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Income Taxes | 12 Months Ended
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Apr. 30, 2018
Income Taxes | 8. Income Taxes The provision for income taxes is based on reported income before income taxes. Deferred income tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes, as measured by applying the currently enacted tax laws. On December 22, 2017, the Tax Act was enacted and contains significant changes to U.S. income tax law. The most significant impacts of the Tax Act on the Company’s current fiscal year include (1) a reduction in the U.S. corporate federal statutory income tax rate from 35.0% to 21.0% effective January 1, 2018, and (2) a one-time tax on accumulated foreign earnings (the “Transition Tax”), which is applicable at a rate of 15.5% on cash and other specified assets and 8% on other residual earnings. Because of our April 30 fiscal year end, 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 $18.4 million for the Transition Tax and a provisional tax benefit of $5.9 million from the remeasurement of our U.S. federal deferred tax assets and liabilities at the rate at which we expect these deferred tax balances to be realized. 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 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 SAB No.118, which will be completed no later than December 22, 2018. The provision (benefit) for domestic and foreign income taxes was as follows:
|  | Year Ended April 30, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
|  | (in thousands) |
Current income taxes: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 29,400 |  |  | $ | (2,026 | ) |  | $ | 13,087 |
State |  |  | 2,863 |  |  |  | 1,207 |  |  |  | 3,271 |
Foreign |  |  | 44,434 |  |  |  | 23,334 |  |  |  | 16,394 |
Current provision for income taxes |  |  | 76,697 |  |  |  | 22,515 |  |  |  | 32,752 |
Deferred income taxes: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (3,530 | ) |  |  | 3,341 |  |  |  | (5,334 | )
State |  |  | (317 | ) |  |  | 341 |  |  |  | (1,838 | )
Foreign |  |  | (2,717 | ) |  |  | 2,907 |  |  |  | (6,620 | )
Deferred (benefit) provision for income taxes |  |  | (6,564 | ) |  |  | 6,589 |  |  |  | (13,792 | )
Total provision for income taxes |  | $ | 70,133 |  |  | $ | 29,104 |  |  | $ | 18,960 |
The domestic and foreign components of income from continuing operations before domestic and foreign income and other taxes and equity in earnings of unconsolidated subsidiaries were as follows:
|  | Year Ended April 30, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
|  | (in thousands) |
Domestic |  | $ | 46,867 |  |  | $ | 5,539 |  |  | $ | 22,228 |
Foreign |  |  | 158,866 |  |  |  | 110,470 |  |  |  | 26,534 |
Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries |  | $ | 205,733 |  |  | $ | 116,009 |  |  | $ | 48,762 |
The reconciliation of the statutory federal income tax rate to the effective consolidated tax rate is as follows:
|  | Year Ended April 30, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
U.S. federal statutory income tax rate |  |  | 30.4 | % |  |  | 35.0 | % |  |  | 35.0 | %
Non-deductible transaction costs |  |  | — |  |  |  | — |  |  |  | 5.8 |
Foreign tax rates differential |  |  | (2.3 | ) |  |  | (9.1 | ) |  |  | (2.8 | )
COLI increase, net |  |  | (1.2 | ) |  |  | (1.5 | ) |  |  | (2.9 | )
Conclusion of U.S. federal tax audit |  |  | — |  |  |  | — |  |  |  | (4.4 | )
Transition tax |  |  | 9.0 |  |  |  | — |  |  |  | — |
Deferred tax remeasurement |  |  | (2.4 | ) |  |  | — |  |  |  | — |
Non-deductible operating expenses |  |  | 0.3 |  |  |  | 0.6 |  |  |  | 1.5 |
Devaluation of Venezuelan currency |  |  | — |  |  |  | — |  |  |  | 7.4 |
Change in valuation allowance |  |  | (2.3 | ) |  |  | (3.1 | ) |  |  | (6.2 | )
Change in uncertain tax positions |  |  | 0.9 |  |  |  | — |  |  |  | 1.3 |
Foreign source income, net of credits generated |  |  | (0.1 | ) |  |  | (0.1 | ) |  |  | 0.5 |
Other |  |  | 1.8 |  |  |  | 3.3 |  |  |  | 3.7 |
Effective income tax rate |  |  | 34.1 | % |  |  | 25.1 | % |  |  | 38.9 | %
The higher effective tax rate in fiscal 2018 was due primarily to the enactment of the Tax Act. 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. The lower effective tax rate in fiscal 2017 was due primarily to a higher percentage of taxable income arising in jurisdictions with lower statutory tax rates. In both fiscal 2018 and 2017, the Company recorded an income tax benefit from the reversal of valuation allowances previously recorded against deferred tax assets, including net operating losses, of certain foreign subsidiaries that have returned to profitability and are now more-likely-than-not to realize those deferred tax assets. Components of deferred tax assets and liabilities are as follows:
|  | April 30, |
|  | 2018 |  |  | 2017 |
|  | (in thousands) |
Deferred tax assets: |  |  |  |  |  |  |  |
Deferred compensation |  | $ | 67,852 |  |  | $ | 92,043 |
Loss and credit carryforwards |  |  | 22,297 |  |  |  | 32,854 |
Reserves and accruals |  |  | 13,945 |  |  |  | 14,095 |
Deferred rent |  |  | 6,827 |  |  |  | 9,797 |
Deferred revenue |  |  | 1,793 |  |  |  | 2,434 |
Allowance for doubtful accounts |  |  | 2,296 |  |  |  | 1,705 |
Other |  |  | 982 |  |  |  | 3,041 |
Gross deferred tax assets |  |  | 115,992 |  |  |  | 155,969 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Intangibles |  |  | (57,046 | ) |  |  | (90,214 | )
Property and equipment |  |  | (5,000 | ) |  |  | (11,507 | )
Prepaid expenses |  |  | (19,123 | ) |  |  | (17,324 | )
Other |  |  | (2,726 | ) |  |  | (2,485 | )
Gross deferred tax liabilities |  |  | (83,895 | ) |  |  | (121,530 | )
Valuation allowances |  |  | (15,682 | ) |  |  | (21,278 | )
Net deferred tax asset |  | $ | 16,415 |  |  | $ | 13,161 |
Deferred tax assets are reduced by a valuation allowance if it is more-likely-than-not that some portion or all of the deferred tax asset will not be realized. Management believes uncertainty exists regarding the realizability of certain operating losses and has, therefore, established a valuation allowance for this portion of the deferred tax asset. Realization of the deferred tax asset is dependent on the Company generating sufficient taxable income of the appropriate nature in future years. Although realization is not assured, management believes that it is more likely than-not that the net deferred tax assets will be realized. Deferred tax assets and deferred tax liabilities are presented net on the consolidated balance sheets by tax jurisdiction. As of April 30, 2018, the Company had U.S. federal net operating loss carryforwards of $3.2 million, which the Company anticipates will be fully utilized by fiscal 2028. The Company has state net operating loss carryforwards of $61.2 million, which, if unutilized, will begin to expire in fiscal 2019. The Company also has foreign net operating loss carryforwards of $87.8 million, which, if unutilized, will begin to expire in fiscal 2019. The Company has not provided deferred income taxes on approximately $492.3 million of undistributed earnings of its foreign subsidiaries as such earnings are intended to be reinvested indefinitely. If a distribution of these earnings was to be made, the Company may be subject to state income and foreign withholding taxes. An estimate of such taxes, however, is not practicable. The Company and its subsidiaries file federal and state income tax returns in the U.S. as well as in foreign jurisdictions. These income tax returns are subject to audit by the Internal Revenue Service (the ‘IRS’) and various state and foreign tax authorities. The IRS is currently auditing the fiscal year 2016 federal tax return. The States of California, Illinois, Minnesota, New York and the City of New York are currently auditing the Company’s state income tax returns for various fiscal years. Outside the United States, income tax returns of the Company’s subsidiaries are under audit in Canada, France and India. The Company’s income tax returns are not otherwise under examination in any material jurisdictions. The statute of limitations varies by jurisdiction in which the Company operates. With few exceptions, however, the Company’s tax returns for years prior to fiscal 2012 are no longer open to examination by tax authorities (including U.S. federal, state and foreign). Unrecognized tax benefits are the differences between the amount of benefits of tax positions taken, or expected to be taken, on a tax return and the amount of benefits recognized for financial reporting purposes. As of April 30, 2018, the Company had a liability of $3.7 million for unrecognized tax benefits. A reconciliation of the beginning and ending balances of the unrecognized tax benefits is as follows:
|  | Year Ended April 30, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
|  | (in thousands) |
Unrecognized tax benefits, beginning of year |  | $ | 2,478 |  |  | $ | 2,095 |  |  | $ | 2,423 |
Settlement with tax authority |  |  | (708 | ) |  |  | — |  |  |  | (1,963 | )
Additions based on tax positions related to the current year |  |  | 1,116 |  |  |  | 383 |  |  |  | 1,305 |
Additions based on tax positions related to prior years |  |  | 788 |  |  |  | — |  |  |  | 330 |
Unrecognized tax benefits, end of year |  | $ | 3,674 |  |  | $ | 2,478 |  |  | $ | 2,095 |
The liability for unrecognized tax benefits is included in income taxes payable in the consolidated balance sheets. The full amount of unrecognized tax benefits would impact the effective tax rate if recognized. In the next twelve months, it is reasonably possible that the Company’s unrecognized tax benefits could change due to resolution of certain tax matters either because the tax position are sustained on audit or the Company agrees to their disallowance. These resolutions could reduce the Company’s liability for unrecognized tax benefits by approximately $3.1 million. The Company does not expect a change in the amount of unrecognized tax benefits to have a material financial statement impact. The Company classifies interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. The Company accrued approximately $0.3 million and no accrual for interest related to unrecognized tax benefits as of April 30, 2018 and April 30, 2017, respectively. The Company had no accrual for penalties related to unrecognized tax benefits as of April 30, 2018 and April 30, 2017, respectively. The Company accrued approximately $0.3 million of interest related to unrecognized tax benefits over the last three fiscal years.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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