

 

 

53,646

 

 

 

68,121

 

 

 

147,546

 

Equity in earnings of unconsolidated subsidiaries

 

 

62

 

 

 

97

 

 

 

191

 

 

 

187

 

Income tax provision

 

 

15,420

 

 

 

26,316

 

 

 

14,143

 

 

 

54,145

 

Net income

 

 

45,444

 

 

 

27,427

 

 

 

54,169

 

 

 

93,588

 

          Net income attributable to noncontrolling interest

 

 

(480

)

 

 

(180

)

 

 

(1,782

)

 

 

(969

)

Net income attributable to Korn Ferry

 

$

44,964

 

 

$

27,247

 

 

$

52,387

 

 

$

92,619

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share attributable to Korn Ferry:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Basic

 

$

0.81

 

 

$

0.49

 

 

$

0.94

 

 

$

1.65

 

     Diluted

 

$

0.80

 

 

$

0.48

 

 

$

0.92

 

 

$

1.63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Basic

 

 

55,233

 

 

 

55,252

 

 

 

55,358

 

 

 

55,479

 

     Diluted

 

 

55,753

 

 

 

55,997

 

 

 

56,181

 

 

 

56,236

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

2


 

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 

 

 

Three Months Ended

January 31,

 

 

Nine Months Ended

January 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(in thousands)

 

Net income

 

$

45,444

 

 

$

27,427

 

 

$

54,169

 

 

$

93,588

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

6,089

 

 

 

17,839

 

 

 

(21,245

)

 

 

29,773

 

Deferred compensation and pension plan adjustments, net of tax

 

 

273

 

 

 

361

 

 

 

819

 

 

 

1,065

 

Net unrealized (loss) gain on interest rate swap, net of tax

 

 

(980

)

 

 

1,077

 

 

 

(702

)

 

 

1,470

 

Comprehensive income

 

 

50,826

 

 

 

46,704

 

 

 

33,041

 

 

 

125,896

 

Less: comprehensive income attributable to noncontrolling interest

 

 

(552

)

 

 

(226

)

 

 

(1,593

)

 

 

(884

)

Comprehensive income attributable to Korn Ferry

 

$

50,274

 

 

$

46,478

 

 

$

31,448

 

 

$

125,012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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) Income,

 

 

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

 

Net income

 

 

 

 

 

 

 

46,034

 

 

 

 

 

 

46,034

 

 

 

1,283

 

 

 

47,317

 

Other Comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

(12,093

)

 

 

(12,093

)

 

 

(267

)

 

 

(12,360

)

Dividends paid to shareholders

 

 

 

 

 

 

 

(5,716

)

 

 

 

 

 

(5,716

)

 

 

 

 

 

(5,716

)

Dividends paid to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(690

)

 

 

(690

)

Purchase of stock

 

(459

)

 

 

(22,875

)

 

 

 

 

 

 

 

 

(22,875

)

 

 

 

 

 

(22,875

)

Issuance of stock

 

32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

6,301

 

 

 

 

 

 

 

 

 

6,301

 

 

 

 

 

 

6,301

 

Balance as of October 31, 2018

 

56,511

 

 

 

664,486

 

 

 

577,333

 

 

 

(68,581

)

 

 

1,173,238

 

 

 

3,359

 

 

 

1,176,597

 

Net income

 

 

 

 

 

 

 

44,964

 

 

 

 

 

 

44,964

 

 

 

480

 

 

 

45,444

 

Other Comprehensive income

 

 

 

 

 

 

 

 

 

 

5,310

 

 

 

5,310

 

 

 

72

 

 

 

5,382

 

Dividends paid to shareholders

 

 

 

 

 

 

 

(6,015

)

 

 

 

 

 

(6,015

)

 

 

 

 

 

(6,015

)

Dividends paid to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,565

)

 

 

(1,565

)

Purchase of stock

 

(503

)

 

 

(21,940

)

 

 

 

 

 

 

 

 

(21,940

)

 

 

 

 

 

(21,940

)

Issuance of stock

 

412

 

 

 

3,724

 

 

 

 

 

 

 

 

 

3,724

 

 

 

 

 

 

3,724

 

Stock-based compensation

 

 

 

 

5,413

 

 

 

 

 

 

 

 

 

5,413

 

 

 

 

 

 

5,413

 

Balance as of January 31, 2019

 

56,420

 

 

$

651,683

 

 

$

616,282

 

 

$

(63,271

)

 

$

1,204,694

 

 

$

2,346

 

 

$

1,207,040

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4


 

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive

 

 

Korn Ferry

 

 

 

 

 

 

Total

 

 

Common Stock

 

 

Retained

 

 

(Loss) Income,

 

 

Stockholders'

 

 

Noncontrolling

 

 

Stockholder's

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Net

 

 

Equity

 

 

Interest

 

 

Equity

 

 

(in thousands)

 

Balance as of April 30, 2017

 

56,938

 

 

$

692,527

 

 

$

461,976

 

 

$

(71,064

)

 

$

1,083,439

 

 

$

3,609

 

 

$

1,087,048

 

Net income

 

 

 

 

 

 

 

29,041

 

 

 

 

 

 

29,041

 

 

 

388

 

 

 

29,429

 

Other Comprehensive income

 

 

 

 

 

 

 

 

 

 

16,373

 

 

 

16,373

 

 

 

105

 

 

 

16,478

 

Dividends paid to shareholders

 

 

 

 

 

 

 

(5,823

)

 

 

 

 

 

(5,823

)

 

 

 

 

 

(5,823

)

Purchase of stock

 

(217

)

 

 

(7,372

)

 

 

 

 

 

 

 

 

(7,372

)

 

 

 

 

 

(7,372

)

Issuance of stock

 

525

 

 

 

4,586

 

 

 

 

 

 

 

 

 

4,586

 

 

 

 

 

 

4,586

 

Stock-based compensation

 

 

 

 

4,405

 

 

 

 

 

 

 

 

 

4,405

 

 

 

 

 

 

4,405

 

Balance as of July 31, 2017

 

57,246

 

 

 

694,146

 

 

 

485,194

 

 

 

(54,691

)

 

 

1,124,649

 

 

 

4,102

 

 

 

1,128,751

 

Net income

 

 

 

 

 

 

 

36,331

 

 

 

 

 

 

36,331

 

 

 

401

 

 

 

36,732

 

Other Comprehensive loss

 

 

 

 

 

 

 

 

 

 

(3,211

)

 

 

(3,211

)

 

 

(236

)

 

 

(3,447

)

Dividends paid to shareholders

 

 

 

 

 

 

 

(5,714

)

 

 

 

 

 

(5,714

)

 

 

 

 

 

(5,714

)

Dividends paid to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,558

)

 

 

(1,558

)

Purchase of stock

 

(777

)

 

 

(25,350

)

 

 

 

 

 

 

 

 

(25,350

)

 

 

 

 

 

(25,350

)

Issuance of stock

 

42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

5,309

 

 

 

 

 

 

 

 

 

5,309

 

 

 

 

 

 

5,309

 

Balance as of October 31, 2017

 

56,511

 

 

 

674,105

 

 

 

515,811

 

 

 

(57,902

)

 

 

1,132,014

 

 

 

2,709

 

 

 

1,134,723

 

Net income

 

 

 

 

 

 

 

27,247

 

 

 

 

 

 

27,247

 

 

 

180

 

 

 

27,427

 

Other Comprehensive income

 

 

 

 

 

 

 

 

 

 

19,231

 

 

 

19,231

 

 

 

46

 

 

 

19,277

 

Dividends paid to shareholders