10-K: Annual report pursuant to Section 13 and 15(d)

Published on July 28, 1999



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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended April 30, 1999

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

Commission File Number 001-14505

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KORN/FERRY INTERNATIONAL
(Exact Name of Registrant as Specified in its Charter)



California 95-2623879
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)


1800 Century Park East, Suite 900, Los Angeles, California 90067
(Address of principal executive offices) (Zip code)

(310) 843-4100
(Registrant's telephone number, including area code)

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Securities registered pursuant to Section 12(b) of the Act:



Name of each exchange on which
Title of each class registered
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Common Stock, no par value New York Stock Exchange


Securities registered pursuant to Section 12(g) of the Act: None

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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 [X] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

The number of shares outstanding of the Company's Common Stock as of July
23, 1999 was 35,632,610 shares. The aggregate market value of the Registrant's
Common Stock held by non-affiliates of the Registrant on July 23, 1999
(assuming that the Registrant's only affiliates are its officers, directors
and 10% or greater stockholders) was approximately $454,767,381, based upon
the closing market price of $14.13 on that date of a share of Common Stock as
reported on the New York Stock Exchange.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders scheduled to be held on September 22, 1999 are
incorporated by reference into Part III of this Form 10-K.

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KORN/FERRY INTERNATIONAL
Index to Annual Report on Form 10-K for the Fiscal Year Ended April 30, 1999



Page
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PART I.


Item 1. Business......................................................... 3
Item 2. Properties....................................................... 11
Item 3. Legal Proceedings................................................ 11
Item 4. Submission of Matters to a Vote of Security Holders.............. 11
Executive Officers of the Registrant..................................... 12

PART II.

Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters................................................................. 13
Item 6. Selected Financial Data.......................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...... 25
Item 8. Financial Statements and Supplementary Data...................... 25
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................... 25

PART III.

Item 10. Directors and Executive Officers of the Registrant.............. 26
Item 11. Executive Compensation.......................................... 26
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 26
Item 13. Certain Relationships and Related Transactions.................. 26

PART IV.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K....................................................................... 27
(a)1. Index to Financial Statements
2. Financial Statement Schedule
3. Exhibits
(b)Reports on Form 8-K................................................... 29
Signatures............................................................... 30
Financial Statements and Financial Statement Schedule.................... F-1


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PART I.

Item 1. Business

General

Korn/Ferry International ("KFY" or the "Company") is the world's largest
executive search firm and has the broadest global presence in the executive
search industry. KFY provides executive recruitment services exclusively on a
retained basis and serves the global recruitment needs of its clients from
middle to executive management. Co-founded by Richard M. Ferry, the Company's
current Chair of the Board, the Company opened its first office in Los Angeles
in 1969. Today, KFY has 425 consultants based in 71 offices across 40
countries. The Company believes that its global reputation, strong client
relationships, executive recruitment expertise, innovation and technological
focus provide the Company with distinct competitive advantages. Since fiscal
1994, the Company has generated revenues at a compound annual growth rate of
21%. In fiscal 1999, the Company had total revenues of $373.1 million and
performed over 6,770 assignments for 4,151 clients, including approximately
43% of the Fortune 500. KFY's clients are many of the world's largest and most
prestigious public and private companies, middle-market and emerging growth
companies as well as governmental and not-for-profit organizations. Almost
half of the searches performed by the Company in fiscal 1999 were for board
level, chief executive and other senior executive positions. The Company has
established strong client loyalty; more than 90% of the search assignments the
Company performed in fiscal 1999 were on behalf of clients for which it had
conducted multiple assignments over the last three fiscal years. In fiscal
1999, the Company reported a net operating loss of $50.4 million including: a
non-recurring compensation and benefits expense upon completion of the
Company's initial public offering of $79.3 million; costs, primarily severance
and benefits expense, incurred to achieve operating efficiencies of $7.3
million; and compensation and benefits expense of $2.6 million related to the
resignation of the former President and Chief Executive Officer.

The Company believes it is an innovator in the executive search industry
and forward-thinking in addressing the fundamental transformation of the
marketplace caused by the combined impact of advanced technology and the
Internet. In anticipation of these changing industry dynamics, and in response
to clients' demand for middle-management recruitment services, the Company
introduced Futurestep, its Internet-based search service, in May 1998.
Futurestep combines the Company's search expertise with exclusive candidate
assessment tools and the reach of the Internet to accelerate recruitment of
candidates for middle-management positions. In fiscal 1999, Futurestep
generated revenues of $4.4 million and operating losses of $12.6 million,
primarily related to compensation and benefits expense, start-up costs and
continued advertising expense to promote and expand Futurestep's national and
global business roll-out. The Company believes Futurestep will generate
operating losses through at least the end of fiscal 2000. In March 1999, the
Company completed its roll-out of Futurestep in the United States with the
addition of the Midwest and Southwest regions to Futurestep's East and West
Coast operations. Futurestep launched its international roll-out in the United
Kingdom and Canada in May and June 1999, respectively, and plans to expand in
other selected foreign markets through fiscal 2000. Through June 1999, more
than 326,000 candidates worldwide have completed a detailed on-line profile
with Futurestep.

Executive Search Industry

The executive search industry is separated into two distinct markets:
retained search firms and contingency search firms.

Retained search firms, like KFY, generally concentrate on searches for
positions with annual compensation of $150,000 or more for large public and
private corporations, government agencies, educational organizations and high
growth start-up companies. Retained search firms also have the capability to
provide their clients with local and international knowledge of the managerial
market within their client's industry, as well as a sophisticated network of
relevant industry contacts. Retained search firms typically charge a fee for
their services equal to approximately one-third of the annual cash
compensation for the position being filled and bill for their services in
three installments irrespective of whether a position has been filled.

Contingency search firms generally concentrate on searches for positions
with annual compensation of $150,000 or less. These firms are most commonly
hired to fill middle and lower management positions of small to medium-

3

sized companies. Unlike retained search firms, contingency search firms are
compensated only when a position is filled. Accordingly, revenues generated by
a contingency search firm typically are more volatile than revenues generated
by a retained search firm. For this reason, contingency search firms often
cannot invest as many resources as retained search firms in a search
assignment. Contingency search firms typically charge a fee for their services
equal to approximately one-third of the annual cash compensation for the
position being filled.

Industry Trends

According to Kennedy Information, worldwide executive search industry
revenues are expected to grow from approximately $3.5 billion in 1993 to $10.0
billion in 2000, a 16% compound annual growth rate. The Company's management
believes that a number of favorable trends will contribute to the growth of
the executive search industry, including: (i) the globalization of business;
(ii) the demand for managers with broader skills; (iii) the increasing
outsourcing of recruitment functions; and (iv) the use of advanced technology
to accelerate the identification and assessment of candidates.

Globalization of Business--As the world markets continue to integrate into
one global economy, more companies are required to supplement internal talent
with experienced senior executives who can operate effectively in a global
economy. The rapidly changing and competitive environment increasingly
challenges multinational and local companies to identify qualified executives
with the right combination of skills, experience and cultural compatibility.
This globalization of business, including the expansion in new markets, has
led companies to look beyond their particular region for management talent and
to identify local executives in the regions where they are doing business.

Demand for Managers with Broader Qualifications--The Company's recent
global study, Developing Leadership for the 21st Century, indicates that
companies are seeking broader qualifications for executive positions. In many
instances, these candidates cannot be found within a client's organization
despite training, rotation programs and succession planning. Thus, the Company
expects that the executive search business will continue to grow as companies
increasingly turn to executive search firms to identify qualified executives.

Increasing Outsourcing of Recruitment Functions--Recent economic factors
are requiring companies to focus on core competencies and to outsource
recruitment functions to providers, such as KFY, who can efficiently provide
high quality recruitment services. Moreover, the trend towards globalization
and the current shortage of qualified management-level candidates have made
identifying and recruiting exceptional candidates more difficult. Companies
are increasingly relying on experienced global executive search firms to
address their management recruitment needs. By hiring executive search firms,
companies can expect to: (i) access a diverse and highly qualified field of
candidates on an as-needed basis; (ii) reduce the costs required to maintain
and train a recruiting department in a rapidly changing industry; (iii)
benefit from the most updated information on the industry and specific
geographic markets; (iv) access leading search technology and software; and
(v) maintain management focus on strategic business issues.

Use of Advanced Technology--Technology is having an increasing impact on
the search industry. Global systems and the ability to create comprehensive
worldwide databases are fundamentally changing the search process and moving
the emphasis of the search business from candidate identification to candidate
assessment and placement. In addition, the Internet is creating efficient ways
to identify and recruit from the broad middle-management market, with Internet
technology expected to have applicability to executive recruitment in the near
future. At the same time, new barriers to entry into the executive search
industry are being created as these investments in information technology
become critical to serve clients' needs globally.

Growth Strategy

KFY's objective is to expand its leadership position as a preferred global
executive search firm by offering a broad range of solutions to address its
clients' management recruitment needs. The principal elements of the Company's
strategy include: (i) leverage leadership in executive recruitment; (ii)
expand into the middle-management market; (iii) pursue strategic acquisitions;
(iv) reinforce technological leadership; and (v) add new complementary
services.


4

Leverage Leadership in Executive Recruitment

The Company's leadership in executive recruitment enables it to grow its
business by increasing the number of search assignments it handles for
existing clients. The Company's management also believes that there are
significant opportunities to develop new clients by aggressively marketing its
proven global search expertise. The Company has adopted a structured approach
to expand and build relationships with new and existing clients. Through its
ten specialty practice groups and broad global presence, the Company maintains
an in-depth understanding of the market conditions and strategic and
management issues facing clients. Annually, the Company's regions, offices,
individual consultants and specialty practice groups identify existing and
prospective clients with substantial needs for executive search services. The
Company assembles teams of search consultants based on geographic, industry
and functional expertise to focus on these clients.

The Company has opened 12 offices in the last three fiscal years: Austin,
Copenhagen, Helsinki, Istanbul, New Delhi, Rio de Janeiro, Seoul, Shanghai,
Sherman Oaks, Stamford, Tysons Corner and Wellington. By leveraging its
knowledge of the growing pool of local talent in each of the regions in which
it operates, the Company is able to identify and place qualified candidates
capable of effectively adapting to the local culture and successfully
furthering the client's objectives. In addition, with the geographic expansion
of advertised recruitment and Futurestep, the Company is leveraging its global
network and search capabilities to meet the management recruitment needs of
existing and potential clients.

Expand into the Middle-Management Market

In response to the growing client demand for middle-management recruitment,
the Company is expanding its services to address this market. With its strong
executive client relationships, advertised recruitment services and
Futurestep, KFY is well positioned to meet its clients' middle-management
recruitment needs effectively and efficiently. The Company maintains one of
the largest, most diverse and technologically innovative global databases of
highly qualified candidates across all levels of management and provides
geographic, industry and functional expertise. By moving aggressively into
this segment of the market, the Company's management believes it can
strengthen its relationships with its existing clients, develop new clients
and gain a competitive advantage in marketing complementary services.

Pursue Strategic Acquisitions

The Company will continue to make selected acquisitions that support its
growth strategy, enhance its presence in key markets or otherwise complement
its competitive strengths. As the largest global executive search firm, the
Company believes it has the resources to be a leader in consolidation within
the highly fragmented search industry. The Company frequently evaluates
opportunities to expand its business through acquisitions and, from time to
time, the Company engages in discussions with potential targets. In fiscal
1999, the Company completed acquisitions in France and Switzerland. In June
1999, the Company completed the acquisition of the Australian business of
Amrop International Australasia. The Company views strategic acquisitions as a
key component of its long term growth strategy and intends to pursue future
acquisition opportunities.

Reinforce Technological Focus

The Company has invested in executive recruitment alone more than $39
million over the past three fiscal years to develop a state-of-the-art
technology infrastructure, including a worldwide network and its proprietary
software, Searcher, to increase the speed and quality of its service to its
clients around the world. The Company's worldwide databases contain the
profiles of over 1,000,000 executives and over 300,000 companies, allowing
consultants to access a wide range of potential candidates globally. The
Company's systems represent a strong competitive advantage, allowing its
consultants to access information and communicate effectively with each other.
As the executive search industry continues to grow and as more clients seek
the assistance of search firms to fill middle-management positions, an
advanced technology infrastructure has become a critical element of the search
business.


5

Add New Complementary Services

The Company seeks to add new complementary services in response to specific
client needs. For example, the Company developed Futurestep and has expanded
its recruitment services to address its clients' growing demand for effective
middle-management recruitment. Through Futurestep, the Company seeks to pre-
build and update a large candidate inventory and thereby reduce the time
required to perform a search. In addition, Futurestep's assessment tools can
quickly and accurately evaluate a candidate's credentials and likelihood of
integrating into a client's culture. The Company believes that many of
Futurestep's assessment tools and Internet applications will have
applicability to its executive recruitment services. In addition, the Company
is exploring complementary business opportunities, which could include
recruitment outsourcing and human resources consulting. As attractive business
opportunities are identified, the Company may capitalize on these
opportunities through internal development, joint ventures or selected
acquisitions.

Services

The Company addresses the global recruitment needs of its clients at all
levels of management. The Company offers the following three primary services
exclusively on a retained basis: (i) executive recruitment; (ii) advertised
recruitment; and (iii) Internet-based recruitment.

Executive Recruitment

The Company's executive recruitment services are typically used to fill
executive-level positions, such as boards of directors, chief executive
officers, chief financial officers and other senior executive officers. Once
the Company is retained by a client to conduct an executive search, the
Company assembles a team comprised of consultants with geographic, industry
and functional expertise. KFY's search consultants serve as management
advisors and work closely with the client in identifying, assessing and
placing a qualified candidate. In fiscal 1999, the Company performed over
6,000 executive recruitment assignments.

The Company uses a search methodology that has been developed through many
years of experience in conducting executive recruitment. The Company
emphasizes a close working relationship with the client and a comprehensive
understanding of the client's business issues, strategy and culture, as well
as an in-depth knowledge of the skills necessary to succeed within a client's
organization. Initially, the search team consults with the client to better
understand its history, culture, structure, expectations, challenges, future
directions and operations. In these meetings, the team identifies the specific
needs of the client and develops a profile of an ideal candidate for the
position. Early in the process, the team also works with the client to develop
the general parameters of a compensation package that will attract high
quality candidates.

Once the position is defined, the research team identifies, through the use
of the Company's proprietary databases and a number of key technology-based
information sources, companies that are in related industries facing similar
challenges and issues and that possess operating characteristics similar to
those of the client. In addition, the team consults with its established
network of sources to help identify individuals with the right backgrounds and
personal abilities. These sources are a critical element in assessing the
marketplace. The original list of candidates is carefully screened through
phone interviews, video conferences or in-person meetings. The client is then
presented with up to five qualified candidates to interview. The Company,
sometimes with the assistance of an independent third party, conducts
reference checks throughout the process.

Usually, the finalists for the position meet with the client for a second
and possibly a third round of discussions. At this point, the compensation
package for each will have been discussed in detail so that there is
confidence that offers will be accepted. Generally, the search consultants
will participate in the negotiations until a final offer is made and accepted.
Throughout the process, ongoing communication with the client is critical to
keep client management apprised of progress.

Every search that the Company performs is backed by a one-year guarantee.
If the executive who has been recruited does not perform satisfactorily and
ceases to be employed by the client within one year, the Company will repeat
the search for no additional fee.

6

Advertised Recruitment Search Services

The Company's advertised recruitment search service uses print advertising
in targeted publications to attract the most qualified candidates for
management positions at all levels. Advertised recruitment search is
appropriate when clients seek numerous qualified candidates from a broad
universe of industries. The Company introduced its advertised recruitment
search service in 1991, and currently offers it in 16 offices in Europe,
Asia/Pacific and Latin America. In fiscal 1999, advertised recruitment was
used for approximately 600 search assignments.

At the beginning of each advertised recruitment search engagement, teams
comprised of consultants with specialized expertise in the appropriate
industry and function gather information on the client's business, culture and
the open position. The team creates the advertising campaign and advises the
client on the most appropriate media for the campaign. Once the advertisement
is finalized and published, the team reviews and screens all resumes received
by the client and interviews qualified candidates. Based on these interviews
and feedback from both the client and the candidates, the team produces a
short list of top candidates for the client and prepares and assembles
detailed profiles and evaluation reports on each candidate. Consultants will
advise and consult with clients throughout the negotiation process and provide
input on competitive salary packages. Finally, the consultants will conduct
final reference checks and follow up with both the client and the candidate to
ensure a smooth transition of the hired candidate into the client's
organization.

Internet-Based Search Services

Futurestep, a subsidiary of the Company, combines the Company's extensive
executive recruitment expertise with exclusive candidate assessment tools and
the reach of the Internet to recruit candidates for middle-management
positions. Futurestep is fundamentally different from other Internet-based job
placement services, which do not employ Futurestep's sophisticated filtering
process or permit search professionals to interact with candidates and
clients.

Futurestep recognizes that loss in productivity as a result of middle-
management vacancies is significant. By pre-building an inventory of qualified
candidates prior to receiving a client assignment and by keeping that
inventory current, Futurestep can quickly generate a select list of
candidates, which should significantly reduce search cycle time. Futurestep's
goal is to produce three candidates and one quality hire for the client within
thirty days.

To register with Futurestep, candidates complete an on-line assessment
profile that details their work history, management experience, preferred
career path and management style. The assessment tools, which Futurestep has
licensed on an exclusive basis, have been validated by a cross-section of
senior managers over ten years and give reliable feedback on decision-making
style, communication style, cultural preferences and career and personal
motivation. Futurestep clients complete a similar profile to determine company
culture and the type of manager who will succeed in the open position. The
Company believes that cultural compatibility is critical to the successful
placement of a candidate and that these proprietary tools may have
applicability to other areas of executive search. To encourage candidates to
register with Futurestep, Futurestep provides career management feedback on a
candidate's salary potential, leadership skills, the industries and functions
for which the candidate is most qualified and the most compatible corporate
culture.

When Futurestep receives a search assignment from a client, a preliminary
list of candidates is selected from the Futurestep database and the most
qualified are called by a Futurestep search consultant for further evaluation.
The consultant schedules a 45-minute to one-hour video interview with selected
candidates. The consultant then identifies the top candidates and provides the
client with excerpts of the video-taped interviews and other background
information for comparison. The Futurestep consultant typically organizes the
client/candidate interviews, and advises and consults throughout the
negotiation process to structure the final offer package and position
responsibilities.

Confidentiality for both candidates and clients is paramount. When
candidates register with Futurestep, they do not know who the Futurestep
clients are or which positions are available. Companies do not have access to
candidate information until a candidate gives explicit permission to release
the information to the client when contacted by a Futurestep consultant.

7

In June 1998, the Company and Futurestep entered into a three-year contract
for an exclusive alliance with The Wall Street Journal, which provides the
Company with reduced advertising rates, requires the purchase by Futurestep of
a minimum amount of print and on-line advertising and permits the use of The
Wall Street Journal name in connection with promotion of the Futurestep
service. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview." The contract with The Wall Street Journal
has an initial term through June 2001 with options for renewal and is the
first of its kind in the executive search industry. The Wall Street Journal is
obligated under the contract to use reasonable commercial efforts to offer
each employer which advertises positions in The Wall Street Journal the option
of retaining Futurestep for services ranging from resume evaluation to
complete management of the employer's recruitment process for the advertised
positions. In addition, The Wall Street Journal must provide a direct link to
Futurestep's website from The Wall Street Journal's careers website. The
contract permits Futurestep to provide candidates registered with Futurestep
access to career-management advice through direct links from Futurestep's
website to The Wall Street Journal's website and obligates Futurestep to pay
to The Wall Street Journal a minimal placement fee for each employer and
candidate referred to Futurestep by The Wall Street Journal. The Company,
Futurestep and The Wall Street Journal have agreed not to promote competing
services during the term of the contract.

Organization

Geographic Regions

The Company has 71 offices across 40 countries, organized into the
following regions: North America, Europe, Asia/Pacific and Latin America. The
Company's offices are staffed with consultants who possess an understanding of
the local market, culture and management resources along with knowledge of the
global issues facing clients.

The following table provides information relating to each region for fiscal
1999:



Number of
Fiscal 1999 Operating Offices as of Average
Revenues Profit(Loss)(1) April 30, Number of
(in millions) (in millions) 1999 Consultants
Region: ------------- --------------- ------------- -----------

North America.......... $200.2 ($66.7) 21 206
Europe................. 106.6 4.9 27 120
Asia/Pacific........... 35.1 2.5 14 48
Latin America.......... 31.2 8.9 9 32

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(1) Includes non-recurring charges of $83.8 million, $4.5 million and $0.9
million in North America, Europe and Asia/Pacific, respectively. The North
America region also include Futurestep losses of $12.6 million.

See "Notes to the Consolidated Financial Statements--Footnote 11" for
geographic region results for the past three fiscal years.

North America, including Futurestep--The Company opened its first office in
Los Angeles in 1969, and currently has 21 offices throughout the U.S. and
Canada. The North America region has grown from $75.8 million in revenues in
fiscal 1994 to $200.2 million in fiscal 1999. The Company has been ranked
first in worldwide revenues among Hunt-Scanlon's top executive search firms
based in North America since the statistics were first published in 1990. In
fiscal 1999, the Company handled over 2,600 assignments in this region, with
an average number of 206 consultants.

Europe--The Company opened its first European office in London in 1972 and
currently has 27 offices throughout 21 countries in the region. The region has
grown from $37.9 million in revenues in fiscal 1994 to $106.6 million in
fiscal 1999. The Company handled over 2,400 assignments in fiscal 1999 in this
region, with an average number of 120 consultants. In fiscal 1999, the Company
acquired businesses in France and Switzerland, enhancing KFY's market position
in these countries and closed one office in Bratislava.

Asia/Pacific--The Company opened its first Asia/Pacific office in Tokyo in
1973, and has built a 14-office network throughout 10 countries in the region,
including the opening in fiscal 1997 of five new offices. The region has grown
from $13.9 million in revenues in fiscal 1994 to $35.1 million in fiscal 1999.
The Company handled over

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760 assignments in fiscal 1999 in this region, with an average number of 48
consultants. The latest Economist Intelligence Unit report on Executive Search
in Asia and Australia describes KFY as the leading executive search firm in
the region. In June 1999, the Company completed the acquisition of the
Australian business of Amrop International Australasia.

Latin America--The Company opened its first Latin American office in Brazil
in 1974, expanded its practice to Mexico through its 1977 acquisition of a 49%
interest in Hazzard & Associates, and currently conducts its operations in
Mexico through three subsidiaries in which the Company holds a controlling
minority interest. As of April 30, 1999, the Company operated a network of
nine offices in seven countries covering the entire region. The region has
grown from $16.0 million in revenues in fiscal 1994 to $31.2 million in fiscal
1999. The Company handled over 890 assignments in fiscal 1999 in this region,
with an average number of 32 consultants. According to the Economist
Intelligence Unit's latest report on Executive Search in the Americas, KFY
dominates the executive search market in Latin America.

Industry Specialization

In 1970, the Company established specialty practices to serve specific
industries and markets and has continued to expand the range of its specialty
practices. The specialty practices consist of consultants throughout the
regions with the knowledge and contacts many have built during successful
careers in the same industries and markets. Consultants in the Company's ten
specialty practice groups bring an in-depth understanding of the market
conditions and strategic and management issues faced by clients within the
specific industry. The Company plans to continue to expand its specialized
expertise through internal development, strategic hiring in targeted growth
areas and selected acquisitions.

Percentage of Fiscal 1999 Assignments by Industry Specialization



Industrial............................................................. 20%
Consumer Goods......................................................... 20%
Advanced Technology.................................................... 17%
Financial Services/Investments......................................... 16%
Healthcare Products and Providers...................................... 9%
Professional Services.................................................. 7%
Entertainment & Media Practice......................................... 4%
Governmental and Not-for-profit........................................ 4%
Energy and Utilities................................................... 3%


Client Base

KFY's clients are many of the world's largest and most prestigious public
and private companies. Almost half of the searches performed by the Company in
fiscal 1999 were for board level, chief executive and other senior executive
positions. In fiscal 1999, approximately 6.7% of the Company's total revenues
was derived from its top ten customers.

Functional Expertise

The Company has organized centers of functional expertise, made up of
consultants who have extensive backgrounds in placing executives in certain
functions, such as board of directors, chief executive officers and other
senior executive and financial officers. The Company's board services
practice, for example, was first established in 1972 to help clients assemble
an effective, knowledgeable and cohesive board of directors to meet the
growing demands for accountability and more effective board performance. The
shortage of experienced directors, the tightening of governance policies and
the desire on the part of companies to broaden their board bases are raising
the standards required to identify and recruit directors with the needed
skills. The Company has established significant expertise in this area and has
built a proprietary database with the names and backgrounds of all the Fortune
1000 directors, plus a significant number of middle-market and high-growth
company board members, to help support

9

board searches. Members of functional groups are located throughout the
Company's regions and across its specialty practice groups.
Percentage of Fiscal 1999 Assignments by Functional Expertise



Board Level/CEO/CFO/Senior Executive and General Management............ 45%
Marketing and Sales.................................................... 23%
Finance and Control.................................................... 10%
Manufacturing/Engineering/Research and Development/Technology.......... 9%
Human Resources and Administration..................................... 8%
Information Systems.................................................... 5%


Competition

Korn/Ferry International is the largest executive search firm in the world.
Other multinational executive search firms include Heidrick & Struggles
International, Inc., Spencer Stuart & Associates, Russell Reynolds Associates
and Egon Zehnder International. These firms are the Company's primary
competitors, although the Company and each of these firms also competes
against smaller firms that specialize in specific regional, industry or
functional searches. KFY believes its brand name, global network, prestigious
client list, strong specialty practices and quality of service are widely
recognized worldwide.

KFY competes for executive search business in four major geographic
markets: North America, Europe, Asia/Pacific and Latin America. In North
America, in addition to competition from other multinational executive search
firms, KFY faces competition from boutique firms focusing on executive search
assignments in particular industries. In Europe, KFY competes primarily with
the European affiliate of Heidrick & Struggles International, Inc. and the
local offices of Egon Zehnder International, in addition to local firms
specializing in their regions. In the Asia/Pacific region, most of KFY's
competition is provided by five executive search firms, including Egon Zehnder
International and Russell Reynolds Associates. In Latin America, KFY competes
principally with Egon Zehnder International, although other executive search
firms have recently expanded into the region.

As a result of new market conditions affecting the executive search
industry, such as globalization and the increased use of advanced technology,
the Company believes its services are less susceptible to being characterized
as fungible than the services of its competitors. However, there can be no
assurance that prospective clients will perceive the advantages of the
Company's services and resources, and as competition increases among large
executive search firms, prospective clients may increasingly view executive
search services as fungible.

The executive search industry is comprised of approximately 4,000 retained
and contingency search firms. According to Kennedy Information, the top ten
search firms represent only 11% of the industry. To date there have been few
barriers to entry in the executive search business, which explains in part the
highly fragmented nature of the industry. However, the globalization of world
economies, combined with the increased availability and application of
sophisticated technologies and comprehensive databases, will likely raise the
barriers to entry. The Company believes that the industry will experience
consolidation. New competitors, such as technology-oriented companies, will be
drawn to the executive search business by the growing worldwide demand for
qualified management employees, the fragmentation of the industry and the
ability to leverage their existing technology and databases to enter the
market.

Professional Staff and Employees

As of April 30, 1999, the Company had approximately 1,565 employees,
consisting of 289 vice presidents, 136 principals, 272 senior associates and
associates, 212 researchers, 138 corporate professionals and
518 administrative and support staff. The Company has not been a party to a
collective bargaining agreement and considers relations with its employees to
be good.

10

Senior associates, associates and researchers support the efforts of the
vice presidents and principals with candidate sourcing and identification, but
do not generally lead an assignment. The Company has training and professional
development programs and a high rate of internal promotions. Promotion to vice
president is based on a variety of factors, including demonstrated superior
execution and business development skills, the ability to identify solutions
to complex issues, personal and professional ethics, a thorough understanding
of the market, how to retain clients and how to develop repeat business, and
the ability to help build effective teams. In addition, the Company has a
program of recruiting experienced professionals into the Company.

The Company believes the high caliber, extensive experience and motivation
of its professionals are critical factors to its success. A large number of
KFY's consultants have advanced graduate degrees and, on average, the
Company's consultants have seven years' experience with the Company, 12 years
in the search industry and 13 years in other industries. The Company further
believes it has been able to attract and retain some of the most productive
search consultants as a result of its reputation, history of consultant equity
ownership and its performance-based compensation program.

Item 2. Properties

The Company's corporate office is located in Los Angeles, California. KFY
leases all of its 71 offices located in North America, Europe, Asia/Pacific
and Latin America. As of April 30, 1999, the Company leased an aggregate of
approximately 381,286 square feet of office space. The leases generally are
for terms of one to ten years and contain customary terms and conditions. The
Company believes that its facilities are adequate for its current needs and
does not anticipate any difficulty replacing such facilities or locating
additional facilities to accommodate its anticipated needs.

Item 3. Legal Proceedings

From time to time, the Company is involved in litigation both as plaintiff
and defendant, relating to claims arising out of its operations. As of the
date of this report, the Company is not engaged in any legal proceedings that
are expected, individually or in the aggregate, to have a material adverse
effect on the Company's business, financial condition or results of
operations.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the last
quarter of fiscal 1999.

11

Executive Officers of the Registrant



Name Age Position
---- --- --------

Richard M. Ferry........ 61 Chair of the Board
Windle B. Priem......... 61 Chief Executive Officer and President
Peter L. Dunn........... 54 Vice Chair, Corporate Secretary and General Counsel
Elizabeth S.C.S.
Murray................. 43 Chief Financial Officer, Treasurer and Executive Vice President
Gary C. Hourihan........ 50 Executive Vice President--Organizational Development


The executive officers of the Company serve at the discretion of its Board
of Directors. There is no family relationship between any executive officer or
director. The following information sets forth the business experience for at
least the past five years for of each of the executive officers of the Company
as of July 23, 1999.

Richard M. Ferry is a founder of the Company, has been Chair of the Board
since 1991 and is a member of the Office of the Chief Executive. Mr. Ferry
served as Chief Executive Officer of the Company from May 1991 to April 1997.

Windle B. Priem has been Chief Executive Officer and President since
December 1998 and is a member of the Office of the Chief Executive. He has
been a Director of the Company since 1993. From July 1998 to December 1998, he
was a Vice Chair and the Chief Operating Officer of the Company. From 1996 to
1998 he was the President of the North America region. Mr. Priem joined the
Company in 1976.

Peter L. Dunn has been a Vice Chair since 1997 and is a member of the
Office of the Chief Executive. He has been a Director of the Company since
1992 and serves as the Company's General Counsel and Corporate Secretary. Mr.
Dunn joined the Company in 1980.

Elizabeth S.C.S. Murray has been the Executive Vice President, Chief
Financial Officer, Treasurer since July 1998 and is a member of the Office of
the Chief Executive. In January 1998, she joined the Company as Vice President
and Chief Financial Officer and Treasurer. Prior to that, Ms. Murray served as
Executive Vice President and Chief Financial Officer of Tycom Inc. from June
1997 to December 1997, and from 1994 to June 1997 she was the Chief Financial
Officer and Vice President of Hughes Communications, Inc., a subsidiary of
Hughes Electronics Corporation.

Gary C. Hourihan was appointed Executive Vice President--Organizational
Development in January 1999 and is responsible for all human resource
functions and assisting with mergers and acquisitions, among other functions.
Prior to joining the Company, he was the co-founder, Chairman, and Chief
Executive Officer of SCA Consulting, L.L.C., one of the leading executive
compensation consulting firms in the U.S., where he was employed from November
1984 until joining the Company.

12

PART II.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "KFY." The following table sets forth, the high and low sales price
per share of the Common Stock for the periods indicated, as reported on the
New York Stock Exchange since trading began on February 11, 1999:



Fiscal Year Ended April 30, 1999 High Low
-------------------------------- ------ ------

First Quarter.................................................. N/A N/A
Second Quarter................................................. N/A N/A
Third Quarter.................................................. N/A N/A
Fourth Quarter................................................. $14.63 $11.00


On July 23, 1999, the last reported sales price on the New York Stock
Exchange for the Common Stock was $14.13 per share and there were
approximately 1,927 shareholders of record of the Common Stock.

The Company has not paid any dividends since April 30, 1996 and does not
intend to pay any cash dividends in the foreseeable future but instead intends
to retain any future earnings to finance its operations and growth of the
business. Future dividend policy will depend on the Company's earnings,
capital requirements, financial condition and other factors considered
relevant by the Board of Directors.

On February 17, 1999, the Company completed its initial public offering
under a Registration Statement on Form S-1 effective February 10, 1999
(Securities and Exchange Commission file number 333-61697) covering 11.8
million shares of common stock at $14.00 per share, of which approximately
10.0 million shares were offered by the Company and approximately 1.8 million
shares were offered by other selling shareholders. Net proceeds from the
offering (after deducting underwriting discounts and other expenses payable by
the Company) were approximately $124.3 million to the Company and $24.4
million to the selling shareholders. The Company also received approximately
$3.0 million from the repayment by certain selling shareholders of loans from
the Company to those selling shareholders. The Company used $14.4 million of
the net proceeds to repay its term loan and all outstanding indebtedness under
the Company's credit facilities, $27.1 million to complete the redemption by
the Company of certain shares of its capital stock, primarily shares owned by
certain shareholders under the terms of a 1994 stock redemption agreement, and
the outstanding shares of Series A and B preferred stock and $4.3 million to
pay existing obligations to former holders of phantom units and stock
appreciation rights. The remaining proceeds of $81.5 million will be used for
possible future acquisitions, working capital and general corporate purposes,
including the expansion of Futurestep, and continued development of
technology, information systems and infrastructure. The Company has currently
invested the remaining proceeds in short-term high grade commercial paper,
bonds, and other securities.

13

Item 6. Selected Financial Data

The following selected financial data are qualified by reference to, and
should be read in conjunction with, the Company's audited consolidated
financial statements and notes thereto (the "Consolidated Financial
Statements") and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this Form 10-K report. The
selected statement of operations data set forth below for the Company for the
fiscal years ended April 30, 1999, 1998 and 1997 and the selected balance
sheet data as of April 30, 1999 and 1998 are derived from the Company's
Consolidated Financial Statements, audited by Arthur Andersen LLP, appearing
elsewhere in this Form 10-K report. The selected statement of operations data
set forth below for the Company for the fiscal years ended April 30, 1995 and
1994 and the balance sheet data as of April 30, 1996, 1995 and 1994 are
derived from consolidated financial statements and notes thereto, audited by
Arthur Andersen LLP, which are not included in this Form 10-K report.



Fiscal Year Ended April 30,
---------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(dollars in thousands)

Selected Statement of Operations
Data:
Total revenues................... $373,095 $315,025 $272,561 $230,217 $187,888
Less reimbursed candidate
expenses....................... 16,565 14,470 12,137 8,731 6,627
-------- -------- -------- -------- --------
Net revenues..................... 356,530 300,555 260,424 221,486 181,261
Compensation and benefits (1).... 216,991 197,790 166,854 140,721 116,363
General and administrative
expenses........................ 100,714 84,575 73,005 64,419 48,630
Non-recurring charges (2)........ 89,202 -- -- -- --
-------- -------- -------- -------- --------
Operating profit (loss).......... (50,377) 18,190 20,565 16,346 16,268
Interest expense................. 4,463 4,234 3,320 3,683 2,323
-------- -------- -------- -------- --------
Income (loss) before provision
for income taxes and non-
controlling shareholders'
interests....................... (54,840) 13,956 17,245 12,663 13,945
Provision for income taxes....... 9,026 6,687 6,658 3,288 5,322
Non-controlling shareholders'
interests....................... 2,560 2,025 1,588 1,579 2,139
-------- -------- -------- -------- --------
Net income (loss)................ $(66,426) $ 5,244 $ 8,999 $ 7,796 $ 6,484
======== ======== ======== ======== ========
Net income (loss) per share
Basic........................... $ (2.37) $ 0.24 $ 0.42 $ 0.38 $ 0.30
Diluted......................... (2.37) 0.23 0.40 0.36 0.27
Weighted average common shares
outstanding
Basic........................... 28,086 21,885 21,382 20,390 21,874
Diluted......................... 28,086 23,839 23,481 23,019 25,607
Other Data:
Total revenues by region:
North America................... $200,236 $162,618 $135,192 $111,513 $ 97,950
Europe.......................... 106,566 86,180 77,505 68,890 49,769
Asia/Pacific.................... 35,090 34,811 34,532 29,921 21,227
Latin America................... 31,203 31,416 25,332 19,893 18,942
Number of offices (at period end)
(3)............................. 71 71 66 62 59
Average number of consultants
(3)............................. 406 357 311 284 258
Number of assignments (3)........ 6,771 5,879 4,774 4,113 3,570
Selected Balance Sheet Data:
Cash and cash equivalents........ $113,741 $ 32,358 $ 25,298 $ 26,640 $ 28,244
Marketable securities, current... 21,839 -- -- -- --
Working capital.................. 116,061 26,573 20,051 22,006 22,735
Total assets..................... 304,124 176,371 148,405 126,341 110,003
Total long-term debt............. 2,360 6,151 3,206 3,922 6,004
Total mandatorily redeemable
stock and shareholders' equity.. 172,686 58,754 50,812 43,075 34,149


14

- --------
(1) Upon consummation of the public offering, the Company's revised
compensation program became effective for fiscal 1999, commencing May 1,
1998. The revised compensation program reduces the amount of consultants'
annual cash performance bonus payments and provides for the issuance of
options to purchase up to seven million shares of Common Stock at the
market value at the time of the grant. Compared to the prior compensation
program, the revised compensation program resulted in a reduction in bonus
expense of $21.3 million for fiscal 1999.

(2) The Company recognized a non-recurring compensation and benefits expense
of $89.2 million in fiscal 1999, at the completion of the public offering,
comprised of (a) $49.3 million representing the difference between the
issuance price of the shares issued by the Company in the period beginning
twelve months before the initial filing date of the Registration Statement
relating to the public offering and the fair market value of the shares at
the date of grant, (b) $25.7 million from the completion of the redemption
by the Company of certain shares of its capital stock, primarily the
payment of additional redemption amounts to certain shareholders under the
terms of a 1994 stock redemption agreement, and (c) $4.3 million from the
payment of existing obligations to former holders of phantom units and
stock appreciation rights. The Company also recognized non-recurring
charges of $7.3 million related to costs, primarily severance and benefits
expense, incurred to achieve operating efficiencies in fiscal 1999 and
$2.6 million related to the resignation of the former President and Chief
Executive Officer.

(3) For fiscal 1999, the number of offices at period end, the average number
of consultants and the number of engagements includes one, nine and 160,
respectively, for Futurestep.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

The following presentation of management's discussion and analysis of the
Company's financial condition and results of operations should be read in
conjunction with the Company's Consolidated Financial Statements and other
financial information included herein.

Overview

Korn/Ferry International is the world's largest executive search firm and
has the broadest global presence in the industry with 425 consultants based in
71 offices across 40 countries. KFY's clients are many of the world's largest
and most prestigious public and private companies, middle-market and emerging
growth companies as well as governmental and not-for-profit organizations.
Almost half of the searches performed by the Company in fiscal 1999 were for
board level, chief executive and other senior executive officer positions and
approximately 43% of the Company's 4,151 clients were Fortune 500 companies.
The Company has established strong client loyalty; more than 90% of the search
assignments it performed in fiscal 1999 were on behalf of clients for whom it
had conducted multiple assignments over the last three fiscal years.

On February 17, 1999, the Company completed the public offering of 11.8
million shares of its Common Stock at $14.00 per share, approximately 10.0
million of which were sold by the Company, with the balance sold by certain
selling shareholders of the Company. Net proceeds received by the Company from
the offering were $124.3 million.

Upon consummation of the public offering, the Company's revised
compensation program became effective for the fiscal year commencing May 1,
1998. The revised compensation program reduces the amount of consultants'
annual cash performance bonus payments and provides for the issuance of
options to purchase up to seven million shares of its Common Stock at the
market value at the time of the grant. Compared to the prior compensation
program, the implementation of the revised compensation program resulted in a
reduction in bonus expense of $21.3 million for fiscal 1999.

The Company recognized a non-recurring compensation and benefits expense of
$79.3 million at the completion of the public offering, comprised of (a) $49.3
million representing the difference between the issuance price of the shares
issued by the Company in the period beginning twelve months before the initial
filing date of the Registration Statement relating to the public offering and
the fair market value of the shares at the date of grant, (b) $25.7 million

15

from the completion of the redemption by the Company of certain shares of its
capital stock, primarily the payment of additional redemption amounts to
certain shareholders under the terms of a 1994 stock redemption agreement, and
(c) $4.3 million from the payment of existing obligations to former holders of
phantom units and stock appreciation rights.

The Company recently completed an evaluation of its worldwide operations
and revenues, compensation costs and other operating expenses for each of its
offices and geographic locations. The Company conducted the evaluation in
order to identify, and eventually eliminate, existing inefficiencies and
excess costs in order to better align and enhance the competitive position of
the Company within each region. The Company assessed staff levels and office
needs based on individual performance and the economic conditions and outlook
in each region. The Company identified approximately 50 employees that would
be terminated and three underperforming European offices that will be
downsized or relocated to more efficient premises. As a result of this
analysis, a non-recurring charge to earnings of approximately $7.0 million for
severance and benefit costs related to staff downsizing was recognized in
fiscal 1999. This expense is comprised of a $3.2 million non-cash charge to
earnings related to the release of existing book value stock repurchase
requirements for nine of the terminated employees and $3.8 million for
severance and benefit payments for the terminated employees, of which $3.7
million was paid as of April 30, 1999. The Company also recognized a non-
recurring charge of $0.3 million, of which $0.2 million was paid as of April
30, 1999, for lease renegotiation and other relocation costs in fiscal 1999.
The Company does not expect any additional charge to earnings related to these
charges.

The Company recognized a non-recurring charge of $2.6 million in connection
with the resignation of the former President and Chief Executive Officer. This
charge is comprised of $1.5 million for compensation and other amounts payable
over the first seven months of fiscal 2000, of which $0.8 million was paid as
of April 30, 1999 and a $1.1 million non-cash charge to earnings representing
the difference between the then current book value and the appraised value of
165,168 common shares he retained subsequent to his resignation.

In May 1998, the Company introduced its Internet-based service, Futurestep.
Futurestep combines KFY's search expertise with exclusive candidate assessment
tools and the reach of the Internet to accelerate recruitment of candidates
for middle-management positions. Futurestep's operating losses approximated
$12.6 million and $0.8 million for fiscal 1999 and 1998, respectively, and are
primarily related to compensation expense, start-up costs and advertising
expense to promote and expand the business rollout. The Company believes
Futurestep will generate operating losses through at least the end of fiscal
2000. In March 1999, the Company completed its roll-out of Futurestep in the
United States with the addition of the Midwest and Southwest regions to the
Futurestep's East and West Coast operations. Approximately 326,000 candidates
worldwide had completed a detailed on-line profile through June 1999.
Futurestep launched its international roll-out in the United Kingdom and
Canada in May and June 1999, respectively, and plans to expand in other
selected foreign markets through fiscal 2000.

The Company and Futurestep are in the first year of their three-year
contract for an exclusive alliance with The Wall Street Journal, which
provides the Company with reduced advertising rates, requires the purchase by
Futurestep of a minimum amount of print and on-line advertising and permits
the use of The Wall Street Journal name in connection with promotion of the
Futurestep service. The contract requires the Company and Futurestep to
purchase from The Wall Street Journal a minimum of $3.5 million, $4.0 million
and $2.5 million of print and on-line advertising in the first, second and
third year of the contract, respectively. From the beginning of the contract
in June 1998 through April 30, 1999, the Company and Futurestep purchased
approximately $3.0 million of advertising.

The Wall Street Journal may terminate the contract at any time if (a) the
Company or Futurestep breach a material provision of the contract, (b) there
is an effective change in control of the Company or Futurestep (other than
pursuant to a registered offering) or (c) any party to the contract is
adjudged to be insolvent or bankrupt. If the contract terminates for any of
these reasons during the initial three-year term, the Company and Futurestep
would be obligated to pay any unpaid remainder of the annual minimum payment
amount for the year in which termination occurs plus an additional $2.5
million.

16

As the largest global executive search firm, the Company believes it has
the resources to be the leader in the consolidation of the highly fragmented
search industry. The Company frequently evaluates opportunities to expand its
business through acquisitions, and from time to time, the Company engages in
discussions with potential targets. The Company views strategic acquisitions
as a key component of its long term growth strategy and intends to pursue
future acquisition opportunities. In fiscal 1999, the Company completed the
acquisition of Didier, Vuchot and Associates in France and Ray and Berndtson
SA in Switzerland. In June 1999, the Company completed the acquisition of the
Australian business of Amrop International Australasia. See "Recent Events."

Results of Operations

The following table summarizes the results of the Company's operations for
each of the past three fiscal years as a percentage of net revenues.



Fiscal Year Ended
April 30,
---------------------
1999 1998 1997
---- ---- ----

Net revenues........................................... 100% 100% 100%
Compensation and benefits.............................. 61 66 64
General and administrative expenses.................... 28 28 28
Non-recurring charges.................................. 25 -- --
Operating profit (loss)(1)(2).......................... (14) 6 8
Net income (loss)(2)................................... (19) 2 3

- --------
(1) For fiscal 1999 and 1998, operating profit as a percentage of net revenues
excluding Futurestep and non-recurring charges is 15% and 6%,
respectively.

(2) Excluding the one-time non-recurring charges in fiscal 1999, operating
profit and net income as a percentage of net revenues is 11% and 5%,
respectively.

The Company experienced growth in total revenues in all geographic regions
from fiscal 1997 through 1999, except for Latin America. The following table
summarizes the Company's total revenues by geographic region for each of the
past three fiscal years. The Company includes revenues generated from its
Mexico operations with its operations in Latin America. Futurestep revenues of
$4.4 million for fiscal 1999 are included in North America.



Fiscal Year Ended April 30,
(dollars in thousands)
----------------------------------------
1999 1998 1997
------------ ------------ ------------
Dollars % Dollars % Dollars %
-------- --- -------- --- -------- ---

North America...................... $200,236 54% $162,618 52% $135,192 50%
Europe............................. 106,566 29 86,180 27 77,505 28
Asia/Pacific....................... 35,090 9 34,811 11 34,532 13
Latin America...................... 31,203 8 31,416 10 25,332 9
-------- --- -------- --- -------- ---
Total revenues................... $373,095 100% $315,025 100% $272,561 100%
======== === ======== === ======== ===


In the following comparative analysis, all percentages are calculated based on
dollars in thousands.

Fiscal 1999 Compared to Fiscal 1998

Total Revenues

Total revenues increased $58.1 million, or 18.4%, to $373.1 million for
fiscal 1999 from $315.0 million for fiscal 1998. The increase in total
revenues was primarily the result of a 15.2% increase in the number of
assignments, a 13.7% increase in the average number of consultants, and
revenues from Futurestep in fiscal 1999.

17

In North America, total revenues, including Futurestep revenues of $4.4
million, increased $37.6 million, or 23.1%, to $200.2 million for fiscal 1999
from $162.6 million for fiscal 1998. In Europe, total revenues increased
$20.4 million, or 23.7%, to $106.6 million in fiscal 1999 from $86.2 million
in the prior fiscal year. In Asia/Pacific and Latin America, total revenues
remained relatively flat in fiscal 1999 as compared to fiscal 1998 with an
increase of 0.8% and a decrease of 0.7% in these regions, respectively.

Total revenue growth in North America, including Futurestep, and Europe was
attributable mainly to a 26.1% and 18.6% increase, respectively, in the number
of engagements and an increase of 16.4% and 11.6%, respectively, in the
average number of consultants. The growth in total revenues in North America
also reflects Futurestep revenues of $4.4 million in fiscal 1999. The growth
in total revenues in Europe primarily reflects the additional revenues
generated from acquisitions of businesses in France and Switzerland completed
in the beginning of fiscal 1999 and two offices that were opened in late
fiscal 1998. The relatively flat total revenues for Asia/Pacific and Latin
America in fiscal 1999 and fiscal 1998 were attributable to economic
uncertainties in these regions. The economic conditions in Asia/Pacific that
began in late fiscal 1998 broadly impacted the region while the Latin American
region was primarily impacted by a sharp decline in the Brazilian economy in
the third quarter of fiscal 1999. Due to recent economic improvements in both
regions, the Company believes that the impact of these economies on operating
results may have stabilized.

Interest income and other income increased $1.0 million to $5.0 million in
fiscal 1999 from $4.0 million in fiscal 1998. The increase was due primarily
to interest income on the investment of proceeds received from the public
offering.

Compensation and Benefits

Compensation and benefits increased $19.2 million, or 9.7%, to $217.0
million in fiscal 1999 from $197.8 million in fiscal 1998. For fiscal 1999,
bonus expense was reduced by approximately 26% as a result of the
implementation of the Company's revised compensation program effective as of
May 1, 1998 upon completion of the initial public offering. Excluding
Futurestep and reflecting the bonus reduction in fiscal 1998, compensation and
benefits as a percentage of net revenues, increased slightly to 60.0% in
fiscal 1999 from 59.4% in fiscal 1998. The $32.9 million increase, on the same
basis, reflected the 13.7% increase in the average number of consultants to
406 in fiscal 1999 from 357 in fiscal 1998.

General and Administrative Expenses

General and administrative expenses consist of occupancy expenses
associated with the Company's leased premises, investments in information and
technology infrastructure, marketing and other general office expenses.
General and administrative expenses increased $16.1 million, or 19.1%, to
$100.7 million in fiscal 1999 from $84.6 million in fiscal 1998. This increase
was attributable largely to Futurestep expenses of $11.3 million, primarily
related to business development. As a percentage of net revenues, general and
administrative expenses, excluding Futurestep related net revenues and
expenses, declined to 25.4% in fiscal 1999 from 28.0% in fiscal 1998. The
decrease primarily reflects the higher percentage increase in net revenues and
the elimination of excess costs in fiscal 1999.

Operating Profit

The operating loss of $50.4 million in fiscal 1999 represents a decrease of
$68.6 million from operating profit of $18.2 million in fiscal 1998. The
fiscal 1999 operating loss includes Futurestep losses of $12.6 million and
non-recurring charges of $89.2 million. Excluding the Futurestep net revenues
and expenses and the non-recurring charges, operating profit, as a percentage
of net revenues, increased to 14.6% in fiscal 1999 from 6.3% in fiscal 1998.
For fiscal 1999, operating margins on this same basis increased in all regions
compared to fiscal 1998 due to the increase in net revenues and the reduced
level of bonus expense discussed above.

Excluding the Futurestep loss and the non-recurring charges, the percentage
of the Company's operating profit contributed by North America remained
relatively constant at 57.8% and 60.4% in fiscal 1999 and 1998, respectively.

18

The Latin American region contribution decreased to 17.3% in fiscal 1999 from
33.9% in fiscal 1998 largely due to the percentage decline in revenues in the
third and fourth quarters of fiscal 1999 while operating costs remained
relatively constant. The percentage of the Company's operating profit
contributed by the European and Asia/Pacific regions increased to
approximately 18.3% and 6.6%, respectively, in fiscal 1999 from 2.0% and 3.7%,
respectively, in fiscal 1998, primarily reflecting the elimination of excess
costs in these regions in fiscal 1999.

Interest Expense

Interest expense increased $0.3 million to $4.5 million in fiscal 1999 from
$4.2 million in fiscal 1998. The increase in interest expense for fiscal 1999
reflects the Company's increased additional borrowings under Company-owned
life insurance (COLI) policies offset by a lower average outstanding debt
balance.

Provision for Income Taxes

The provision for income taxes increased $2.3 million to $9.0 million in
fiscal 1999 from $6.7 million in fiscal 1998. The effective tax rate for
fiscal 1999 was 42.0%, excluding $76.3 million of non-recurring charges that
are not tax deductible, compared to 47.9% in the prior fiscal year. The
decrease in the effective tax rate resulted primarily from a decrease in
foreign cash remittances which are treated as taxable income in the United
States when received.

Non-controlling Shareholders' Interests

Non-controlling shareholders' interests are comprised of the non-
controlling shareholders' majority interests in the Company's Mexico
subsidiaries. Non-controlling shareholders' interests increased $0.5 million
to $2.5 million in fiscal 1999 from $2.0 million in fiscal 1998 and primarily
reflects a corresponding increase in net income generated by the Mexican
subsidiaries in fiscal 1999.

Fiscal 1998 Compared to Fiscal 1997

Total Revenues

Total revenues increased $42.5 million, or 15.6%, to $315.0 million for
fiscal 1998 from $272.6 million for fiscal 1997. The increase in total
revenues was primarily the result of a 14.8% increase in the average number of
consultants and a 23.1% increase in the number of assignments in fiscal 1998.

In North America, total revenues increased $27.4 million, or 20.3%, to
$162.6 million for fiscal 1998 from $135.2 million for fiscal 1997. In Europe,
total revenues increased $8.7 million, or 11.2%, to $86.2 million in fiscal
1998 from $77.5 million in fiscal 1997. In Asia/Pacific, total revenues
remained relatively flat in fiscal 1998 as compared to fiscal 1997 and in
Latin America, total revenues increased $6.1 million, or 24.0%, to $31.4
million in fiscal 1998 from $25.3 million in fiscal 1997.

The average number of consultants grew in each region, reflecting the
addition of two offices in North America, two offices in Europe and one office
in Latin America. In addition, the Company experienced strong growth in the
number of assignments in each region except Asia/Pacific and increased total
revenue per assignment in North America. The relatively constant total
revenues and assignments for Asia/Pacific from fiscal 1997 to fiscal 1998 were
attributable to economic uncertainties in this region.

Interest income and other income increased $1.1 million to $4.0 million in
fiscal 1998 from $2.9 million in fiscal 1997. The increase was due primarily
to other search related services.

Compensation and Benefits

Compensation and benefits increased $30.9 million, or 18.5%, to $197.8
million in fiscal 1998 from $166.9 million in fiscal 1997. This increase was
attributable to a 14.8% increase in the average number of consultants to 357
in fiscal 1998 from 311 in fiscal 1997 and an overall increase in compensation
and benefits as a percentage of net revenues. Compensation and benefits as a
percentage of net revenues in fiscal 1998 was 65.8% as compared to

19

64.1% in fiscal 1997. In addition, the Company has incurred an increase in
sign-on bonuses granted to newly hired consultants in fiscal 1998 prior to
their generation of revenues and guaranteed bonuses.

General and Administrative Expenses

General and administrative expenses increased $11.6 million, or 15.8%, to
$84.6 million in fiscal 1998 from $73.0 million in fiscal 1997. This increase
was primarily related to an increase in occupancy and office expenses,
including depreciation and leasehold amortization expense attributable to the
opening of five new offices in fiscal 1998 as well as the full year of
operation of four offices, after the opening of six offices, and the closing
of two offices, in fiscal 1997. As a percentage of net revenues, general and
administrative expenses remained constant at approximately 28.1% for both
fiscal 1998 and fiscal 1997. Technology expenses amounted to $8.4 million in
fiscal 1998 as compared to $7.2 million in fiscal 1997.

Operating Profit

Operating profit decreased $2.4 million to $18.2 million in fiscal 1998
from $20.6 million in fiscal 1997. As a percentage of net revenues, operating
profit decreased to 6.1% in fiscal 1998 from 7.9% in fiscal 1997. This
decrease was attributable to the increase in compensation and benefits in
fiscal 1998 from fiscal 1997 as discussed above.

The percentage of the Company's operating profit contributed by the North
American and Asia/Pacific regions decreased to approximately 58.6% and 3.9%,
respectively, in fiscal 1998 compared to 66.7% and 17.4%, respectively in the
prior fiscal year. The percentage of the Company's operating profit
contributed by the European region increased to approximately 2.1% in fiscal
1998 from a negative contribution of 4.5% in fiscal 1997, and the percentage
of the Company's operating profit contributed by the Latin American region
increased to approximately 35.4% of the Company's operating profit in fiscal
1998 from 20.4% in fiscal 1997.

Interest Expense

Interest expense increased $0.9 million to $4.2 million in fiscal 1998 from
$3.3 million in fiscal 1997. Interest expense for this two year period
reflected the Company's increased borrowings under life insurance policies and
the Company's credit facility.

Provision for Income Taxes

The provision for income taxes in both fiscal 1998 and fiscal 1997 was $6.7
million. The effective tax rate was 47.9% for fiscal 1998 compared to 38.6% in
fiscal 1997. The increase was due to the increase in cash remittances from
foreign operations that was treated as taxable income in the United States.

Non-controlling Shareholders' Interests

Non-controlling shareholders' interests increased $0.4 million to $2.0
million in fiscal 1998 from $1.6 million in fiscal 1997. This change was
primarily due to an increase in net income generated by the Mexico
subsidiaries of approximately $1.0 million in fiscal 1998.

Liquidity and Capital Resources

The following table presents selected financial information as of the end
of the past three fiscal years:



As of April 30,
(in thousands)
------------------------
1999 1998 1997
-------- ------- -------

Working capital................................. $116,061 $26,573 $20,051
Borrowings on line of credit.................... -- -- 3,000
Total long-term debt, net of current
maturities..................................... 2,360 6,151 3,206
Borrowings under life insurance policies........ 42,655 37,638 32,278


The Company finances operating expenditures primarily through cash flows
from operations and maintains a line of credit to manage timing differences
between cash receipts and disbursements. In February 1999, the Company
received $124.3 million upon completion of its initial public offering.

20

To provide additional liquidity, the Company obtained a $50 million credit
facility with Mellon Bank, N.A. and Bank of America National Trust and Savings
Association in February 1999 to replace the Company's existing line of credit.
The credit facility is a three year, unsecured revolving facility and includes
a standby letter of credit subfacility. Outstanding borrowings will bear
interest at various rates based, at the Company's option, on either a LIBOR
index or the bank's prime lending rate. The financial covenants include a
minimum tangible net worth, a maximum leverage ratio, and interest coverage
ratios and customary events of default. As of April 30, 1999, the Company had
no outstanding borrowings under its revolving line of credit.

Cash provided by operating activities was $38.7 million, $18.5 million and
$10.2 million for fiscal 1999, 1998 and 1997, respectively. The $20.2 million
increase in operating cash flow in fiscal 1999 compared to the prior fiscal
year is due primarily to an increase in net income excluding non-recurring
charges of $12.2 million and an increase in accounts payable and accrued
liabilities of $13.6 million; offset by approximately $4.6 million of cash
used for non-recurring charges consisting of severance and benefit payments
related to staff downsizing, modification to existing stock repurchase
agreements and office rationalization in fiscal 1999. See "Notes to
Consolidated Financial Statements--Note 5."

Capital expenditures totaled approximately $8.1 million, $9.9 million and
$8.5 million for fiscal 1999, 1998 and 1997, respectively. These expenditures
consisted primarily of upgrades to information systems, purchases of office
equipment and leasehold improvements. The Company expects to maintain capital
expenditures in fiscal 2000 at the fiscal 1999 level to support office
expansion and technology investments. In addition, the Company is installing a
new financial system, beginning in fiscal 2000, with an expected installation
cost of approximately $11.0 million over the next two fiscal years.

Included in cash flows from investing activities are premiums paid on COLI
contracts. The Company purchases COLI contracts to provide a funding vehicle
for anticipated payments due under its deferred executive compensation
programs. Premiums on these COLI contracts were $12.4 in fiscal 1999 and 1998
and $7.9 million in fiscal 1997. The increase in premium payments from fiscal
1997 to fiscal 1998 of $4.5 million is attributable to purchase of additional
policies for new and existing participants in late fiscal 1998. Generally, the
Company borrows against the cash surrender value of the COLI contracts to fund
the COLI premium payments. In fiscal 1999, 1998 and 1997, the Company also
redeemed guaranteed investment contracts, originally purchased in fiscal 1996
with proceeds from borrowings against COLI contracts in excess of premium
payments, of $1.7 million, $1.9 million and $1.8 million, respectively.

In May 1998, the Company acquired the assets and liabilities of Didier
Vuchot & Associates in France for approximately $6.0 million in cash, notes
and mandatorily redeemable stock of a subsidiary of the Company. In June 1998,
the Company acquired all of the outstanding shares of Ray & Berndtson SA in
Switzerland for $3.6 million payable in cash, notes and common stock of the
Company. The acquisitions resulted in a net cash outflow of $1.3 million,
comprised of a $2.5 million cash payment offset by $1.2 million of cash
acquired.

In February 1996, the Company divested its 47% interest in Strategic
Compensation Associates for a cash payment of $0.4 million and $3.2 million in
notes receivable with interest. The outstanding balance of the notes
receivable at December 31, 1998 was paid in full, resulting in a net cash
inflow of $2.3 million in fiscal 1999.

During fiscal 1999, cash provided by financing activities was $92.9
million, resulting primarily from net proceeds raised in the initial public
offering of $124.3 million and $3.0 million from certain selling shareholders
received in repayment of outstanding notes receivable; offset by $14.4 million
used to repay the Company's term loan and all outstanding indebtedness under
its credit facilities, $27.1 million to complete the redemption by the Company
of certain shares of its capital stock, primarily shares owned by certain
shareholders under the terms of a 1994 stock redemption agreement and the
outstanding shares of Series A and B preferred stock and $4.3 million to pay
existing obligations to former holders of phantom units and stock appreciation
rights, resulting in net proceeds available for investment of $81.5 million.
Prior to the public offering, the Company issued approximately 6.6 million
shares of Common Stock to newly hired and promoted consultants for $36.1
million of which $16.7 million was received in cash and repurchased
approximately 2.6 million shares of Common Stock from terminated employees for
$21.9 million. In fiscal 1999, the Company also borrowed $6.0 million under
COLI contracts and repaid bank borrowings and other debt aggregating $8.7
million.

21

During fiscal 1998, cash provided by financing activities was approximately
$9.2 million, comprised primarily of borrowings under COLI contracts of $5.4
million and proceeds from sales of Common Stock to newly hired and promoted
consultants and payments received on the related promissory notes of $6.6
million, offset by $2.8 million paid to repurchase Common Stock and make
payments on the related notes.

During fiscal 1997, cash provided by financing activities was approximately
$4.4 million, consisting primarily of proceeds from sales of Common Stock to
newly hired and promoted consultants and payments received on the related
promissory notes of $5.6 million and borrowings against COLI contracts of $2.0
million offset by repurchases of Common Stock and payments made on the related
notes payable of $3.7 million.

Total outstanding borrowings under life insurance policies were $42.7
million, $37.6 million and $32.3 million as of April 30, 1999, 1998 and 1997,
respectively. Such borrowings are secured by the cash surrender value of the
life insurance policies, do not require principal payments and bear interest
at various variable rates.

The Company believes that funds from operations, its expanded credit
facilities, and the net proceeds from the initial public offering will be
sufficient to meet its anticipated working capital, capital expenditures, and
general corporate requirements for the foreseeable future.

Recent Events

On June 11, 1999, the Company completed the acquisition of the Australian
business of Amrop International Australasia for approximately $3.2 million in
cash paid over a four-year period and common stock grants at fair value of
$0.6 million. The acquisition has been accounted for as a purchase. Of the
total purchase price of $3.8 million, $2.0 million will be accounted for as
deferred compensation. The fair market value of the net assets acquired was
approximately $0.2 million and the excess of the consideration, less the
amount attributable to deferred compensation, paid over the estimated fair
value of net assets acquired has been recorded as goodwill.

Year 2000 Compliance

The Year 2000 issue is the result of computer programs being written to use
two digits to define year dates. Computer programs running date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This defect could result in systems failure or miscalculations causing
disruptions of operations. The Company utilizes information technology to
facilitate (i) its internal search processes and inter-office communications,
(ii) communications with candidates and clients and (iii) its financial
management systems and other support systems. The statements contained in this
section are "Year 2000 Readiness Disclosures" as provided for in the Year 2000
Information and Readiness Disclosure Act.

The following scenarios with respect to the Company's systems could occur:
(i) its software may not be Year 2000 compliant, (ii) integration of upgrades
may not be complete by the year 2000 and (iii) replacement of its non-
compliant systems may be complete by the year 2000 but not fully tested or
monitored prior to the year 2000 such that testing and monitoring will uncover
problems that the Company cannot remedy in a timely manner.

Failure of search-related systems to be Year 2000 compliant might force the
Company to use different Year 2000 compliant systems to conduct searches and
might decrease productivity. Any failure of the Company's financial systems to
be Year 2000 compliant could hinder timely reporting of financial data and
processing of financial information as these functions would have to be
performed manually using non-networked computers. If any non-information
technology systems is not Year 2000 compliant, the Company will need to repair
or replace such systems. The Company believes that failure to be Year 2000
compliant will not have a significant impact on its human resource systems.
The Company's interruption or loss of information processing capabilities due
to Year 2000 issues could have a material adverse effect on the Company's
business, results of operations and financial condition.

In fiscal 1999, the Company completed an inventory and Year 2000 assessment
of its principal computer systems, network elements, software applications and
other business systems. The Company incurred approximately $0.3 million in
fiscal 1999 to resolve Year 2000 issues and expects to incur approximately
$0.2 million to $0.3 million

22

in fiscal 2000. The expenses to be incurred on the Year 2000 issues are being
funded through operating cash flows. The Company estimates full compliance by
October 31, 1999. The costs relating to the Year 2000 issues and the date on
which the Company believes it will complete the Year 2000 modifications are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources, third-party modification plans and other factors. Actual results
could differ materially from those anticipated.

The Company's primary business does not depend on material relationships
with third party vendors but utilizes third party vendors for a number of
functions, including its automated payroll functions, insurance and investment
of pension funds. The Company is initiating formal communications with third
party providers to determine the extent to which these third parties are
moving toward Year 2000 compliance. The Company also utilizes third party on-
line information services and the Internet to communicate and to retrieve
information about potential candidates and clients. Failure of these third
parties to have their systems Year 2000 compliant may have a material adverse
effect on the Company's operations.

The Company is in the process of developing a disaster recovery plan that
includes the implementation of alternative services in the event of a business
disruption. The plan is intended to address critical resources for the Company
and key resources for its remote offices, including interruptions that are the
result of problems arising from the Year 2000 issue. During and after any
disaster, these back-up solutions are intended to serve as temporary
replacements for the Company's e-mail, Internet access and proprietary
applications, which are integral to the Company's business. The Company
intends to have its disaster recovery plan completed by October 31, 1999 and
to have the plan fully implemented and tested for readiness of usage during
December 1999.

Quarterly Results

The following table sets forth certain unaudited statement of operations
data for the quarters in fiscal 1998 and 1999. The unaudited quarterly
information has been prepared on the same basis as the annual financial
statements and, in management's opinion, includes all adjustments necessary to
present fairly the information for the quarters presented. Results for the
previous fiscal quarter are not necessarily indicative of results for the full
fiscal year or for any future fiscal quarter.



Quarters Ended,
---------------------------------------------------------------------
Fiscal 1998 Fiscal 1999
-------------------------------- ------------------------------------
July 31 Oct. 31 Jan. 31 April 30 July 31 Oct. 31 Jan. 31 April 30
------- ------- ------- -------- ------- ------- ------- --------
(in thousands, except per share amounts)

Total revenues.......... $70,273 $76,862 $82,623 $85,267 $88,995 $94,767 $92,161 $97,172
Net revenues............ 67,859 72,472 79,336 80,888 84,675 91,014 88,575 92,266
Operating profit
(loss)(1).............. 4,094 4,230 5,091 4,775 4,389 2,959 11,066(2) (68,791)(3)
Net income (loss)(1).... 1,112 1,326 1,587 1,219 1,519 (146) 5,105(2) (72,904)(3)
Net income (loss) per
share..................
Basic................. 0.05 0.06 0.07 0.05 0.06 (0.01) 0.19 (2.15)
Diluted............... 0.05 0.06 0.07 0.05 0.05 (0.01) 0.19 (2.15)

- --------
(1) For the fiscal quarters ended July 31, 1998, October 31, 1998, January 31,
1999 and April 30, 1999, operating losses generated by Futurestep were
$2,483, $4,579, $,3,411 and $2,105, respectively and net losses generated
by Futurestep were $1,415, $2,610, $1,998 and $1,221, respectively.

(2) Fiscal 1999 third quarter results include a reduction in bonus expense of
$10.2 million related to the first and second fiscal 1999 quarters and
$5.4 million related to the third fiscal quarter, resulting from the
implementation of the Company's revised compensation program effective May
1, 1998 upon completion of the public offering and non-recurring expenses
of $8.4 million related to improving operating efficiencies and the
resignation of the former President and Chief Executive Officer. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Overview."

23

(3) The Company recognized a non-recurring compensation and benefits expense
of $79.3 million in the fourth quarter of fiscal 1999, at the completion
of the public offering, comprised of (a) $49.3 million representing the
difference between the issuance price of the shares issued by the Company
in the period beginning twelve months before the initial filing date of
the Registration Statement relating to the public offering and the fair
market value of the shares at the date of grant, (b) $25.7 million from
the completion of the redemption by the Company of certain shares of its
capital stock, primarily the payment of additional redemption amounts to
certain shareholders under the terms of a 1994 stock redemption agreement,
and (c) $4.3 million from the payment of existing obligations to former
holders of phantom units and stock appreciation rights. The Company also
recognized additional non-recurring charges of $1.5 million related to
costs, primarily severance and benefits expense, incurred to achieve
operating efficiencies in fiscal 1999.

Euro Conversion

As of January 1, 1999, several member countries of the European Union
established fixed conversion rates among their existing local currencies, and
adopted the Euro as their new common legal currency. The Euro trades on
currency exchanges and the legacy currencies will remain legal tender in the
participating countries for a transition period which expires January 1, 2002.
The conversion to the Euro has not had a significant impact on the Company's
operations to date.

During the transition period, cashless payments can be made in the Euro,
and parties can elect to pay for goods and services and transact business
using either the Euro or a legacy currency. Between January 1, 2002 and July
1, 2002, the participating countries will introduce Euro notes and coins and
withdraw all legacy currencies so that they will no longer be available.

KFY is currently assessing its information technology systems to determine
whether they allow for transactions to take place in both the legacy
currencies and the Euro and accommodate the eventual elimination of the legacy
currencies. The Company's currency risk may be reduced as the legacy
currencies are converted to the Euro. Accounting, tax and governmental legal
and regulatory guidance generally has not been provided in final form and the
Company will continue to evaluate issues involving introduction of the Euro
throughout the transition period.

Recently Issued Accounting Standards

During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," ("SFAS 133") which establishes
new standards for reporting derivative and hedging information. The standard
is effective for periods beginning after June 15, 2000 and will be adopted by
the Company as of May 1, 2001. It is not expected that the adoption of this
standard will have any impact on the consolidated financial statements nor
require additional footnote disclosure since the Company does not currently
utilize derivative instruments or participate in structured hedging
activities.

In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998
and will be adopted by the Company beginning in fiscal 2000. SOP 98-1 provides
guidance over accounting for computer software developed or obtained for
internal use including the requirement to capitalize specified costs and
amortization of such costs. It is not expected that the adoption of this
standard will have a material effect on the consolidated financial statements
or on the capitalization policy.

Forward-looking Statements

This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections of this report contain forward
looking statements that are based on the current beliefs and expectations of
the Company's management, as well as assumptions made by, and information
currently available to, the Company's

24

management. Such statements include those regarding general economic and
executive search industry trends. Because such statements involve risks and
uncertainties, actual actions and strategies and the timing and expected
results thereof may differ materially from those expressed or implied by such
forward-looking statements, and the Company's future results, performance or
achievements could differ materially from those expressed in, or implied by,
any such forward-looking statements. Future events and actual results could
differ materially from those set forth in or underlying the forward-looking
statements.

Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted. These potential risks and
uncertainties include, but are not limited to, dependence on attracting and
retaining qualified executive search consultants, portability of client
relationships, risks associated with global operations, ability to manage
growth, restrictions imposed by off-limits agreements, competition,
implementation of an acquisition strategy, risks related to the development
and growth of Futurestep, reliance on information processing systems and the
impact of Year 2000 issues, and employment liability risk. For more
information on these risks and uncertainties, see "Business--Risk Factors" in
the Company's Registration Statement on Form S-1 effective February 10, 1999
(Securities and Exchange Commission file number 333-61697).

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

As a result of its global operating activities, the Company is exposed to
certain market risks including changes in foreign currency fluctuations,
fluctuations in interest rate and variability in interest rate spread
relationships. The Company manages its exposure to these risks in the normal
course of its business as described below. The Company has not utilized
financial instruments for trading or other speculative purposes nor does it
trade in derivative financial instruments.

Foreign Currency Risk

Generally, financial results of the Company's foreign subsidiaries are
measured in their local currencies. Assets and liabilities are translated into
U.S. dollars at the rates of exchange in effect at the end of each year and
revenues and expenses are translated at average rates of exchange during the
year. Resulting translation adjustments are reported as a component of
comprehensive income.

Financial results of foreign subsidiaries in countries with highly
inflationary economies are measured in U.S. dollars. The financial statements
of these subsidiaries are translated using a combination of current and
historical and any translation adjustments are included in determining net
income.

Historically, the Company has not experienced any significant translation
gains or losses on transactions involving U.S. dollars and other currencies.
This is primarily due to natural hedges of revenues and expenses in the
functional currencies of the countries in which its offices are located and
investment of excess cash balances in U.S. dollar denominated accounts.

Interest Rate Risk

The Company primarily manages its exposure to fluctuations in interest
rates through its regular financing activities that generally are short term
and provide for variable market rates. The Company has no outstanding balance
on either its term loan or revolving line of credit as of April 30, 1999. At
April 30, 1999, the Company has an outstanding principal balance of
approximately $2.4 million of long-term notes payable to shareholders through
fiscal 2004 at variable market rates. The Company has investments in interest
bearing securities at market rates with original maturities ranging from May
1999 through October 2001 and an average maturity period of less than three
months.

Item 8. Financial Statements and Supplementary Data

See Consolidated Financial Statements beginning on page F-1 of this Annual
Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

25

PART III.

Item 10. Directors and Executive Officers of the Registrant

The information required by this Item will be included under the captions
"The Board of Directors," "Nominees for Director--Class 2000," "Nominees for
Director--Class 2001," and "Nominees for Directors--Class 2002" in the
Company's 1999 Proxy Statement, and is incorporated herein by reference. See
also "Executive Officers of the Registrant" in Part I of this report.

Item 11. Executive Compensation

The information required by this Item will be included under the captions
"Executive Compensation--Summary Compensation Table," "Executive
Compensation--Option Grant Table," "Executive Compensation--Aggregated Option
Exercises and Year-end Option Values" and "Employment Agreements" in the
Company's 1999 Proxy Statement, and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by this Item will be included under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's 1999 Proxy Statement, and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

The information required by this Item will be included under the caption
"Certain Relationships and Related Transactions" in the Company's 1999 Proxy
Statement, and is incorporated herein by reference.

26

PART IV.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT.



Page
----

1. Index to Financial Statements:

See Consolidated Financial Statements included as part of this
Form 10-K at page F-1

2. Financial Statement Schedule:

Report of Independent Accountants................................ F-22

Schedule II--Valuation and Qualifying Accounts................... F-23

3. Exhibits:




Exhibit
Number Description of Exhibit
------- ----------------------

3.1 Amended and Restated Articles of Incorporation of the Company. Filed
as Exhibit 3.1 to the Company's Current Report on Form 8-K dated
February 22, 1999, and incorporated herein by reference.

3.2 Amended and Restated Bylaws of the Company. Filed as Exhibit 3.2 to
the Company's Current Report on Form 8-K dated February 22, 1999, and
incorporated herein by reference.

4.1 Specimen Common Stock certificate. Filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-1 (No. 333-61697),
effective February 10, 1999, and incorporated herein by reference.

10.1* Form of Indemnification Agreement between the Company and each of its
executive officers and directors. Filed as Exhibit 10.1 to the
Company's Registration Statement on Form S-1 (No. 333-61697),
effective February 10, 1999, and incorporated herein by reference.

10.2* Performance Award Plan. Filed as Exhibit 10.2 to the Company's
Registration Statement on Form S-1 (No. 333-61697), effective February
10, 1999, and incorporated herein by reference.

10.3* Form of U.S. and International Worldwide Executive Benefit Retirement
Plan. Filed as Exhibit 10.3 to the Company's Registration Statement on
Form S-1 (No. 333-61697), effective February 10, 1999, and
incorporated herein by reference.

10.4* Form of U.S. and International Worldwide Executive Benefit Life
Insurance Plan. Filed as Exhibit 10.4 to the Company's Registration
Statement on Form S-1 (No. 333-61697), effective February 10, 1999,
and incorporated herein by reference.

10.5* Worldwide Executive Benefit Disability Plan (in the form of Long-Term
Disability Insurance Policy). Filed as Exhibit 10.5 to the Company's
Registration Statement on Form S-1 (No. 333-61697), effective
February 10, 1999, and incorporated herein by reference.

10.6* Form of U.S. and International Enhanced Executive Benefit and Wealth
Accumulation Plan. Filed as Exhibit 10.6 to the Company's Registration
Statement on Form S-1 (No. 333-61697), effective February 10, 1999,
and incorporated herein by reference.

10.7* Form of U.S. and International Senior Executive Incentive Plan. Filed
as Exhibit 10.7 to the Company's Registration Statement on Form S-1
(No. 333-61697), effective February 10, 1999, and incorporated herein
by reference.

10.8* Executive Salary Continuation Plan. Filed as Exhibit 10.8 to the
Company's Registration Statement on Form S-1 (No. 333-61697),
effective February 10, 1999, and incorporated herein by reference.



27



Exhibit
Number Description of Exhibit
------- ----------------------

10.9* Form of Amended and Restated Stock Repurchase Agreement. Filed as
Exhibit 10.10 to the Company's Registration Statement on Form S-1 (No.
333-61697), effective February 10, 1999, and incorporated herein by
reference.

10.10* Form of Standard Employment Agreement. Filed as Exhibit 10.11 to the
Company's Registration Statement on Form S-1 (No. 333-61697),
effective February 10, 1999, and incorporated herein by reference.

10.11* Form of Deferred Compensation Election Form for Fiscal 1998. Filed as
Exhibit 10.12 to the Company's Registration Statement on Form S-1 (No.
333-61697), effective February 10, 1999, and incorporated herein by
reference.

10.12* Stock Purchase Agreement between the Company, Man Jit Singh and
Korn/Ferry International Futurestep, Inc. dated as of December 1,
1997.

10.13* Shareholders Agreement between the Company, Man Jit Singh and
Korn/Ferry International Futurestep, Inc. dated as of December 1,
1997.

10.14* Employment Agreement between Man Jit Singh and Korn/Ferry
International Futurestep, Inc. dated December 1, 1997. Filed as
Exhibit 10.15 to the Company's Registration Statement on Form S-1
(No. 333-61697), effective February 10, 1999, and incorporated herein
by reference.

10.15* KFI/Singh Agreement between the Company and Man Jit Singh dated
December 1, 1997. Filed as Exhibit 10.16 to the Company's Registration
Statement on Form S-1 (No. 333-61697), effective February 10, 1999,
and incorporated herein by reference.

10.16* Amended and Restated Stock Repurchase Agreement between the Company
and Man Jit Singh dated as of January 15, 1999.

10.17* Stock Purchase Agreement between the Company, Richard M. Ferry, Henry
B. Turner and Peter W. Mullin (as trustees of the Richard M. Ferry and
Maude M. Ferry 1972 Children's Trust), the California Community
Foundation and Richard M. Ferry Co-trustees, and the California
Community Foundation dated June 2, 1995. Filed as Exhibit 10.20 to the
Company's Registration Statement on Form S-1 (No. 333-61697),
effective February 10, 1999, and incorporated herein by reference.

10.17A* Form of First Amendment to Stock Purchase Agreement between the
Company, Richard M. Ferry, Henry B. Turner and Peter W. Mullin (as
trustees of the Richard M. Ferry and Maude M. Ferry 1972 Children's
Trust), the California Community Foundation and Richard M. Ferry Co-
trustees, and the California Community Foundation dated as of April
25, 1999.

10.18* Form of U.S. and Foreign Executive Participation Program. Filed as
Exhibit 10.27 to the Company's Registration Statement on Form S-1 (No.
333-61697), effective February 10, 1999, and incorporated herein by
reference.

10.19* General Release and Settlement Agreement between the Company and
Michael D. Boxberger dated December 3, 1998. Filed as Exhibit 10.32 to
the Company's Registration Statement on Form S-1 (No. 333-61697),
effective February 10, 1999, and incorporated herein by reference.

10.20* Additional Redemption Agreement between the Company and Richard M.
Ferry dated February 5, 1999. Filed as Exhibit 10.2 to the Company's
Current Report on Form 8-K dated February 22, 1999, and incorporated
herein by reference.

10.21* Employment Agreement between the Company and Windle B. Priem effective
May 1, 1999.

10.22* Employment Agreement between the Company and Peter L. Dunn effective
April 29, 1999.

10.23* Employment Agreement between the Company and Elizabeth S.C.S. Murray
effective April 29, 1999.

10.24 License Agreement between Self Discovery Dynamics LLC and Korn/Ferry
International Futurestep, Inc. dated May 15, 1998. Filed as Exhibit
10.18 to the Company's Registration Statement on Form S-1 (No. 333-
61697), effective February 10, 1999, and incorporated herein by
reference.



28



Exhibit
Number Description of Exhibit
------- ----------------------

10.25 Trademark License and Promotion Agreement between Dow Jones & Company,
the Company and Korn/Ferry International Futurestep, Inc. dated June
8, 1998. Filed as Exhibit 10.19 to the Company's Registration
Statement on Form S-1 (No. 333-61697), effective February 10, 1999,
and incorporated herein by reference.

10.26 Credit Agreement dated as of February 12, 1999 by and among the
Company, the lenders named therein, Mellon Bank, N.A. and Bank of
America National Trust and Savings Association, as issuing banks, and
Mellon Bank, N.A., as agent for the lenders. Filed as Exhibit 10.1 to
the Company's Current Report on Form 8-K dated February 22, 1999, and
incorporated herein by reference.

21.1 Subsidiaries of the Company. Filed as Exhibit 21.1 to the Company's
Registration Statement on Form S-1 (No. 333-61697), effective February
10, 1999, and incorporated herein by reference.

23.1 Consent of Arthur Andersen LLP

24.1 Power of Attorney (contained on the signature page)

27.1 Financial Data Schedule for Fiscal Year Ended April 30, 1999


- --------
*Management contract, compensatory plan or arrangement


(b) REPORTS ON FORM 8-K.

The Company filed a Form 8-K dated February 22, 1999 with respect to the
effective commencement and completion date of the public offering and the
effective date of the Company's Amended and Restated Articles of Incorporation
and the Company's Amended and Restated Bylaws in addition to the new credit
facility.

29

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.

KORN/FERRY INTERNATIONAL

By: /s/ Elizabeth S.C.S. Murray
-----------------------------------
Elizabeth S.C.S. Murray
Chief Financial Officer,
Treasurer and Executive Vice
President

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of the Registrant hereby constitutes and appoints Peter L. Dunn and
Elizabeth S.C.S. Murray, and each of them, as lawful attorney-in-fact and
agent for each of the undersigned (with full power of substitution and
resubstitution, for and in the name, place and stead of each of the
undersigned officers and directors), to sign and file with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, any
and all amendments, supplements and exhibits to this report and any and all
other documents in connection therewith, hereby granting unto said attorneys-
in-fact, and each of them, full power and authority to do and perform each and
every act and thing necessary or desirable to be done in order to effectuate
the same as fully and to all intents and purposes as each of the undersigned
might or could do if personally present, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or any of their
substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.



Signature Title Date
--------- ----- ----


/s/ Richard M. Ferry Chair of the Board and July 23, 1999
____________________________________ Director
Richard M. Ferry

/s/ Windle B. Priem Chief Executive Officer, July 23, 1999
____________________________________ President and Director
Windle B. Priem (Principal Executive
Officer)

/s/ Elizabeth S.C.S. Murray Chief Financial Officer, July 23, 1999
____________________________________ Treasurer and Executive
Elizabeth S.C.S. Murray Vice President (Principal
Financial Officer)

/s/ Donald E. Jordan Vice President of Finance July 23, 1999
____________________________________ (Principal Accounting
Donald E. Jordan Officer)


30



Signature Title Date
--------- ----- ----


/s/ Paul Buchanan-Barrow Director July 23, 1999
____________________________________
Paul Buchanan-Barrow

/s/ Frank V. Cahouet Director July 23, 1999
____________________________________
Frank V. Cahouet

/s/ Peter L. Dunn Director July 23, 1999
____________________________________
Peter L. Dunn

/s/ Timothy K. Friar Director July 23, 1999
____________________________________
Timothy K. Friar

/s/ Sakie Fukushima Director July 23, 1999
____________________________________
Sakie Fukushima

/s/ Scott E. Kingdom Director July 23, 1999
____________________________________
Scott E. Kingdom

/s/ Young Kuan-Sing Director July 23, 1999
____________________________________
Young Kuan-Sing

/s/ Charles D. Miller Director July 23, 1999
____________________________________
Charles D. Miller

/s/ Raimondo Nider Director July 23, 1999
____________________________________
Raimondo Nider

/s/ Manuel A. Papayanopulos Director July 23, 1999
____________________________________
Manuel A. Papayanopulos

/s/ Gerhard Schulmeyer Director July 23, 1999
____________________________________
Gerhard Schulmeyer

/s/ Michael A. Wellman Director July 23, 1999
____________________________________
Michael A. Wellman


31

INDEX TO FINANCIAL STATEMENTS



Report of Independent Accountants........................................ F-2

Consolidated Balance Sheet as of April 30, 1999 and 1998................. F-3

Consolidated Statements of Operations for the three years ended April 30,
1999.................................................................... F-4

Consolidated Statements of Shareholders' Equity for the three years ended
April 30, 1999.......................................................... F-5

Consolidated Statements of Cash Flows for the three years ended April 30,
1999.................................................................... F-6

Notes to Consolidated Financial Statements............................... F-7

INDEX TO FINANCIAL STATEMENT SCHEDULE

Report of Independent Accountants........................................ F-22

Schedule II--Valuation and Qualifying Accounts........................... F-23


F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of
Korn/Ferry International and Subsidiaries:

We have audited the accompanying consolidated balance sheet of KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES (the "Company"), a California corporation, as
of April 30, 1999 and 1998, and the related consolidated statement of
operations, shareholders' equity and cash flows for each of the three years in
the period ended April 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of KORN/FERRY INTERNATIONAL
AND SUBSIDIARIES as of April 30, 1999 and 1998, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended April 30, 1999, in conformity with generally accepted accounting
principles.

/s/ Arthur Andersen LLP

Los Angeles, California
June 7, 1999

F-2

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(in thousands)



April 30,
------------------
1999 1998
-------- --------

ASSETS
Cash and cash equivalents.................................. $113,741 $ 32,358
Marketable securities...................................... 21,839 --
Receivables due from clients, net of allowance for doubtful
accounts of $7,847 and $5,390............................. 63,139 57,754
Other receivables.......................................... 3,337 3,501
Prepaid expenses........................................... 5,736 6,265
-------- --------
Total current assets.................................... 207,792 99,878
-------- --------
Property and equipment:
Computer equipment and software........................... 17,554 13,715
Furniture and fixtures.................................... 14,646 13,573
Leasehold improvements.................................... 11,785 9,713
Automobiles............................................... 1,716 1,679
-------- --------
45,701 38,680
Less: Accumulated depreciation and amortization............ (24,591) (17,583)
-------- --------
Property and equipment, net............................... 21,110 21,097
-------- --------
Cash surrender value of company owned life insurance
policies, net of loans.................................... 41,973 30,109
Marketable securities, guaranteed investment contracts and
notes receivable.......................................... 8,218 4,054
Deferred income taxes...................................... 18,182 16,545
Goodwill and other intangibles, net of accumulated
amortization of $5,351 and $4,182......................... 3,639 2,972
Other...................................................... 3,210 1,716
-------- --------
Total Assets............................................ $304,124 $176,371
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable and current maturities of long-term debt..... $ 1,356 $ 2,559
Accounts payable........................................... 10,384 3,651
Income taxes payable....................................... 2,323 6,903
Accrued liabilities:
Compensation.............................................. 35,212 26,100
Payroll taxes............................................. 20,546 14,821
Other accruals............................................ 21,910 19,271
-------- --------
Total current liabilities............................... 91,731 73,305
Deferred compensation...................................... 33,531 34,552
Long-term debt............................................. 2,360 6,151
Other...................................................... 1,775 1,582
-------- --------
Total liabilities....................................... 129,397 115,590
-------- --------
Non-controlling shareholders' interests.................... 2,041 2,027
-------- --------
Mandatorily redeemable common and preferred stock:
Preferred stock, no par value:
Series A--Authorized 10 shares, 9 shares outstanding as
of April 30, 1998, at redemption value................... -- 63
Series B--Authorized 150 shares, 121 shares outstanding
as of of April 30, 1998, at book value................... -- 1,353
Common stock, no par value--Authorized 150,000 shares,
22,282 shares outstanding as of April 30, 1998, at
book value............................................... -- 62,110
Less: Notes receivable from shareholders.................. -- (7,365)
-------- --------
Total mandatorily redeemable common and preferred
stock.................................................. -- 56,161
-------- --------
Shareholders' equity:
Common stock, no par value--Authorized 150,000 shares,
35,633 and 920 shares outstanding as of April 30, 1999
and 1998, respectively................................... 253,021 --
Retained earnings (deficit)............................... (66,426) 2,401
Accumulated other comprehensive income.................... (2,360) 192
-------- --------
Shareholders' equity.................................... 184,235 2,593
Less: Notes receivable from shareholders.................. (11,549) --
-------- --------
Total shareholders' equity.............................. 172,686 2,593
-------- --------
Total liabilities and shareholders' equity.............. $304,124 $176,371
======== ========


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

F-3

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)



Fiscal Year Ended April
30,
----------------------------
1999 1998 1997
-------- -------- --------

Professional fees and reimbursable expenses...... $368,064 $311,016 $269,624
Other income including interest income........... 5,031 4,009 2,937
-------- -------- --------
Total revenues................................. 373,095 315,025 272,561
Less: Reimbursable candidate expenses............ (16,565) (14,470) (12,137)
-------- -------- --------
Net revenues................................... 356,530 300,555 260,424
Compensation and benefits........................ 216,991 197,790 166,854
General and administrative expenses.............. 100,714 84,575 73,005
Non-recurring charges............................ 89,202 -- --
Interest expense................................. 4,463 4,234 3,320
-------- -------- --------
Income (loss) before provision for income taxes
and non-controlling shareholders' interests... (54,840) 13,956 17,245
Provision for income taxes....................... 9,026 6,687 6,658
Non-controlling shareholders' interests.......... 2,560 2,025 1,588
-------- -------- --------
Net income (loss).............................. $(66,426) $ 5,244 $ 8,999
======== ======== ========
Basic earnings (loss) per common share........... $ (2.37) $ 0.24 $ 0.42
======== ======== ========
Basic weighted average common shares
outstanding..................................... 28,086 21,885 21,382
======== ======== ========
Diluted earnings (loss) per common share......... $ (2.37) $ 0.23 $ 0.40
======== ======== ========
Diluted weighted average common shares
outstanding..................................... 28,086 23,839 23,481
======== ======== ========



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

F-4

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)



Preferred Allocation of
Stock Accumulated Shareholders'
------------- Other Equity to
Series Series Common Retained Comprehensive Redeemable Shareholders' Comprehensive
A B Stock Earnings Income Stock Equity Income
------ ------ -------- -------- ------------- ------------- ------------- -------------

Balance as of April 30,
1996................... $ 1 $ 13 $ 10,656 $ 39,772 $(2,318) $(45,848) $ 2,276
Purchase of Stock..... (1) (5,051) 5,052
Issuance of Stock..... 5,843 (5,843)
Comprehensive Income:
Net income............ 8,999 (8,567) 432 $ 8,999
Foreign currency
translation
adjustments before
tax.................. (2,872) 2,734 (138) (2,872)
Income tax benefit
related to other
comprehensive
income............... 1,109 (1,056) 53 1,109
--------
Comprehensive Income.... $ 7,236
---- ---- -------- -------- ------- -------- -------- ========
Balance as of April 30,
1997................... 1 12 11,448 48,771 (4,081) (53,528) 2,623
Purchase of Stock..... (3,150) 2,916 (234)
Issuance of Stock..... 8,635 (8,635)
Comprehensive Income:
Net income............ 5,244 (5,005) 239 $ 5,244
Foreign currency
translation
adjustments before
tax.................. (1,461) 1,394 (67) (1,461)
Income tax benefit
related to other
comprehensive
income............... 700 (668) 32 700
--------
Comprehensive Income.... $ 4,483
---- ---- -------- -------- ------- -------- -------- ========
Balance as of April 30,
1998................... 1 12 16,933 54,015 (4,842) (63,526) 2,593
Purchase of Stock..... (1) (12) (22,569) (22,582)
Issuance of Stock..... 160,198 160,198
Initial public
offering related
charge............... 49,286 49,286
Release of book value
restriction.......... 49,173 (54,015) 4,842 63,526 63,526
Comprehensive Income:
Net loss.............. (66,426) (66,426) $(66,426)
Foreign currency
translation
adjustments before
tax.................. (4,069) (4,069) (4,069)
Income tax benefit
related to other
comprehensive
income............... 1,709 1,709 1,709
--------
Comprehensive loss...... $(68,786)
---- ---- -------- -------- ------- -------- -------- ========
Balance as of April 30,
1999................... $ -- $ -- $253,021 $(66,426) $(2,360) $ -- $184,235
==== ==== ======== ======== ======= ======== ========


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

F-5

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)



Fiscal Year Ended April
30,
--------------------------
1999 1998 1997
-------- ------- -------

Cash from operating activities:
Net Income (loss)................................ $(66,426) $ 5,244 $ 8,999
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation................................... 8,090 6,552 5,087
Amortization................................... 1,169 1,165 424
Provision for doubtful accounts................ 6,128 2,427 2,196
Cash surrender value and benefits in excess of
premiums paid................................. (5,399) (1,767) (1,601)
Total non-recurring initial public offering
related charges............................... 79,300 -- --
Other non-recurring non-cash charges........... 5,344 -- --
Change in other assets and liabilities, net of
acquisitions:
Deferred compensation.......................... 4,560 6,876 3,093
Receivables.................................... (11,349) (9,996) (12,630)
Prepaid expenses............................... 529 (507) (1,174)
Income taxes payable........................... (6,217) (3,143) 276
Accounts payable and accrued liabilities....... 23,249 9,678 6,036
Non-controlling shareholders' interests and
other, net.................................... (316) 1,953 (550)
-------- ------- -------
Net cash provided by operating activities.... 38,662 18,482 10,156
-------- ------- -------
Cash from investing activities:
Purchases of property and equipment.............. (8,102) (9,903) (8,483)
Purchases of other marketable securities......... (30,057) -- --
Business acquisitions, net of cash acquired...... (1,323) -- --
Premiums on life insurance, net of benefits
received........................................ (12,421) (12,408) (7,865)
Redemption of guaranteed investment contracts.... 1,746 1,949 1,753
Sale of interest in affiliates................... 2,308 473 434
-------- ------- -------
Net cash used in investing activities........ (47,849) (19,889) (14,161)
-------- ------- -------
Cash from financing activities:
Increase (decrease) on bank borrowings........... (5,000) 2,000 2,000
Payment of debt.................................. (3,737) (1,957) (1,470)
Borrowings under life insurance policies......... 5,956 5,358 1,973
Purchase of common and preferred stock and
payments on related notes....................... (20,968) (2,761) (3,674)
Issuance of common stock and receipts on
shareholders' notes............................. 141,779 6,588 5,597
IPO related non-recurring charges................ (25,100) -- --
-------- ------- -------
Net cash provided by financing activities.... 92,930 9,228 4,426
-------- ------- -------
Effect of exchange rate changes on cash flows...... (2,360) (761) (1,763)
-------- ------- -------
Net increase (decrease) in cash and cash
equivalents....................................... 81,383 7,060 (1,342)
Cash and cash equivalents at beginning of the
period............................................ 32,358 25,298 26,640
-------- ------- -------
Cash and cash equivalents at end of the period..... $113,741 $32,358 $25,298
======== ======= =======


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

F-6

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)

1. Organization and Summary of Significant Accounting Policies

Nature of Business

Korn/Ferry International and Subsidiaries is engaged in the business of
providing executive recruitment, Internet-based middle management recruitment,
through Futurestep, and consulting and related services globally on a retained
basis.

Basis of Presentation

The consolidated financial statements include the accounts of Korn/Ferry
International, all of its wholly owned domestic and international
subsidiaries, and affiliated companies in which the Company has effective
control (collectively, the "Company"). All material intercompany accounts and
transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of asset and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. As a result, actual results could differ from these
estimates.

Translation of Foreign Currencies

Generally, financial results of the Company's foreign subsidiaries are
measured in their local currencies. Assets and liabilities are translated into
U.S. dollars at the rates of exchange in effect at the end of each year and
revenues and expenses are translated at average rates of exchange during the
year. Resulting translation adjustments are reported as a component of
comprehensive income.

Financial results of foreign subsidiaries in countries with highly
inflationary economies are measured in U.S. dollars. The financial statements
of these subsidiaries are translated using a combination of current and
historical exchange rates and any translation adjustments are included in
determining net income. Translation losses, included in general and
administrative expenses, were $349, $511 and $344 in fiscal 1999, 1998 and
1997, respectively.

Revenue Recognition

Substantially all professional fee revenues are derived from fees for
professional services related to executive search, consulting and related
services. Fee revenues are recognized as services are substantially rendered,
generally over a ninety day period commencing in the month of initial
acceptance of a search engagement. The Company generally bills clients in
three monthly installments over this period. Reimbursable expenses include
specifically identified and allocated costs related to professional services
that are billed to clients.

Cash Flows

Cash equivalents consist of highly liquid investments with maturities of
three months or less at the date of purchase.


F-7

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)


Net cash from operating activities includes cash payments for interest of
$4,339, $4,381 and $3,594 in fiscal 1999, 1998 and 1997, respectively. Cash
payments for income taxes, net of refunds, amounted to $14,989, $9,830 and
$6,770 in fiscal 1999, 1998 and 1997, respectively.

Marketable Securities

All marketable securities are accounted for under Statement of Financial
Accounting Standard ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Management determines the appropriate
classification of its investments in marketable securities at the time of
purchase and reevaluates this classification at each balance sheet date. The
securities have original maturities ranging from August 1999 through October
2001 and are classified as held-to-maturity. Held-to-maturity securities are
stated at cost, adjusted for amortization of premiums and discounts to
maturity. At April 30, 1999, the estimated fair value of the investments
approximated its amortized cost and, therefore, there were no significant
unrealized gains or losses. Investments consisted of the following:



As of April 30,
1999
-----------------
Current Long-term
------- ---------
(in thousands)
----------------- ---

U.S. Treasury and Government Securities.............. $13,939 $ 496
Certificate of deposits.............................. 3,996 --
Commercial Paper..................................... 3,904 --
Asset-backed securities.............................. -- 7,722
------- ------
Marketable securities.............................. $21,839 $8,218
======= ======


Fair Value of Financial Instruments

The carrying amount of cash, cash equivalents and accounts receivable
approximates fair value due to the short maturity of these instruments.
Guaranteed investment contracts, notes receivable, notes payable and long-term
debt bear interest at rates that approximate the current market interest rates
for similar instruments and, accordingly the carrying value approximates fair
value.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist principally of receivables due from
clients. Concentrations of credit risk with respect to receivables are limited
due to the Company's large number of customers and their dispersion across
many different industries and countries worldwide.

Property and Equipment

Leasehold improvements are amortized over the useful life of the asset, or
the lease term, whichever is less, using the straight-line method. All other
property and equipment is depreciated or amortized over the estimated useful
lives of three to ten years, using the straight-line method.

Cash Surrender Value of Life Insurance

The increase in the cash surrender value ("CSV") of Company owned life
insurance ("COLI") contracts in excess of insurance premiums paid is reported
in compensation and benefits expense. (See Note 8).

F-8

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)


Goodwill and Other Intangibles

Goodwill represents the excess of the acquisition cost over the net assets
acquired in business combinations and is amortized on a straight line basis
over the estimated useful life, currently five to ten years. Other intangibles
arising from business acquisitions include contractual obligations contingent
upon future performance and are amortized on a straight line basis over the
contractual period.

The Company re-evaluates goodwill and other intangibles based on
undiscounted operating cash flows whenever significant events or changes occur
which might impair recovery of recorded costs, and it writes down recorded
costs of the assets to fair value (based on discounted cash flows or market
values) when recorded costs, prior to impairment, are higher.

New Accounting Pronouncements

During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and for Hedging Activities," which establishes new standards for
reporting derivative and hedging information. The standard is effective for
periods beginning after June 15, 2000 and will be adopted by the Company as of
May 1, 2001. It is not expected that the adoption of this standard will have
an impact on the consolidated financial statements nor require additional
footnote disclosure since the Company does not currently utilized derivative
instruments or participate in structured hedging activities.

In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998
and will be adopted by the Company beginning in fiscal 2000. SOP 98-1 provides
guidance over accounting for computer software developed or obtained for
internal use including the requirement to capitalize specified costs and
amortization of such costs. It is not expected that the adoption of this
standard will have a material effect on the consolidated financial statements
or the capitalization policy.

2. Initial Public Offering of Common Stock

In February 1999, the Company completed the initial public offering ("IPO")
of an aggregate of 11.8 million shares of common stock at $14.00 per share, of
which 9,962 shares were sold by the Company and 1,788 shares were sold by
selling shareholders, resulting in net proceeds (after deducting underwriting
discounts and other expenses payable by the Company) of $124.3 million to the
Company and $24.4 million to the selling shareholders. The Company's common
stock is traded on the New York Stock Exchange under the symbol "KFY." The
Company also received approximately $3.0 million from the repayment by certain
selling shareholders of loans from the Company to those selling shareholders.

The Company used $14.4 million of the net proceeds to repay its term loan
and all outstanding indebtedness under the Company's credit facilities, $25.7
million to complete the redemption by the Company of certain shares of its
capital stock, primarily shares owned by certain shareholders under the terms
of a 1994 stock redemption agreement, $1.4 million to redeem the outstanding
shares of Series A and B preferred stock and $4.3 million to pay existing
obligations to former holders of phantom units and stock rights.

F-9

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)


The remaining proceeds will be used for possible future acquisitions,
working capital and general corporate purposes, including the expansion of
Futurestep, the Company's Internet-based search service, and continued
development of technology, information systems and infrastructure. The Company
has currently invested the remaining proceeds in short-term high grade
commercial paper, bonds, and other securities.

3. Basic and Diluted Earning (Loss) Per Share

Basic earnings (loss) per common share ("basic EPS") was computed by
dividing net income (loss) by the weighted average number of common shares
outstanding during the period. Diluted earnings (loss) per common and common
equivalent share ("diluted EPS") was determined by dividing the net income
(loss) by the weighted average number of shares of common stock outstanding
and dilutive common equivalent shares. Following is a reconciliation of the
numerator (income or loss) and denominator (shares) used in the computation of
basic and diluted EPS:



Fiscal year ended April 30,
------------------------------------------------------------------------
1999 1998 1997
------------------------- ---------------------- ----------------------
Weighted Per Weighted Per Weighted Per
Income Average Share Average Share Average Share
(Loss) Shares Amount Income Shares Amount Income Shares Amount
-------- -------- ------ ------ -------- ------ ------ -------- ------

Basic EPS
Income (loss) available
to common
shareholders........... $(66,426) 28,086 $(2.37) $5,244 21,885 $0.24 $8,999 21,382 $0.42
====== ===== =====
Effect of Dilutive
Securities
Shareholder common stock
purchase commitments... 318 436
Phantom stock units..... 161 1219 246 1242
Stock appreciation
rights................. 14 417 88 421
-------- ------ ------ ------ ------ ------
Diluted EPS
Income (loss) available
to common shareholders
plus assumed
conversions............ $(66,426) 28,086 $(2.37) $5,419 23,839 $0.23 $9,333 23,481 $0.40
======== ====== ====== ====== ====== ===== ====== ====== =====


The share amounts in the table above reflects a four to one stock split
approved by the Board of Directors in July 1998. The Company filed an
amendment to the existing Articles of Incorporation to increase the authorized
capital stock and effect the four to one split of the Common Stock in February
1999. The financial statements have been retroactively restated for the
effects of this transaction. The Company has 3,466 options outstanding at
April 30, 1999 that are anti-dilutive and therefore, are excluded from the
above reconciliation.

4. Stock Option Plans

In July 1998, the Company adopted the Performance Award Plan (the "Plan")
to provide a means to attract, motivate, reward and retain talented and
experienced officers, non-employee directors, other key employees and certain
other eligible persons who may be granted awards from time to time by the
Company's Board of Directors (the "Board") or, if authorized, the Compensation
Committee, or, for non-employee directors, under a formula provided in the
Plan. The maximum number of shares of Common Stock reserved for issuance is
seven million, subject to adjustment for certain changes in the Company's
capital structure and other extraordinary events. Shares subject to awards
that are not paid for or exercised before they expire or are terminated are
available for other grants under the Plan to the extent permitted by law. The
Plan is not exclusive. The Board may grant stock and performance incentives or
other compensation, in stock or cash, under other plans or authority.

F-10

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)


Awards under the Plan may be in the form of nonqualified stock options,
incentive stock options, stock appreciation rights ("SARs"), limited SARs,
restricted stock, performance shares, stock bonuses, or cash bonuses based on
performance. The maximum term of options, SARs and other rights to acquire
Common Stock under the Plan is ten years after the initial date of award,
subject to provisions for further deferred payment in certain circumstances.
Awards may be granted individually or in combination with other awards. No
incentive stock option may be granted at a price that is less than the fair
market value of the Common Stock (110% of fair market value of the Common
Stock for certain participants) on the date of grant. Nonqualified stock
options and other awards may be granted at prices below the fair market value
of the Common Stock on the date of grant. Restricted stock awards can be
issued for nominal or the minimum lawful consideration. Typically, the
participant may vote restricted stock, but any dividend on restricted shares
will be held in escrow subject to forfeiture until the shares have vested. No
more than 350 shares will be available for restricted stock awards, subject to
exceptions for restricted stock awards based on past service, deferred
compensation and performance awards. No awards other than stock options have
been granted under the Plan in fiscal 1999.

The maximum number of shares subject to awards (either performance or
otherwise) that may be granted to an individual in the aggregate in any one
calendar year is 1,050. A non-employee director may not receive awards of more
than 50 shares in the aggregate in any one calendar year. With respect to
cash-based performance awards, no more than $2.5 million per year, per
performance cycle may be awarded to any one individual. No more than one
performance cycle may begin in any one year with respect to cash-based
performance awards.

Under the Plan, each director who is not an officer or employee (a "Non-
Employee Director") is automatically granted a nonqualified stock option to
purchase 2 shares of Common Stock when the person takes office and on the day
of each annual shareholders meeting in each calendar year beginning in 1999,
at an exercise price equal to the market price of the Common Stock at the
close of trading on that date. Non-Employee Directors may also be granted
discretionary awards. All automatically granted Non-Employee Director stock
options will have a ten-year term and will be immediately exercisable. If a
Non-Employee Director's services are terminated for any reason, any
automatically granted stock options held by such Non-Employee Director that
are exercisable will remain exercisable for twelve months after such
termination of service or until the expiration of the option term, whichever
occurs first. No options were granted to non-employee directors in fiscal
1999.

The Company issued 2,063 stock options to certain employees effective as of
the initial public offering date. These options vest ratably over a three year
period and have a seven year term. In April 1999, the Company granted, as
performance awards, seven-year stock options for approximately 1,403 shares of
Common Stock. Such options will vest in equal installments over five years.
The weighted average fair value of options granted during fiscal 1999 is $9.66
per share. The weighted average remaining contractual term of all outstanding
options at April 30, 1999 was approximately 6.9 years. The exercise price per
share of the initial public offering options grant and performance options
grant was $14.00 and $13.43 per share, respectively. No options were
exercisable as of April 30, 1999.

The Company has elected to follow Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations to account for its stock-based compensation arrangements.
Under APB 25, no compensation expense is recognized because the exercise price
of the Company's employee stock options equals the market price of the
underlying stock on the date of grant.

Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS No.
123") to be determined as if the Company had accounted for its employee stock
options under the fair value method prescribed by SFAS No. 123. The weighted
average fair value of options granted during fiscal 1999, estimated at the
date of grant using a Black-Scholes option pricing model, was $9.30 and $10.20
for the initial public offering grant and performance award grant,
respectively. The fair value of options granted in

F-11

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)

fiscal 1999 is estimated on the date of grant using the following assumptions:
average risk-free interest rate of 5.18%, dividend rate of zero, expected
volatility of 62.4% and expected option life ranging from seven to ten years.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to compensation expense over the vesting period. If the
Company had accounted for its employee stock options granted in fiscal 1999
under the fair value method prescribed by SFAS No. 123, the pro forma net loss
and diluted loss per share would increase by $15.7 million and $0.55,
respectively.

5. One-time non-recurring charges

At the completion of the public offering in February 1999, the Company
recognized a non-recurring compensation and benefits expense of $79.3 million,
comprised of (a) $49.3 million representing the difference between the
issuance price of the shares issued by the Company in the period beginning
twelve months before the initial filing date of the Registration Statement
relating to the IPO and the fair market value of the shares at the date of
issuance, (b) $25.7 million from the completion of the redemption by the
Company of certain shares of its capital stock, primarily the payment of
additional redemption amounts to certain shareholders under the terms of a
1994 stock redemption agreement and (c) $4.3 million from the payment of
existing obligations to former holders of phantom units and stock appreciation
rights.

Additionally, the Company recently completed an evaluation of its worldwide
operations and revenues, compensation costs and other operating expenses for
each of its offices and geographic locations. The Company conducted the
evaluation in order to identify, and eventually eliminate, existing
inefficiencies and excess costs and to better align and enhance the
competitive position of the Company within each region. The Company assessed
staff levels and office needs based on individual performance and the economic
conditions and the outlook in each region. The Company identified
approximately 50 employees that would be terminated and three underperforming
European offices that will be downsized or relocated to more efficient
premises. As a result of this analysis, a non-recurring charge to earnings of
$7.0 million for severance and benefit costs related to staff downsizing was
recognized in fiscal 1999. This expense is comprised of a $3.2 million non-
cash charge to earnings related to the release of existing book value stock
repurchase requirements for nine of the terminated employees and $3.8 million
for severance and benefit payments for the terminated employees, of which $3.7
million was paid as of April 30, 1999. The Company also recognized a non-
recurring charge of $0.3 million, of which $0.2 million was paid as of April
30, 1999, for lease renegotiation and other relocation costs in fiscal 1999.
The Company does not expect any additional charge to earnings related to these
items.

The Company also recognized a non-recurring charge of $2.6 million in
connection with the resignation of the former President and Chief Executive
Officer. This charge is comprised of $1.5 million for compensation and other
amounts payable over the next seven months, of which $0.8 million was paid as
of April 30, 1999 and a $1.1 million non-cash charge to earnings representing
the difference between the then current book value and the appraised value of
165,168 common shares he retained subsequent to his resignation.

6. Shareholders Agreements and Supplemental Information Regarding Book Value
Per Share

From fiscal 1991 to 1998, eligible executives of the Company had the
opportunity to purchase shares of Common Stock at book value and were required
to sell their shares of Common Stock to the Company at book value upon
termination of their employment under stock purchase and repurchase agreements
collectively referred to as the Equity Participation Program ("EPP"). Shares
subject to book value repurchase agreements are classified as mandatorily
redeemable common stock in the accompanying consolidated balance sheets. For
purposes of EPP

F-12

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)

purchases and sales, book value per share, adjusted for the 4-to-1 stock
split, was $2.79 and $2.60 at April 30, 1998 and 1997, respectively. The EPP
book value calculation excludes the effect of the Series A Preferred Stock and
shareholder notes related to Common Stock purchases. On May 1, 1998, the
Company issued 3,016 shares at the book value of $2.79 per share.

The Board of Directors approved the Supplemental Equity Participation
Program (the "Supplemental EPP") in July 1998, effective May 2, 1998, that
provides for the issuance and repurchase of shares of Common Stock at fair
value. The Company issued 110 shares of Common Stock at the fair market value
of $10.98 per share, appraised as of June 30, 1998. The Company ceased
enrollment of executives in the Supplemental EPP as of August 17, 1998. In
November 1998, the Company adopted the Interim Equity Executive Participation
Program (the "Interim EPP") in order to permit persons promoted to vice
president and other persons hired as vice presidents of the Company between
August 18, 1998 and December 30, 1998 to purchase shares of Common Stock at
$9.69 per share, the fair market value as of December 30, 1998. The Company
issued 438 shares under the Interim EPP.

In fiscal 1999, the Company terminated its Phantom Stock Plan, established
in 1988, and Stock Right Plan, established in 1992 ("these Plans"), in
contemplation of the IPO. These Plans provided benefits, to certain key
employees and other employees selected by a committee of the Board of
Directors, substantially identical to ownership of the Company's Common Stock,
excluding voting rights. Compensation expense, recognized based on the change
if any in the book value of the Common Stock since the grant date, was $279
and $514 in fiscal 1998 and 1997 respectively.

Based on the book value of a share of Common Stock at April 30, 1998 of
$2.79, the participants in these plans could elect to receive a cash payment
or shares of Common Stock in exchange for an aggregate of 276 phantom stock
units and 114 stock rights outstanding as of June 30, 1998, the effective date
of termination of these Plans. The company issued 1,551 shares of Common Stock
in connection with the termination of these Plans to all but one participant
and recognized a non-recurring compensation and benefits expense of $12,700 at
completion of the IPO, representing the excess of the fair market value over
the book value of the shares issued in the conversion.

The repurchase agreements under the EPP, Supplemental EPP and Interim EPP
were amended upon consummation of the IPO to permit employee shareholders to
sell their shares in the public market, subject to a liquidity schedule that
provides for increases over a four year period in the number of shares that
can be sold. As a result, all remaining shares previously classified as
mandatorily redeemable were reclassified to Common Stock. The Company
repurchased a total of 2,646 shares in fiscal 1999 all at book value.

As of April 30, 1999 and 1998, notes receivable from shareholders for
Common Stock purchases were $10,679 and $6,612, respectively. The Company
issued Common Stock in exchange for notes receivable from shareholders of
$9,262, $6,184 and $4,305 in fiscal 1999, 1998 and 1997, respectively. The
notes receivable are secured by the common stock purchased, bear interest at
primarily 8% and require annual payments of principal and interest through
2004.

7. Employee Profit-Sharing and Benefit Plans

The Company has an Employee Tax Deferred Savings Plan that covers eligible
employees in the United States. The Company's discretionary accrued
contribution to this plan was $2,622, $2,400 and $1,768 for fiscal 1999, 1998
and 1997, respectively. The Company's non-U.S. employees are covered by a
variety of pension plans that are applicable to the countries in which they
work. The contributions for these plans are determined in accordance with the
legal requirements in each country and generally are based on the employees'
annual compensation.

F-13

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)


8. Deferred Compensation and Life Insurance Contracts

The Company has established several deferred compensation plans for vice-
presidents that provide defined benefit payments to participants based on the
deferral of current compensation subject to vesting and retirement or
termination provisions.

The Enhanced Wealth Accumulation Plan (EWAP) was established in fiscal
1994. Certain vice presidents elect to participate in a "deferral unit" that
requires the contribution of current compensation for an eight year period in
return for defined benefit payments from the Company over a fifteen year
period generally at retirement at age 65 or later. Participants may acquire
additional "deferral units" every five years.

The EWAP replaced the Wealth Accumulation Plan (WAP) in fiscal 1994 and
executives who did not choose to roll over their WAP units into the EWAP
continue to be covered under the earlier version in which participants
generally vest and commence receipt of benefit payments at retirement at age
65.

The Company also maintains a Senior Executive Incentive Plan (SEIP) for
participants elected by the Company's Board of Directors. Generally, to be
eligible the vice president must be participating in the EWAP. Participation
in the SEIP requires the vice president to contribute a portion of their
compensation during a four-year period, or in some cases make an after tax
contribution, in return for a defined benefit paid by the Company generally
over a fifteen year period at age 65, or retirement.

The Company's Worldwide Executive Benefit Plans (WEB) are designed to
integrate with government sponsored benefits and provide a monthly benefit to
vice presidents and shareholders upon retirement from the Company. Each year a
plan participant accrues and is fully vested in one-twentieth of the targeted
benefits expressed as a percentage set by the Company for that year. Upon
retirement, a participant receives a monthly benefit payment equal to the sum
of the percentages accrued over such participant's term of employment, up to a
maximum of 20 years, multiplied by the participant's highest average monthly
salary during any 36 consecutive months in the final 72 months of active full-
time employment.

In 1998, certain employees elected to defer a portion of their
compensation, amounting to approximately $2.5 million, into a new deferred
compensation plan established by the Company. This plan was terminated in
fiscal 1999, and as required by the agreement, the employees received their
deferred compensation plus interest at the Company's average monthly bank
borrowing rate, ranging from 6.4% to 8% at April 30, 1999 and 1998,
respectively.

Certain current and former employees also have individual deferred
compensation arrangements with the Company which provide for payment of
defined amounts over certain periods commencing at specified dates or events.

For financial accounting purposes, the Company estimates the present value
of the future benefits payable under these plans as of the estimated payment
commencement date. The Company also estimates the remaining number of years a
participant will be employed by the Company. Then, each year during the period
of estimated employment, the Company accrues a liability and recognizes
expense for a portion of the future benefit using the "benefit/years of
service" attribution method for the SEIP, WAP and EWAP plans and the
"projected unit credit" method for the WEB plan.

In calculating the accrual for future benefit payments, management has made
assumptions regarding employee turnover, participant vesting and the discount
rate. Management periodically reevaluates all assumptions. If assumptions
change in future reporting periods, the changes may impact the measurement and
recognition of benefit liabilities and related compensation expense.

F-14

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)


As of April 30, 1999 and 1998, the Company had unrecognized losses related
to these deferred compensation plans of $7,728 and $7,747 due to changes in
assumptions of the discount rate used for calculating the accruals for future
benefits. The Company amortizes unrecognized losses over the average remaining
service period of active participants. The discount rate was 7.5% in fiscal
1999 and 1998.

Following is a reconciliation of the benefit obligation for the Company's
deferred compensation plans:



Fiscal Year
Ended
April 30,
----------------
1999 1998
------- -------

Benefit obligation at beginning of year..................... $35,362 $30,149
Service cost................................................ 3,498 1,693
Interest cost............................................... 1,650 1,622
Plan participants' contributions............................ 3,233 5,981
Recognized loss due to change in assumption................. 555 624
Benefits paid............................................... (9,712) (4,707)
------- -------
Benefit obligation at end of fiscal year.................... 34,586 35,362
Less: current portion of benefit obligation................. (1,055) (810)
------- -------
Long-term benefit obligation at end of year............... $33,531 $34,552
======= =======


The Company has purchased COLI contracts insuring participants and former
participants. The gross CSV of these contracts of $84,628 and $67,747 is
offset by outstanding policy loans of $42,655 and $37,638, on the accompanying
consolidated balance sheets as of April 30, 1999 and 1998, respectively.

Total death benefits payable under COLI contracts were $343,973 and
$285,495 at April 30, 1999 and 1998, respectively. Management intends to use
the future death benefits from these insurance contracts to fund the deferred
compensation arrangements; however, there may not be a direct correlation
between the timing of the future cash receipts and disbursements under these
arrangements. In addition, certain future death benefits are restricted for
the purchase of certain shares of Common Stock, if any, upon the death of a
shareholder. As of April 30, 1999, COLI contracts with a net cash surrender
value of $35,430 and death benefits payable of $190,626 were held in trust for
these purposes.

F-15

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)


9. Notes Payable and Long-Term Debt

At April 30, 1999, the Company maintained a $50.0 million unsecured bank
revolving line of credit facility. Borrowings on the line of credit bear
interest at various rates based on either a LIBOR index plus 1.4% or the
bank's prime lending rate, which were 6.37% and 7.75%, respectively, at April
30, 1999. There was no outstanding balance under the revolving line of credit
as of April 30, 1999.

The Company's long-term debt consists of the following:



As of April 30,
----------------
1999 1998
------- -------

8% variable rate unsecured term loan due to bank,
principal and interest payable quarterly................. $ -- $ 5,000
Unsecured subordinated notes payable to shareholders due
through 2004, bearing interest at various rates up to
8.75%.................................................... 3,716 3,710
------- -------
Total debt.............................................. 3,716 8,710
Less: current maturities of long-term debt................ (1,356) (2,559)
------- -------
Long-term debt.......................................... $ 2,360 $ 6,151
======= =======


The Company issued notes payable to shareholders of $1,620, $389 and $1,708
in fiscal 1999, 1998 and 1997, respectively, for the purchase of Common Stock.

Annual maturities of long-term debt for the five fiscal years subsequent to
April 30, 1999 are: $1,356 in 2000, $949 in 2001, $798 in 2002, $477 in 2003
and $136 in 2004.

The Company also has outstanding borrowings against the CSV of COLI
contracts of $42,655 and $37,638 at April 30, 1999 and 1998, respectively.
These borrowings are secured by the CSV, principal payments are not scheduled
and interest is payable at least annually, at various variable rates. (See
Note 8).

F-16

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)


10. 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.

The provision (benefit) for domestic and foreign income taxes is comprised
of the following components:



Fiscal Year Ended April 30,
-------------------------------
1999 1998 1997
--------- --------- ---------

Current income taxes:
Federal.................................... $ 1,474 $ 2,953 $ 2,602
State...................................... 407 1,022 991
--------- --------- ---------
Total..................................... 1,881 3,975 3,593
--------- --------- ---------
Deferred income taxes:
Federal.................................... (2,248) (3,458) (2,133)
State...................................... (750) (1,154) (713)
--------- --------- ---------
Total..................................... (2,998) (4,612) (2,846)
--------- --------- ---------
Foreign income taxes........................ 10,143 7,324 5,911
--------- --------- ---------
Provision for income taxes................ $ 9,026 $ 6,687 $ 6,658
========= ========= =========


The domestic and foreign components of income (loss) from continuing
operations before domestic and foreign income and other taxes were as follows:



Fiscal Year Ended April
30,
--------------------------
1999 1998 1997
-------- ------- -------

Domestic........................................ $(80,544) $(4,635) $(2,534)
Foreign......................................... 25,704 18,591 19,779
-------- ------- -------
Income (loss) from operations................. $(54,840) $13,956 $17,245
======== ======= =======


The income tax provision stated as a percentage of pretax income, excluding
$76,331 of non-recurring charges in fiscal 1999 that are not tax deductible,
was different than the amount computed using the U.S. statutory federal income
tax rate for the reasons set forth in the following table:



Fiscal Year Ended April 30,
------------------------------
1999 1998 1997
--------- --------- ---------

U.S. federal statutory tax rate............ 35.0% 35.0% 35.0%
Foreign source dividend income............. 12.7 30.6 12.7
Foreign income tax credits utilized........ (8.5) (21.5) (11.6)
Income subject to higher (lower) foreign
tax rates................................. 5.3 5.9 (5.9)
COLI CSV increase, net..................... (7.0) (5.4) 0.8
Other...................................... 4.5 3.3 7.6
-------- --------- ---------
Effective tax rate....................... 42.0% 47.9% 38.6%
======== ========= =========


F-17

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)


The significant components of deferred tax assets and liabilities are as
follows:



As of April 30,
----------------
1999 1998
------- -------

Deferred income tax assets (liabilities):
Deferred compensation...................................... $14,031 $14,652
Accrued operating expenses................................. 5,430 3,172
Other accrued liabilities.................................. (1,686) (1,360)
Property and equipment..................................... 832 419
Other...................................................... (425) (338)
------- -------
Deferred income taxes.................................... $18,182 $16,545
======= =======


Realization of the tax asset is dependent on the Company generating
sufficient taxable income in future years as the deferred tax charges become
currently deductible for tax reporting purposes. Management believes that all
of the deferred tax asset will be realizable. However, the amount of the
deferred tax asset considered realizable could be reduced if the estimates of
amounts and/or the timing of future taxable income are revised.

11. Business Segments

The Company operates in one industry segment, retained executive
recruitment, on a global basis. For purposes of the geographic information
below, Mexico is included in Latin America. In January 1998, the Company
formed Futurestep, as a 93 percent owned subsidiary included in North America,
to provide Internet-based retained recruitment services for middle management
positions. Identifiable assets of Futurestep are not material. Futurestep
reported net revenues and operating losses of $4,365 and $12,578 in fiscal
1999 and operating losses of $824 in fiscal 1998. A summary of the company's
operations by geographic area follows:



Fiscal Year Ended April
30,
--------------------------
1999 1998 1997
-------- -------- --------

Net revenues:
North America...................................... $192,848 $157,044 $130,437
Europe............................................. 99,871 79,731 72,314
Asia/Pacific....................................... 33,055 32,887 32,544
Latin America...................................... 30,756 30,893 25,129
-------- -------- --------
Total net revenues............................... $356,530 $300,555 $260,424
======== ======== ========


F-18

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)




Fiscal Year Ended April
30,
---------------------------
1999 1998 1997
-------- -------- --------

Operating profit(loss):
North America................................... $(66,693) $ 10,660 $ 13,711
Europe.......................................... 4,918 382 (935)
Asia/Pacific.................................... 2,480 701 3,585
Latin America................................... 8,918 6,447 4,204
-------- -------- --------
Total operating profit (loss)................. (50,377) 18,190 20,565
Interest expense................................ 4,463 4,234 3,320
-------- -------- --------
Income (loss) before income taxes and non-
controlling shareholders' interest........... $(54,840) $ 13,956 $ 17,245
======== ======== ========

As of April 30,
---------------------------
1999 1998 1997
-------- -------- --------

Identifiable assets:
North America(1)................................ $211,901 $100,842 $ 70,055
Europe.......................................... 54,910 40,600 42,300
Asia/Pacific.................................... 20,209 18,529 25,444
Latin America................................... 17,104 16,400 10,606
-------- -------- --------
Total......................................... $304,124 $176,371 $148,405
======== ======== ========

- --------
(1) North America includes Corporate identifiable assets of $144,771, $34,162
and $27,557 in fiscal 1999, 1998 and 1997, respectively.

The Company's clients were not concentrated in any specific geographic
region and no single client accounted for a significant amount of the
Company's revenues during fiscal 1999, 1998 or 1997.

12. Acquisitions and Divestitures

Effective in May 1998, the Company acquired Didier, Vuchot & Associates in
France for approximately $6 million in cash, notes and mandatorily redeemable
stock of a subsidiary of the Company. The stock of the subsidiary is
exchangeable for Common Stock upon the achievement of certain performance
targets over a four year period from the acquisition date. Stock not exchanged
is mandatorily redeemable for a nominal amount at the end of the period. The
acquisition was accounted for as a purchase. The fair market value of the net
assets acquired was approximately $1.5 million. The excess of the cash and
notes over this amount is related to mandatorily redeemable stock of the
subsidiary, is contingent upon future performance and will be recognized as
compensation expense as earned.

Effective June 1998, the Company acquired all of the outstanding shares of
Ray and Berndtson SA in Switzerland for $3.6 million in cash, notes and Common
Stock of the Company. The acquisition was accounted for as a purchase. The
fair market value of the net assets acquired was approximately $594. The
excess of cash and notes over this amount, approximately $1.4 million, related
to employment contracts that are contingent upon future performance and will
be recognized as compensation expense as earned. The purchase price in excess
of these amounts has been allocated to goodwill.

F-19

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)


Effective February 1996, the Company divested its 47% interest in Strategic
Compensation Associates for a cash payment of $357 and notes receivable of
$3,215. Included in other income in fiscal 1996, is a gain of $516 recognized
on this transaction. The outstanding balance of notes receivable at April 30,
1998 and 1997 was $2,308 and $2,781, respectively. The note was paid in full
in December 1998.

13. Commitments and Contingencies

The Company leases office premises and certain office equipment under
leases expiring at various dates through 2010. Total rental expense for fiscal
years 1999, 1998 and 1997 amounted to $13,026, $12,948 and $11,686,
respectively. At April 30, 1999, minimum future commitments under
noncancelable operating leases with lease terms in excess of one year were
payable as follows: $11,320 in 2000, $10,927 in 2001, $9,328 in 2002, $6,567
in 2003, $13,148 in 2004 and $6,951 thereafter. As of April 30, 1999, the
Company has outstanding standby letters of credit of $754 in connection with
office leases.

In June 1998, the Company and Futurestep entered into a three-year contract
for an exclusive alliance with The Wall Street Journal, which provides the
Company with reduced advertising rates, requires the purchase by Futurestep of
a minimum amount of print and on-line advertising and permits the use of The
Wall Street Journal name in connection with promotion of the Futurestep
service. The Company and Futurestep have agreed not to promote competing
services during the initial term of the contract. All costs related to the
contract are expensed as incurred. The contract requires the Company and
Futurestep to purchase from The Wall Street Journal a minimum of $3.5 million,
$4.0 million and $2.5 million of print and on-line advertising in the first,
second and third year of the contract, respectively. In fiscal 1999, the
Company and Futurestep purchased approximately $3.0 million of advertising.
During renewal periods, the Company and Futurestep would be obligated to pay
The Wall Street Journal a minimum annual payment amount for advertising equal
to the immediately preceding year amount adjusted for inflation.

The contract with The Wall Street Journal has an initial term through June
2001 with options for renewal and is the first of its kind in the executive
search industry. Futurestep may terminate the contract at any time if (a) the
Company or Futurestep breach a material provision of the contract, (b) there
is an effective change in control of the Company or Futurestep (other than
pursuant to a registered offering) or (c) any party to the contract is
adjudged to be insolvent or bankrupt. If the contract terminates for any of
these reasons during the initial term, the Company and Futurestep would be
obligated to pay any unpaid remainder of the annual minimum payment amount for
the year in which termination occurs plus an additional $2.5 million. If The
Wall Street Journal terminates the contract for the reasons cited above during
a renewal term, then the Company and Futurestep would be obligated to pay any
unpaid remainder of the annual minimum payment amount plus an additional $1.0
million.

The Company has a policy of requiring all its vice presidents to enter into
a standard form of employment agreement which provides for an annual base
salary and discretionary and incentive bonus payments. The Company also
requires its vice presidents to agree in their employment contracts not to
compete with the Company, both during the term of their employment with the
Company, and also for a period of one to two years after their employment with
the Company ends. Furthermore, for a period of two years after their
employment with the Company, former vice presidents are prohibited from
soliciting employees of the Company for employment outside the Company.

Effective April and May 1999, the Company entered into employment
agreements with three executive officers for an initial term of three years
that provide certain benefits if these executives are terminated or resign
under certain limited circumstances. The maximum amount payable under these
agreements is $5.7 million and $8.5 million prior to and following a change in
control, respectively. In addition, all outstanding options will immediately
vest and remain exercisable for periods ranging from three months to their
original expiration date following termination of employment.

F-20

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)


In fiscal 1999, the Company completed an inventory and Year 2000 assessment
of its principal computer systems, network elements, software applications and
other business systems. The Company incurred approximately $0.3 million in
fiscal 1999 to resolve Year 2000 issues and expects to incur approximately
$0.2 million to $0.3 million in fiscal 2000. The expenses to be incurred on
the Year 2000 issues are being funded through operating cash flows. The
Company estimates full compliance by October 31, 1999. The costs relating to
the Year 2000 issues and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third-party modification
plans and other factors. Actual results could differ materially from those
anticipated.

Subsequent to fiscal 1999, the Company entered into agreements with two
vendors to purchase and implement an Enterprise Resource Planning system for
internal use. The estimated total amount committed under this agreement for
the next two fiscal years is $11.0 million.

From time to time the Company has been and is involved in litigation
incidental to its business. The Company is currently not a party to any
litigation, which if resolved adversely against the Company, would in the
opinion of the Company, have a material adverse effect on the Company's
business, financial position or results of operations.

F-21

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of
Korn/Ferry International and Subsidiaries:

We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Korn/Ferry International and
subsidiaries included in this Form 10-K report and have issued our report
thereon dated June 7, 1999. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The Schedule II--
Korn/Ferry International Valuation and Qualifying Accounts is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

/s/ Arthur Andersen LLP

Los Angeles, California
June 7, 1999

F-22

SCHEDULE II

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS



Additions
-------------------------
Balance at Charged to
Beginning Costs and Charged to Balance at
of Year Expenses Other Accounts Deductions End of Year
---------- ---------- -------------- ---------- -----------
(in thousands)

Allowance for Doubtful
Accounts
Year Ended April 30,
1999................. $5,390 $6,128 $ -- $3,671 $7,847
Year Ended April 30,
1998................. 3,846 2,427 -- 883 5,390
Year Ended April 30,
1997................. 3,341 2,196 -- 1,691 3,846


F-23

EXHIBIT INDEX



Exhibit
Number Description of Exhibit
------- ----------------------

3.1 Amended and Restated Articles of Incorporation of the Company. Filed
as Exhibit 3.1 to the Company's Current Report on Form 8-K dated
February 22, 1999, and incorporated herein by reference.

3.2 Amended and Restated Bylaws of the Company. Filed as Exhibit 3.2 to
the Company's Current Report on Form 8-K dated February 22, 1999, and
incorporated herein by reference.

4.1 Specimen Common Stock certificate. Filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-1 (No. 333-61697),
effective February 10, 1999, and incorporated herein by reference.

10.1* Form of Indemnification Agreement between the Company and each of its
executive officers and directors. Filed as Exhibit 10.1 to the
Company's Registration Statement on Form S-1 (No. 333-61697),
effective February 10, 1999, and incorporated herein by reference.

10.2* Performance Award Plan. Filed as Exhibit 10.2 to the Company's
Registration Statement on Form S-1 (No. 333-61697), effective February
10, 1999, and incorporated herein by reference.

10.3* Form of U.S. and International Worldwide Executive Benefit Retirement
Plan. Filed as Exhibit 10.3 to the Company's Registration Statement on
Form S-1 (No. 333-61697), effective February 10, 1999, and
incorporated herein by reference.

10.4* Form of U.S. and International Worldwide Executive Benefit Life
Insurance Plan. Filed as Exhibit 10.4 to the Company's Registration
Statement on Form S-1 (No. 333-61697), effective February 10, 1999,
and incorporated herein by reference.

10.5* Worldwide Executive Benefit Disability Plan (in the form of Long-Term
Disability Insurance Policy). Filed as Exhibit 10.5 to the Company's
Registration Statement on Form S-1 (No. 333-61697), effective
February 10, 1999, and incorporated herein by reference.

10.6* Form of U.S. and International Enhanced Executive Benefit and Wealth
Accumulation Plan. Filed as Exhibit 10.6 to the Company's Registration
Statement on Form S-1 (No. 333-61697), effective February 10, 1999,
and incorporated herein by reference.

10.7* Form of U.S. and International Senior Executive Incentive Plan. Filed
as Exhibit 10.7 to the Company's Registration Statement on Form S-1
(No. 333-61697), effective February 10, 1999, and incorporated herein
by reference.

10.8* Executive Salary Continuation Plan. Filed as Exhibit 10.8 to the
Company's Registration Statement on Form S-1 (No. 333-61697),
effective February 10, 1999, and incorporated herein by reference.

10.9* Form of Amended and Restated Stock Repurchase Agreement. Filed as
Exhibit 10.10 to the Company's Registration Statement on Form S-1 (No.
333-61697), effective February 10, 1999, and incorporated herein by
reference.

10.10* Form of Standard Employment Agreement. Filed as Exhibit 10.11 to the
Company's Registration Statement on Form S-1 (No. 333-61697),
effective February 10, 1999, and incorporated herein by reference.

10.11* Form of Deferred Compensation Election Form for Fiscal 1998. Filed as
Exhibit 10.12 to the Company's Registration Statement on Form S-1 (No.
333-61697), effective February 10, 1999, and incorporated herein by
reference.

10.12* Stock Purchase Agreement between the Company, Man Jit Singh and
Korn/Ferry International Futurestep, Inc. dated as of December 1,
1997.

10.13* Shareholders Agreement between the Company, Man Jit Singh and
Korn/Ferry International Futurestep, Inc. dated as of December 1,
1997.

10.14* Employment Agreement between Man Jit Singh and Korn/Ferry
International Futurestep, Inc. dated December 1, 1997. Filed as
Exhibit 10.15 to the Company's Registration Statement on Form S-1
(No. 333-61697), effective February 10, 1999, and incorporated herein
by reference.


i



Exhibit
Number Description of Exhibit
------- ----------------------

10.15* KFI/Singh Agreement between the Company and Man Jit Singh dated
December 1, 1997. Filed as Exhibit 10.16 to the Company's Registration
Statement on Form S-1 (No. 333-61697), effective February 10, 1999,
and incorporated herein by reference.

10.16* Amended and Restated Stock Repurchase Agreement between the Company
and Man Jit Singh dated as of January 15, 1999.

10.17* Stock Purchase Agreement between the Company, Richard M. Ferry, Henry
B. Turner and Peter W. Mullin (as trustees of the Richard M. Ferry and
Maude M. Ferry 1972 Children's Trust), the California Community
Foundation and Richard M. Ferry Co-trustees, and the California
Community Foundation dated June 2, 1995. Filed as Exhibit 10.20 to the
Company's Registration Statement on Form S-1 (No. 333-61697),
effective February 10, 1999, and incorporated herein by reference.

10.17A* Form of First Amendment to Stock Purchase Agreement between the
Company, Richard M. Ferry, Henry B. Turner and Peter W. Mullin (as
trustees of the Richard M. Ferry and Maude M. Ferry 1972 Children's
Trust), the California Community Foundation and Richard M. Ferry Co-
trustees, and the California Community Foundation dated as of April
25, 1999.

10.18* Form of U.S. and Foreign Executive Participation Program. Filed as
Exhibit 10.27 to the Company's Registration Statement on Form S-1 (No.
333-61697), effective February 10, 1999, and incorporated herein by
reference.

10.19* General Release and Settlement Agreement between the Company and
Michael D. Boxberger dated December 3, 1998. Filed as Exhibit 10.32 to
the Company's Registration Statement on Form S-1 (No. 333-61697),
effective February 10, 1999, and incorporated herein by reference.

10.20* Additional Redemption Agreement between the Company and Richard M.
Ferry dated February 5, 1999. Filed as Exhibit 10.2 to the Company's
Current Report on Form 8-K dated February 22, 1999, and incorporated
herein by reference.

10.21* Employment Agreement between the Company and Windle B. Priem effective
May 1, 1999.

10.22* Employment Agreement between the Company and Peter L. Dunn effective
April 29, 1999.

10.23* Employment Agreement between the Company and Elizabeth S.C.S. Murray
effective April 29, 1999.

10.24 License Agreement between Self Discovery Dynamics LLC and Korn/Ferry
International Futurestep, Inc. dated May 15, 1998. Filed as Exhibit
10.18 to the Company's Registration Statement on Form S-1 (No. 333-
61697), effective February 10, 1999, and incorporated herein by
reference.

10.25 Trademark License and Promotion Agreement between Dow Jones & Company,
the Company and Korn/Ferry International Futurestep, Inc. dated June
8, 1998. Filed as Exhibit 10.19 to the Company's Registration
Statement on Form S-1 (No. 333-61697), effective February 10, 1999,
and incorporated herein by reference.

10.26 Credit Agreement dated as of February 12, 1999 by and among the
Company, the lenders named therein, Mellon Bank, N.A. and Bank of
America National Trust and Savings Association, as issuing banks, and
Mellon Bank, N.A., as agent for the lenders. Filed as Exhibit 10.1 to
the Company's Current Report on Form 8-K dated February 22, 1999, and
incorporated herein by reference.

21.1 Subsidiaries of the Company. Filed as Exhibit 21.1 to the Company's
Registration Statement on Form S-1 (No. 333-61697), effective February
10, 1999, and incorporated herein by reference.

23.1 Consent of Arthur Andersen LLP

24.1 Power of Attorney (contained on the signature page)

27.1 Financial Data Schedule for Fiscal Year Ended April 30, 1999

- --------
*Management contract, compensatory plan or arrangement

ii