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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, 2000

[_] 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)



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


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

(310) 556-8521
(Registrant's telephone number, including area code)

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



Title of each class Name of each exchange on which 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 our common stock as of July 28, 2000
was 37,553,418 shares. The aggregate market value of the Registrant's common
stock held by non-affiliates of the Registrant on July 28, 2000 (assuming that
the Registrant's only affiliates are its officers, directors and 10% or
greater stockholders) was approximately $1,147,829,985, based upon the closing
market price of $33.88 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 2000 Annual
Meeting of Stockholders scheduled to be held on September 26, 2000 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, 2000



Page
----

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....................................................... 11

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....... 23

Item 8.Financial Statements and Supplementary Data....................... 24

Item 9.Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................... 24

PART III.

Item 10.Directors and Executive Officers of the Registrant............... 25

Item 11.Executive Compensation........................................... 25

Item 12.Security Ownership of Certain Beneficial Owners and Management... 25

Item 13.Certain Relationships and Related Transactions................... 25

PART IV.

Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-
K....................................................................... 26

(a)1. Index to Financial Statements
2. Financial Statement Schedules
3. Exhibits
(b)Reports on Form 8-K................................................. 28

Signatures............................................................ 29

Financial Statements and Financial Statement Schedules................ F-1



PART I.

Item 1. Business

General

Korn/Ferry International, or KFY, is the world's leading and largest
executive recruitment firm with the broadest global presence in the executive
recruitment industry. We provide executive recruitment services exclusively on
a retained basis and serve the global recruitment needs of our clients from
middle to executive management. We opened our first office in Los Angeles in
1969, and today we have over 2,200 employees, including 498 executive
recruitment and 97 Futurestep consultants, based in 77 cities across 41
countries. Our 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. We have established
strong client loyalty; more than 82% of the executive recruitment assignments
we performed in fiscal 2000 were on behalf of clients for whom we had
conducted multiple assignments over the last three fiscal years. Almost half
of the executive recruitment assignments we performed in fiscal 2000 were for
board level, chief executive and other senior executive positions.

In anticipation of the fundamental transformation of the marketplace, the
combined impact of advanced technology and the Internet and in response to
clients' demand for middle-management recruitment services, we introduced
Futurestep in May 1998. Futurestep combines our search expertise with
exclusive candidate assessment tools and the reach of the Internet to
accelerate the recruitment of candidates for middle-management positions. In
March 1999, we completed our 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. We launched Futurestep's international roll-out in the
United Kingdom and Canada in the first quarter of fiscal 2000; in ten
additional European countries, New Zealand and Australia in the second fiscal
quarter; and in Japan, Hong Kong and Singapore in the third fiscal quarter. In
the fourth fiscal quarter, we completed the integration of the executive
search and selection business of PA Consulting Group (ESS business of PA)
acquired in January 2000 with 17 offices in Europe and Asia/Pacific. Through
April 2000, more than 666,000 candidates worldwide have completed a detailed
on-line profile with Futurestep.

Executive Recruitment Industry

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

Retained recruitment firms, like KFY, generally concentrate on searches for
positions with annual compensation of $150,000 or more. The large global
retained recruitment firms 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 recruitment 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-sized
companies. Unlike retained recruitment firms, contingency search firms are
compensated only when a position is filled. Accordingly, revenue generated by
a contingency search firm typically is more volatile than revenue generated by
a retained recruitment firm. For this reason, contingency search firms often
cannot invest as many resources as retained recruitment 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

We believe that a number of favorable trends will contribute to the growth
of the executive recruitment industry.

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

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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--Our 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. We expect that the
executive recruitment business will continue to grow as companies increasingly
turn to executive recruitment 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
increasingly rely on experienced global executive recruitment firms to address
their management recruitment needs. By hiring global executive recruitment
firms, companies can expect to:

. Access a diverse and highly qualified field of candidates on an as-
needed basis

. Reduce the costs required to maintain and train a recruiting department
in a rapidly changing industry

. Benefit from the most updated information on the industry and specific
geographic markets

. Access leading search technology software

. Maintain management focus on strategic business issues

Use of Advanced Technology--Global systems and the ability to create
comprehensive worldwide databases are fundamentally changing the search
process and moving the emphasis of the recruitment 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 recruitment industry are being
created as these investments in information technology become critical to
serve clients' needs globally.

Growth Strategy

Our objective is to expand our leadership position as a preferred global
executive recruitment firm by providing clients with end-to-end human capital
management solutions. The principal elements of our strategy include:

Leverage Leadership in Executive Recruitment

Our leadership in executive recruitment enables us to grow our business by
increasing the number of recruitment assignments we handle for existing
clients. We also believe that there are significant opportunities to develop
new clients by aggressively marketing our proven global recruitment expertise.
Through our ten specialty practice groups and broad global presence, we
maintain an in-depth understanding of the market conditions and strategic and
management issues facing clients. Annually, our regions, offices, individual
consultants and specialty practice groups identify existing and prospective
clients with substantial needs for executive search services. We assemble
teams of search consultants based on geographic, industry and functional
expertise to focus on these clients.

By leveraging our knowledge of the growing pool of local talent in each of
the regions in which we operate, we are able to identify and place qualified
candidates capable of operating effectively in the local culture. In addition,
with the geographic expansion of Futurestep, we are leveraging our global
network and search capabilities to meet the middle-management recruitment
needs of existing and potential clients.

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Expand into the Middle-Management Market

In response to the growing client demand for middle-management recruitment,
we expanded our services to address this market. With our strong executive
client relationships, we are well positioned to meet clients' middle-
management recruitment needs effectively and efficiently through Futurestep,
our middle-management recruitment company. We maintain one of the largest,
most diverse and technologically innovative global databases of highly
qualified candidates across all levels of management, geography, industry and
functional expertise. By moving aggressively into this segment of the market,
we have strengthened our relationships with our existing clients, developed
new clients and are positioned to gain a competitive advantage in marketing
complementary services.

Add New Complementary Services

We continue to add new complementary services in response to specific
client needs.

. Our global management assessment practice is growing rapidly in Europe
and we intend to expand this service to cover North America and Latin
America in fiscal 2001.

. In June 2000, we agreed to make a strategic investment in Webhire, Inc.
(NasdaqNM:HIRE) the leading business services provider in the Internet
recruiting market place. This strategic investment was undertaken in
recognition of the increasing importance to clients of the corporate
human resource application service provider and allows us to enhance and
expand our Internet-based services.

. In July 2000, we completed the acquisition of JobDirect, a leading
online college recruitment company exclusively serving client
requirements for college graduates and entry-level professionals. This
acquisition will provide us not only the opportunity to develop
relationships lasting throughout a candidate's career, from their first
job through Chief Executive Officer, but also to serve our clients'
needs in this important market.

Pursue Strategic Acquisitions

In fiscal 2000, we completed a total of ten acquisitions. In executive
recruitment, we completed four acquisitions in the United States, three in
Canada, one in Germany and one in Australia. We also rapidly expanded the
international footprint of Futurestep through the acquisition of the ESS
business of PA, with offices in 17 countries in Europe and Asia/Pacific. In
fiscal 1999, we completed the acquisition of two European executive
recruitment firms with operations in France and Switzerland. We view strategic
acquisitions as a key component of our long-term growth strategy and intend to
pursue future strategic acquisition opportunities.

Reinforce Technological Focus

As the executive recruitment industry continues to grow and as more clients
seek the assistance of recruitment companies to fill middle-management
positions, an advanced technology infrastructure has become a critical element
of the recruitment business. To increase the speed and quality of our service
to clients and candidates around the world, we have invested more than $43
million over the past three fiscal years to develop a state-of-the-art
technology infrastructure for our executive recruitment business, including a
worldwide network and Searcher, our proprietary executive recruitment
software, and our proprietary assessment software for Futurestep. Our
worldwide executive recruitment databases contain the profiles of over
1,500,000 executives and over 400,000 companies, and our Futurestep database
contains over 666,000 registered candidates, allowing consultants to access a
wide range of potential candidates globally. Our systems represent a strong
competitive advantage, allowing our consultants to quickly obtain information
and communicate effectively with each other.

Services

We address the global recruitment needs of our clients at all levels of
management. We offer the following three primary services exclusively on a
retained basis:

Executive Recruitment

Our 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 we are retained
by a client to

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conduct an assignment, we assemble a team comprised of consultants with
geographic, industry and functional expertise. Our search consultants serve as
management advisors and work closely with the client in identifying, assessing
and placing a qualified candidate. In fiscal 2000, we performed over 7,700
executive recruitment assignments.

We use a search methodology that has been developed through many years of
experience in conducting executive recruitment. We emphasize 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 our proprietary databases and a number of key technology-based information
sources, companies that are in related industries facing similar challenges
and issues with 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. We conduct reference checks throughout
the process, sometimes with the assistance of an independent third party.

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 executive-level assignment that we perform 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, we
will repeat the assignment for no additional fee.

Middle-Management Recruitment

Our Futurestep subsidiary combines our 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
recruitment professionals to interact with candidates and clients.

We recognize that the cost of lost 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 through communication enabled by technology, we can quickly
generate a select list of candidates, which should significantly reduce search
cycle time.

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 using 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. Clients complete a similar profile to determine company culture
and the type of manager who will succeed in the open position. We believe 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 recruitment. To encourage candidates

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to register with Futurestep, we provide 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. Futurestep offers additional support to candidates through editorial
content appearing on the Web sites of CNBC, Excite@Home and Industry Standard.

When we receive an assignment from a client, a preliminary list of
candidates is selected from the Futurestep database and the most qualified are
called by a Futurestep recruitment 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, a written report
summarizing the candidates credentials, the results of the assessment profile,
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.

In June 1998, we entered into a three-year contract for an exclusive
alliance with The Wall Street Journal, which provides Futurestep with reduced
advertising rates, requires the purchase 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 "Notes to
Consolidated Financial Statements, Note 13". 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 recruitment 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
candidate placed by Futurestep that was referred by The Wall Street Journal.
KFY, Futurestep and The Wall Street Journal have agreed not to promote
competing services during the term of the contract.

Advertised Recruitment Services

Our advertised recruitment service uses print advertising in targeted
publications to attract the most qualified candidates for management positions
at all levels. Advertised recruitment is appropriate when clients seek
numerous qualified candidates from a broad universe of industries. We
introduced our advertised recruitment service in 1991, and currently offer
this service in Europe, Asia/Pacific and Latin America. As Futurestep's
database grows internationally, we expect the speed and efficiency of the
Futurestep service to result in a decline in advertised recruitment services.

At the beginning of each advertised recruitment 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.

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Organization

Our two reportable business segments, executive recruitment and Futurestep,
are operated separately. Executive recruitment is managed on a geographic
basis through four regions: North America, Europe, Asia/Pacific and Latin
America (including Mexico). Our industry specialty practices cross these
geographies to provide in-depth knowledge of these verticals on a global
basis. Futurestep is managed on a worldwide basis with operations in North
America, Europe and Asia/Pacific. All of our 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 business segment
with executive recruitment by region for fiscal 2000:



Operating Number of Number of
Revenue Profit (Loss) Offices as of Consultants as of
(in millions) (in millions) April 30, 2000 April 30, 2000
------------- ------------- -------------- -----------------

Executive Recruitment:
North America.......... $271.3 $ 52.8 23 253
Europe................. 112.0 13.0 27 150
Asia/Pacific........... 48.6 5.2 14 61
Latin America.......... 30.5 7.7 9 34
Futurestep.............. 38.3 (23.9) 31 97


See "Notes to the Consolidated Financial Statements, Note 11" for business
segment results for the past three fiscal years.

Executive Recruitment

North America--We opened our first office in Los Angeles in 1969, and
currently have 23 offices throughout the United States and Canada. We
completed seven acquisitions in fiscal 2000: four in the United States and
three in Canada. The North America region has grown from $103.6 million in
revenue in fiscal 1996 to $271.3 million in fiscal 2000. We have been ranked
first in worldwide revenue among Hunt-Scanlon's top executive recruitment
firms based in North America through fiscal 1999 and believe we currently
generate the highest revenue of any executive recruitment firm. In fiscal
2000, we handled over 3,100 assignments in this region, with an average of
217 consultants.

Europe--We opened our first European office in London in 1972 and currently
have 27 offices throughout 21 countries in the region. The region has grown
from $67.5 million in revenue in fiscal 1996 to $112.0 million in fiscal 2000.
We handled over 2,500 assignments in fiscal 2000 in this region, with an
average of 130 consultants. In fiscal 2000 and 1999, we acquired businesses in
Germany, France and Switzerland, enhancing our market position in these
countries.

Asia/Pacific--We opened our first Asia/Pacific office in Tokyo in 1973, and
have built a 14-office network throughout ten countries in the region. In June
1999, we completed the acquisition of the Australian business of Amrop
International. The region has grown from $28.2 million in revenue in fiscal
1996 to $48.6 million in fiscal 2000. We handled over 1,100 assignments in
fiscal 2000 in this region, with an average of 56 consultants. The latest
Economist Intelligence Unit report on Executive Search in Asia and Australia
describes us as the leading executive search firm in the region.

Latin America--We opened our first Latin American office in Brazil in 1974,
expanded our practice to Mexico through the 1977 acquisition of a 49% interest
in Hazzard & Associates, and currently conduct operations in Mexico through
three subsidiaries in which we hold a controlling minority interest. As of
April 30, 2000, we operated a network of nine offices in seven countries
covering the entire region. The region has grown from $18.8 million in revenue
in fiscal 1996 to $30.5 million in fiscal 2000. We handled over 1,000
assignments in fiscal 2000 in this region, with an average of 34 consultants.
According to the Economist Intelligence Unit's latest report on Executive
Search in the Americas, we dominate the executive search market in Latin
America.

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Futurestep

We began operations in May 1998 in California and completed our United
States rollout in late fiscal 1999. Our international rollout began with the
United Kingdom and Canada in the first quarter of fiscal 2000. We opened
offices in ten additional European countries, New Zealand and Australia in the
second fiscal quarter and in Japan, Hong Kong and Singapore in the third
fiscal quarter. In January 2000, we substantially completed our international
rollout with the acquisition of the ESS business of PA with 17 offices in
Europe and Asia/Pacific. Currently, we are expanding our Canadian operations
to complement the acquisition of executive recruitment firms in Calgary,
Toronto and Montreal in April 2000.

Industry Specialization

In 1970, we established executive recruitment specialty practices to serve
specific industries and markets and have continued to expand the range of our
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 our 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.
We plan to continue to expand our specialized expertise through internal
development, strategic hiring in targeted growth areas and selected
acquisitions. In fiscal 2000, the acquisition of Levy Kerson and Helstrom
Turner significantly strengthened our retail practice and the acquisition of
Pearson, Caldwell and Farnsworth enhanced our consistently strong financial
services practice.

Percentage of Fiscal 2000 Assignments by Industry Specialization



Advanced Technology...................................................... 23%
Consumer Goods........................................................... 18%
Industrial............................................................... 16%
Financial Services/Investments........................................... 16%
Healthcare (Products and Providers)...................................... 10%
Professional Services.................................................... 6%
Entertainment & Media Practice........................................... 4%
Governmental and Not-for-profit.......................................... 4%
Energy & Utilities....................................................... 3%


Client Base

Our clients are many of the world's largest and most prestigious public and
private companies. Almost half of our executive recruitment assignments in
fiscal 2000 were for board level, chief executive and other senior executive
positions. In fiscal 2000, approximately 5.2% of our total revenue was derived
from our top ten customers.

Functional Expertise

We have organized executive recruitment 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. Our board services practice,
for example, was first established in 1972 to help clients assemble an
effective, knowledgeable and cohesive boards 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.
We have established significant expertise in this area and have 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 board searches. In fiscal 2000, we acquired
Crist Partners, a premier senior executive and board level recruitment firm,

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adding both a renown firm franchise and key new management to our Board
services practice. Members of functional groups are located throughout our
regions and across our specialty practice groups.

Percentage of Fiscal 2000 Assignments by Functional Expertise



Board Level/CEO/CFO/Senior Executive and General Management.............. 49%
Marketing and Sales...................................................... 22%
Finance and Control...................................................... 8%
Manufacturing/Engineering/Research and Development/Technology............ 8%
Human Resources and Administration....................................... 7%
Information Systems...................................................... 6%


Competition

We are the leading and largest executive recruitment firm in the world.
Other multinational executive recruitment firms include Egon Zehnder
International, Heidrick & Struggles International, Inc., Russell Reynolds
Associates, Spencer Stuart & Associates, and TMP Worldwide, Inc. These firms
are our primary competitors, although we and each of these firms also compete
against smaller firms that specialize in specific regional, industry or
functional searches. We believe our brand name, global network, prestigious
client list, strong specialty practices and quality of service are widely
recognized worldwide.

We compete for executive recruitment 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
recruitment firms, we face competition from boutique firms focusing on
executive recruitment assignments in particular industries. In Europe, we
compete primarily with the local offices of Egon Zehnder International and the
European affiliate of Heidrick & Struggles International, Inc., in addition to
local firms specializing in their regions. In the Asia/Pacific region, most of
our competition is provided by five executive recruitment firms, including
Egon Zehnder International and Russell Reynolds Associates. In Latin America,
we compete principally with Egon Zehnder International, although other
executive recruitment firms have recently expanded into the region.

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

The executive recruitment industry is comprised of approximately 4,000
retained and contingency recruitment firms. According to Kennedy Information,
the top ten recruitment firms represent only 11% of the industry. To date
there have been few barriers to entry in the executive recruitment 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. We believe that the industry will
continue to experience consolidation. New competitors, such as technology-
oriented companies, will be drawn to the executive recruitment business by the
growing worldwide demand for qualified management employees and the ability to
leverage their existing technology to enter the market.

Professional Staff and Employees

Executive Recruitment

As of April 30, 2000, we had approximately 1,837 executive recruitment
employees consisting of 318 vice presidents, 180 principals, 288 senior
associates and associates, 313 researchers, 155 corporate professionals and
583 administrative and support staff. We have not been a party to a collective
bargaining agreement and consider our relations with our employees to be good.

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Senior associates, associates and researchers support the efforts of our
vice presidents and principals with candidate sourcing and identification, but
do not generally lead an assignment. We have 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 develop repeat business, and the
ability to help build effective teams. In addition, we have a program of
recruiting experienced professionals into our firm.

We believe the high caliber, extensive experience and motivation of our
professionals are critical factors to our success. We further believe we have
been able to attract and retain some of the most productive consultants in the
industry as a result of our reputation, history of broad distribution of
consultant equity ownership and our performance-based compensation program.

Futurestep

Futurestep employed 97 consultants at the end of fiscal 2000. As the
breadth and depth of the Futurestep database continues to grow, we expect our
proprietary assessment software to significantly increase the productivity of
consultants in this business segment relative to executive recruitment.

Item 2. Properties

Our corporate office is located in Los Angeles, California. We lease all
104 of our executive recruitment and Futurestep offices located in North
America, Europe, Asia/Pacific and Latin America. As of April 30, 2000, we
leased an aggregate of approximately 695,000 square feet of office space. The
leases generally are for terms of one to ten years and contain customary terms
and conditions. We believe that our facilities are adequate for our current
needs and we do not anticipate any difficulty replacing such facilities or
locating additional facilities to accommodate any future growth.

Item 3. Legal Proceedings

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

Item 4. 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 2000.

Executive Officers



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

Richard M. Ferry........ 62 Chair of the Board
Windle B. Priem......... 62 Chief Executive Officer and President
Peter L. Dunn........... 55 Vice Chair, Corporate Secretary and General Counsel
Elizabeth S.C.S.
Murray................. 44 Chief Financial Officer, Treasurer and Executive Vice President
Gary C. Hourihan........ 51 Executive Vice President--Organizational Development
Michael D. Bekins....... 45 Chief Operating Officer and Executive Vice President (As of May 1, 2000)


Our executive officers serve at the discretion of our Board of Directors.
There is no family relationship between any executive officer or director. The
following information sets forth the business experience for at least the past
five years for of each of our executive officers as of April 30, 2000.

Richard M. Ferry, founder of Korn/Ferry International, 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 Korn/Ferry International from May
1991 to April 1997.

11


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 Korn/Ferry International since 1993. From July 1998 to
December 1998, he was a Vice Chair and the Chief Operating Officer of
Korn/Ferry International. From 1996 to 1998, he was President of the North
America region. Mr. Priem joined Korn/Ferry International in 1976.

Peter L. Dunn has been Vice Chair since 1997 and is a member of the Office
of the Chief Executive. Since March 2000, he has been the acting Chief
Executive Officer of Futurestep. He has been a Director of Korn/Ferry
International since 1992 and serves as our General Counsel and Corporate
Secretary. Mr. Dunn joined Korn/Ferry International in 1980.

Elizabeth S.C.S. Murray has been the Executive Vice President, Chief
Financial Officer and Treasurer since July 1998 and is a member of the Office
of the Chief Executive. In January 1998, she joined Korn/Ferry International
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 has been Executive Vice President--Organizational
Development since January 1999 and is responsible for all human resource
functions. Prior to joining Korn/Ferry International, 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 United States, where he
was employed from November 1984 until joining Korn/Ferry International.

In May 2000, the Board of Directors elected Michael D. Bekins to the
position of Chief Operating Officer and Executive Vice President. He was most
recently President of the European region and, previously served as President
of the Asia/Pacific region. He joined Korn/Ferry International in September
1980 as a senior associate and was promoted to Vice President in May 1992.

12


PART II.

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

Our 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:



Fiscal Year Ended April 30, 2000 High Low
-------------------------------- ------ ------

First Quarter................................................. $17.00 $11.75
Second Quarter................................................ $25.25 $12.50
Third Quarter................................................. $39.00 $20.75
Fourth Quarter................................................ $44.13 $21.38
Fiscal Year Ended April 30, 1999
--------------------------------
Fourth Quarter................................................ $14.63 $11.00


On July 28, 2000, the last reported sales price on the New York Stock
Exchange for the common stock was $33.88 per share and there were
approximately 3,570 shareholders of record of the common stock.

We have not paid any dividends since April 30, 1996 and do not intend to
pay any cash dividends in the foreseeable future, but instead intend to retain
future earnings to finance our operations and growth of the business. Future
dividend policy will depend on our earnings, capital requirements, financial
condition and other factors considered relevant by our board of directors.

On February 17, 1999, we completed our 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 KFY 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 us were approximately
$124.3 million to us and $24.4 million to the selling shareholders. We also
received approximately $3.0 million from the repayment by certain selling
shareholders of loans we had made to those selling shareholders. In fiscal
1999, we used $14.4 million of the net proceeds to repay our term loan and all
outstanding indebtedness under our credit facilities, $27.1 million to
complete the redemption of certain shares of our 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. In fiscal 2000, we used the
remaining proceeds of $81.5 million for acquisitions, the expansion of
Futurestep, and continued development of technology, information systems and
infrastructure.

13


Item 6. Selected Financial Data

The following selected financial data are qualified by reference to, and
should be read in conjunction with, our "Audited Consolidated Financial
Statements and Related Notes" 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 fiscal years ended April 30, 2000, 1999 and 1998 and the selected
balance sheet data as of April 30, 2000 and 1999 are derived from our
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 fiscal years ended April 30, 1997 and 1996 and the
balance sheet data as of April 30, 1998, 1997 and 1996 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,
-----------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(in thousands, except per share amounts)

Selected Statement of
Operations Data:
Revenue....................... $500,743 $356,075 $300,954 $259,067 $218,069
Compensation and benefits..... 298,908 226,568 197,790 166,854 140,721
General and administrative
expenses..................... 147,030 94,860 87,797 74,153 63,774
Non-recurring charges (1)..... 89,202
-------- -------- -------- -------- --------
Operating profit (loss)....... 54,805 (54,555) 15,367 18,060 13,574
Interest and other income
(expense).................... 2,966 (285) (1,411) (815) (911)
-------- -------- -------- -------- --------
Income (loss) before provision
for income taxes and
non-controlling shareholders'
interest..................... 57,771 (54,840) 13,956 17,245 12,663
Provision for income taxes.... 24,126 9,026 6,687 6,658 3,288
Non-controlling shareholders'
interest..................... 2,834 2,560 2,025 1,588 1,579
-------- -------- -------- -------- --------
Net income (loss)............. $ 30,811 $(66,426) $ 5,244 $ 8,999 $ 7,796
======== ======== ======== ======== ========
Net income (loss) per share:
Basic........................ $ 0.85 $ (2.37) $ 0.24 $ 0.42 $ 0.38
Diluted...................... 0.82 (2.37) 0.23 0.40 0.36
Weighted average common shares
outstanding:
Basic........................ 36,086 28,086 21,885 21,382 20,390
Diluted...................... 37,680 28,086 23,839 23,481 23,019
Other Data:
Revenue by business segment:
Executive recruitment:
North America................ $271,313 $185,525 $154,903 $125,767 $103,558
Europe....................... 112,045 101,515 81,543 74,891 67,504
Asia/Pacific................. 48,603 35,024 34,411 33,547 28,168
Latin America................ 30,488 29,673 30,097 24,862 18,839
Futurestep................... 38,294 4,338
Number of offices (at period
end)......................... 104 71 71 66 62
Number of consultants (at
period end).................. 595 425 404 334 299
Number of assignments......... 9,089 6,771 5,879 4,774 4,113
Selected Balance Sheet Data:
Cash and cash equivalents..... $ 86,975 $113,741 $ 32,358 $ 25,298 $ 26,640
Marketable securities,
current...................... 59,978 21,839
Working capital............... 83,048 117,922 26,573 20,051 22,006
Total assets.................. 475,994 304,124 176,371 148,405 126,341
Total long-term debt.......... 16,916 2,360 6,151 3,206 3,922
Total shareholders' equity and
mandatorily redeemable
stock........................ $231,224 $172,686 $ 58,754 $ 50,812 $ 43,075


14


- --------
(1) We recognized a non-recurring compensation and benefits expense of $89.2
million in fiscal 1999, at the completion of the initial public offering,
comprised of (a) $49.3 million representing the difference between the
issuance price of the shares issued by us in the period beginning twelve
months before the initial filing date of the Registration Statement
relating to the initial 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 us of certain shares of our 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. We 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.

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

Forward-looking Statements

This Annual Report on Form 10-K may contain certain statements that we
believe are, or may be considered to be, "forward-looking" statements, within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. These forward-looking statements
generally can be identified by use of statements that include phrases such as
"believe", "expect", "anticipate", "intend", "plan", "foresee", "may", "will",
"estimates", "potential", "continue" or other similar words or phrases.
Similarly, statements that describe our objectives, plans or goals also are
forward-looking statements. All of these forward-looking statements are
subject to risks and uncertainties that could cause our actual results to
differ materially from those contemplated by the relevant forward-looking
statement. The principal risk factors that could cause actual performance and
future actions to differ materially from the forward-looking statements
include, but are not limited to, dependence on attracting and retaining
qualified executive recruitment consultants, portability of client
relationships, local political or economic developments in or affecting
countries where we have operations, ability to manage growth, restrictions
imposed by off-limits agreements, competition, implementation of an
acquisition strategy, integration of acquired businesses, risks related to the
development and growth of Futurestep, reliance on information processing
systems, and employment liability risk. Readers are urged to consider these
factors carefully in evaluating the forward-looking statements. The forward-
looking statements included in this Annual Report are made only as of the date
of this Annual Report and we undertake no obligation to publicly update these
forward-looking statements to reflect subsequent events or circumstances.

The following presentation of management's discussion and analysis of our
financial condition and results of operations should be read together with our
consolidated financial statements included in this annual report on Form 10-K.

Overview

We are the world's leading and largest executive recruitment firm and have
the broadest global presence in the industry with approximately 500 executive
recruitment consultants and 100 Futurestep consultants based in 104 offices
across 41 countries. Our 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 executive recruitment searches we performed in fiscal 2000 were
for board level, chief executive and other senior executive positions and
nearly half of our 4,946 clients were Fortune 500 companies. We have
established strong client loyalty; more than 82% of the executive recruitment
assignments we performed in fiscal 2000 were on behalf of clients for whom we
had conducted multiple assignments over the last three fiscal years.

In May 1998, we introduced our middle-management recruitment service,
Futurestep. Futurestep combines our recruitment 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 $23.9 million in fiscal 2000 and $12.6 million
for fiscal 1999, and are primarily related to compensation expense, start-up
costs and advertising expense to promote and expand the business rollout.

15


In March 1999, we completed the United States roll-out of Futurestep by
expanding into the Midwest and Southwest regions. Futurestep launched its
international roll-out in the United Kingdom and Canada in the current year
first fiscal quarter; in ten additional European countries, New Zealand and
Australia in the second fiscal quarter; and in Japan, Hong Kong and Singapore
in the third fiscal quarter. We completed the integration of the acquired
executive search and selection business of PA Consulting Group (ESS business
of PA), a leading management systems and technology consulting firm based in
London with 17 offices in Europe and Asia/Pacific in the fourth quarter of
fiscal 2000 and may expand in other selected foreign markets in fiscal 2001.
As of April 30, 2000, over 666,000 candidates worldwide have completed a
detailed on-line profile.

On February 17, 1999, we completed the initial public offering of 11.8
million shares of our common stock at $14.00 per share, approximately 10.0
million of which were sold by us, with the balance sold by selling
shareholders. Net proceeds received by us from the offering were approximately
$124.3 million.

In the first quarter of fiscal 2000, we completed the acquisition of the
Australian business of Amrop International. In the second fiscal quarter, we
completed two acquisitions in the United States: Levy-Kerson, a leading
recruitment firm specializing in the retail/fashion industry, and Pearson,
Caldwell and Farnsworth, a leading search firm focused on senior-level
assignments for the financial services industry. In December 1999, we
completed two additional acquisitions in the United States: Helstrom Turner &
Associates, specializing in retail and e-commerce clients, and Crist Partners,
specializing in senior executive recruitment assignments for Fortune 500
companies. In January 2000, we completed the acquisition of the ESS business
of PA, primarily to provide a European and Asia/Pacific footprint for
Futurestep's international expansion and Hoffman Herbold & Partner, a leading
German firm based in Frankfurt specializing in high-end executive recruitment,
management audits and board consultancy. In the fourth quarter of fiscal 2000,
we completed three acquisitions in Canada: Illsley Bourbannais, Inc. which
focuses on the high-end recruitment business with specialties in manufacturing
and technology, O'Callaghan Honey McKay/Ray & Berndston, Inc. specializing in
energy and manufacturing, and Pratzer & Partners, Inc. will provide leadership
to the Canadian operations and will be integrated with our existing office in
Toronto, strengthening our technology and financial services practices.

Results of Operations

The following table summarizes the results of our operations for each of
the past three fiscal years as a percentage of revenue:



Fiscal Year
Ended April
30,
-----------------
2000 1999 1998
---- ---- ----

Revenue................................................... 100% 100 % 100%
Compensation and benefits................................. 60 64 66
General and administrative expenses....................... 29 27 29
Non-recurring charges..................................... 25
Operating profit (loss) (1)............................... 11 (15) 5
Net income (loss)......................................... 6 (19) 2

- --------
(1) For the twelve months ended April 30, 2000 and 1999, operating profit as a
percentage of revenue excluding Futurestep and non-recurring charges is
17% and 13%, respectively.

16


We experienced growth in executive recruitment revenue in all geographic
regions from fiscal 1998 through 2000, except for Latin America, due primarily
to the devaluation of the Brazilian Real in fiscal 1999. The following tables
summarize our revenue and operating profit (loss), excluding non-recurring
items in fiscal 1999, by geographic region for each of the past three fiscal
years. We include executive recruitment revenue generated from our operations
in Mexico with Latin America.



Fiscal Year Ended April 30,
--------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
Dollars % Dollars % Dollars %
-------- ------ -------- ------ -------- ------
(dollars in thousands)

Revenue
Executive recruitment:
North America.......... $271,313 54% $185,525 52% $154,903 52%
Europe................. 112,045 22 101,515 29 81,543 27
Asia/Pacific........... 48,603 10 35,024 10 34,411 11
Latin America.......... 30,488 6 29,673 8 30,097 10
Futurestep.............. 38,294 8 4,338 1
-------- ---- -------- ---- -------- ----
Total revenue........... $500,743 100% $356,075 100% $300,954 100%
======== ==== ======== ==== ======== ====


Fiscal Year Ended April 30,
--------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
Dollars Margin Dollars Margin Dollars Margin
-------- ------ -------- ------ -------- ------
(dollars in thousands)

Operating profit (loss)
(excluding
non-recurring charges
(1))
Executive recruitment:
North America.......... $ 52,783 19.5% $ 27,435 14.8% $ 10,138 6.5%
Europe................. 13,034 11.6 8,331 8.2 (540) (0.7%)
Asia/Pacific........... 5,174 10.6 3,543 10.1 620 1.8
Latin America.......... 7,692 25.2 7,916 26.7 5,973 19.8
Futurestep.............. (23,878) (12,578) (824)
-------- ---- -------- ---- -------- ----
Total operating profit.. $ 54,805 10.9% $ 34,647 9.7% $ 15,367 5.1%
======== ==== ======== ==== ======== ====

- --------
(1) Operating profit (loss) by geographic region in fiscal 1999 excludes non-
recurring charges of: $83,829 in North America, $4,514 in Europe and $859
in Asia/Pacific. See "Part II. Item 6. Selected Financial Data".

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

Fiscal 2000 Compared to Fiscal 1999

Revenue

Revenue increased $144.6 million, or 41%, to $500.7 million for fiscal 2000
from $356.1 million for fiscal 1999. The increase in revenue was primarily the
result of a 17% increase in the number of executive recruitment engagements,
supported by a 10% increase in the average number of executive recruitment
consultants; a 13% increase in the average fee per executive recruitment
engagement; and revenue from Futurestep and acquisitions in fiscal 2000.

Executive Recruitment--In North America, revenue increased $85.8 million,
or 46%, to $271.3 million for fiscal 2000 from $185.5 million for fiscal 1999.
In Asia/Pacific, revenue increased $13.6 million, or 39% to $48.6 million for
fiscal 2000 compared to $35.0 million in the prior fiscal year. Revenue growth
in North America and Asia/Pacific was attributable primarily to an increase in
the number of engagements, supported by an increase in the average number of
consultants. In North America, this revenue growth was also driven by an
increase of 16% in the average

17


fee per engagement compared to the prior fiscal year and revenue from
acquisitions in the current fiscal year. In Europe, revenue increased $10.5
million, or 10%, to $112.0 million in fiscal 2000 from $101.5 million in the
prior fiscal year. Excluding the negative effects of foreign currency
translation into the U.S. dollar, and the acquisition in Germany, revenue
increased approximately 6% on a constant dollar basis primarily due to an
increase in the number of engagements and average fee per engagement. In Latin
America, total revenue increased approximately 3% in fiscal 2000 as compared
to fiscal 1999. Excluding the negative effects of foreign currency translation
into the U.S. dollar, revenue increased 9% on a constant dollar basis
primarily due to an increase in the number of engagements.

Futurestep--Futurestep revenue of $38.3 million for fiscal 2000, including
$7.3 million related to the acquisition of the ESS business of PA, is
primarily attributable to an increase in the number of engagements in the
current year and reflects substantial completion of the worldwide roll-out of
the business. Futurestep has increased its worldwide presence from one
country, the United States, at April 30, 1999 to 20 countries at April 30,
2000.

Compensation and Benefits

Compensation and benefits increased $72.3 million, or 32%, to $298.9
million in fiscal 2000 from $226.6 million in fiscal 1999, mainly due to an
increase in the number of employees from the prior fiscal year. Excluding the
increase in Futurestep expenses of $17.6 million, compensation and benefits
increased $54.7 million in fiscal 2000 versus the prior fiscal year, primarily
due to a 10% increase in the average number of executive recruitment
consultants. On the same basis, excluding Futurestep related expenses,
compensation and benefits as a percentage of revenue, decreased to 59.6% in
fiscal 2000 from 60.1% in fiscal 1999.

General and Administrative Expenses

General and administrative expenses consist of occupancy expenses
associated with our leased premises, information and technology
infrastructure, marketing and other general office expenses. General and
administrative expenses increased $52.1 million, or 55%, to $147.0 million in
fiscal 2000 from $94.9 million in fiscal 1999. This increase was attributable
largely to an increase in Futurestep expenses of $27.7 million, primarily
related to advertising and business development in the current year and the
cost of facilities to support the international expansion. As a percentage of
revenue, general and administrative expenses, excluding Futurestep related
expenses, declined to 23.4% in fiscal 2000 from 26.5% in fiscal 1999. The
decrease primarily reflects a higher percentage increase in revenue in the
current fiscal year.

Operating Profit

Operating profit was $54.8 million, or 11% of revenue compared to an
operating loss of $54.6 million in the prior fiscal year. Excluding the
Futurestep operating losses of $23.9 million and $12.6 million in fiscal 2000
and 1999, respectively, and the one-time non-recurring items of $89.2 million
in fiscal 1999 ("comparable basis"), operating profit for the current fiscal
year increased $31.5 million, or 67% to $78.7 million compared to $47.2
million in the prior fiscal year. Operating profit, on a comparable basis, as
a percentage of revenue excluding Futurestep revenue was 17% for the twelve
months ended April 30, 2000 and 13% for the same period in 1999. For fiscal
2000, operating margins, on the same basis, increased in all regions except
Latin America compared to the prior fiscal year. The increase in North America
was due primarily to the increase in revenue and the decline in general and
administrative expense as a percentage of revenue. The increase in Europe was
due primarily to the decline in general and administrative expense as a
percentage of revenue.

The percentage of our operating profit, on a comparable basis, contributed
by North America increased to 67% for the current fiscal year from 58% in the
prior fiscal year, driven primarily by the increase in revenue. The percentage
of our operating profit contributed by the European and Asia/Pacific regions
remained relatively flat at 17% and 7%, respectively, in the current and prior
fiscal years. The Latin America region contribution decreased to 10% for the
current fiscal year from 17% in the prior fiscal year due primarily to the
increased contribution of operating profit by North America in fiscal 2000.

18


Interest Income and Other Income, Net

Interest income and other income, net includes interest income of $6.7
million and $3.8 million for fiscal 2000 and 1999, respectively. The increase
in interest income of $2.9 million is due primarily to interest income from
the investment of proceeds received in the initial public offering in
marketable securities, largely short term municipals.

Provision for Income Taxes

The provision for income taxes increased $15.1 million to $24.1 million in
fiscal 2000 from $9.0 million in fiscal 1999. The effective tax rate for
fiscal 2000 remained relatively flat at 41.8%, compared to 42.0% in the prior
fiscal year.

Non-controlling Shareholders' Interest

Non-controlling shareholders' interest is comprised of the non-controlling
shareholders' majority interest in our Mexico subsidiaries. Non-controlling
shareholders' interest increased $0.2 million to $2.8 million in fiscal 2000
from $2.6 million in fiscal 1999 and primarily reflects a corresponding
increase in net income generated by our Mexico subsidiaries in fiscal 2000.

Fiscal 1999 Compared to Fiscal 1998

Revenue

Revenue increased $55.1 million, or 18.3%, to $356.1 million for fiscal
1999 from $301.0 million for fiscal 1998. The increase in revenue was
primarily the result of a 15% increase in the number of assignments, supported
by a 14% increase in the average number of consultants, and revenue from
Futurestep in fiscal 1999.

In North America, revenue increased $30.6 million, or 19.8%, to $185.5
million for fiscal 1999 from $154.9 million for fiscal 1998. In Europe,
revenue increased $20.0 million, or 24.5%, to $101.5 million in fiscal 1999
from $81.5 million in the prior fiscal year. In Asia/Pacific and Latin
America, total revenue remained relatively flat in fiscal 1999 as compared to
fiscal 1998 with an increase of 1.8% and a decrease of 1.4% in these regions,
respectively.

Revenue growth in North America and Europe was attributable mainly to a 26%
and 19% increase, respectively, in the number of engagements driven by an
increase of 16% and 12%, respectively, in the average number of consultants.
In North America, the growth in revenue also reflects Futurestep revenue of
$4.3 million in fiscal 1999. The growth in revenue in Europe primarily
reflects the additional revenue generated from the acquisition 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
revenue 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.

Compensation and Benefits

Compensation and benefits increased $28.8 million, or 14.6%, to $226.6
million in fiscal 1999 from $197.8 million in fiscal 1998. For fiscal 1999,
the bonus component of compensation and benefits expense was reduced by
approximately 26% as a result of the implementation of our revised
compensation program effective as of May 1, 1998 upon completion of the
initial public offering, as compared to the prior year compensation program.
Excluding Futurestep related expenses and reflecting the bonus reduction in
fiscal 1998, compensation and benefits as a percentage of revenue, increased
slightly to 60.0% in fiscal 1999 from 59.4% in fiscal 1998. The $32.9 million
increase, on the same basis, reflected an 11.2% increase in the average number
of executive recruitment consultants in fiscal 1999 compared to the prior
fiscal year.

General and Administrative Expenses

General and administrative expenses increased $7.1 million, or 8.1%, to
$94.9 million in fiscal 1999 from $87.8 million in fiscal 1998. This increase
was attributable largely to Futurestep expenses of $11.0 million in fiscal
1999, primarily related to business development. As a percentage of revenue,
general and administrative

19


expenses, excluding Futurestep related expenses, declined to 26.5% in fiscal
1999 from 29.1% in fiscal 1998. The decrease primarily reflects the higher
percentage increase in revenue and the elimination of excess costs in fiscal
1999.

Operating Profit

The operating loss of $54.6 million in fiscal 1999 represents a decrease of
$70.0 million from operating profit of $15.4 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 Futurestep revenue and
expenses and the non-recurring charges, operating profit, as a percentage of
revenue, increased to 13.4% in fiscal 1999 from 5.4% 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 revenue and the reduced level
of bonus expense previously discussed.

Excluding the Futurestep loss and the non-recurring charges, the percentage
of our operating profit contributed by North America decreased slightly to
58.1% from 62.6% in fiscal 1998. The Latin America region contribution
decreased to 16.8% in fiscal 1999 from 36.9% in fiscal 1998 largely due to the
percentage decline in revenue in the third and fourth quarters of fiscal 1999
while operating costs remained relatively constant. The percentage of our
operating profit contributed by the European and Asia/Pacific regions
increased to approximately 17.6% and 7.5%, respectively, in fiscal 1999 from
(3.3%) and 3.8%, respectively, in fiscal 1998, primarily reflecting the
decrease in the contribution by Latin America and the 24.5% increase in
revenue in Europe in fiscal 1999.

Interest Income and Other Income, Net

Interest income and other income, net includes interest income of $3.8
million and $2.8 million for fiscal 1999 and 1998 respectively. The increase
in interest income of $1.0 million is due primarily to interest income from
the investment of proceeds received in the initial public offering in
marketable securities.

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' Interest

Non-controlling shareholders' interest is comprised of the non-controlling
shareholders' majority interest in our Mexico subsidiaries. Non-controlling
shareholders' interest increased $0.6 million to $2.6 million in fiscal 1999
from $2.0 million in fiscal 1998 and primarily reflects a corresponding
increase in net income generated by our Mexico subsidiaries in fiscal 1999.

Liquidity and Capital Resources

We finance operating expenditures primarily through cash flows from
operations. The following table presents selected financial information as of
the end of the past three fiscal years:



As of April 30,
------------------------
2000 1999 1998
------- -------- -------
(in thousands)

Working capital(1)................................. $83,048 $117,922 $26,573
Total long-term debt, net of current maturities.... 16,916 2,360 6,151
Borrowings under life insurance policies........... 44,928 42,655 37,638

- --------
(1) In February 1999, we received $124.3 million upon completion of our
initial public offering. "See Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters."

To manage timing differences between cash receipts and disbursements and
provide additional liquidity, we maintain a $50 million credit facility with
Mellon Bank, N.A. and Bank of America National Trust and Savings Association.
The credit facility is an unsecured revolving facility that matures on
February 12, 2002 and includes a

20


standby letter of credit subfacility. Outstanding borrowings will bear
interest at various rates based, at our option, on either a LIBOR index plus
1.4% 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, 2000 and 1999 we had
no outstanding borrowings under the revolving credit facility.

Cash provided by operating activities was $74.3 million, $38.7 million and
$18.5 million for fiscal 2000, 1999 and 1998, respectively. The $35.6 million
increase in operating cash flow in fiscal 2000 compared to the prior fiscal
year is due primarily to an increase in net income of $13.3 million, excluding
the non-recurring charges in the prior fiscal year and an increase in
adjustments for non-cash expenses of $18.2 million in the current fiscal year.
Net cash provided by operating activities in fiscal 2000 includes an increase
in accounts payable and accrued liabilities compared to the prior year of
$48.2 million due primarily to an increase in bonus expense, that was largely
offset by an increase in accounts receivable and prepaid expenses of $44.2
million. The $20.2 million increase in operating cash flow in fiscal 1999
compared to the fiscal 1998 was 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--Notes 5."

Capital expenditures totaled approximately $22.9 million, $8.1 million and
$9.9 million for fiscal 2000, 1999 and 1998, respectively. These expenditures
consisted primarily of systems hardware and software costs, upgrades to
information systems and leasehold improvements. The $14.8 million increase in
capital expenditures in fiscal 2000 over prior fiscal year, primarily relates
to the installation of a new financial system in the United States. We plan to
rollout this system worldwide beginning in Europe in fiscal 2001 at an
estimated additional cost of approximately $5 million.

Included in cash flows from investing activities are premiums paid on
corporate-owned life insurance, or COLI, contracts. We purchase COLI contracts
to provide a funding vehicle for anticipated payments due under our deferred
executive compensation programs. Premiums on these COLI contracts were $10.6
million, $12.4 million and $12.4 million in fiscal 2000, 1999 and 1998,
respectively. Generally, we borrow against the cash surrender value of the
COLI contracts to fund the COLI premium payments to the extent interest
expense on the borrowings is deductible for U.S. income tax purposes. The
fluctuation in premium payments over the past three fiscal years is
attributable to the timing of payments. Cash flows from investing activities
also include the investment of excess cash in marketable securities.

In fiscal 2000, we completed ten acquisitions: seven in North America, one
in Europe, one in Asia/Pacific, and the ESS business of PA for Futurestep.
These acquisitions resulted in cash outflows of $42.6 million. In fiscal 1999,
we purchased two executive recruitment firms in Europe which resulted in a net
cash outflow of $1.3 million.

In February 1996, we divested our 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 2000, cash provided by financing activities was $8.7 million,
comprised primarily of borrowings under COLI contracts of $3.3 million,
proceeds from stock options exercised of $6.1 million and sales of common
stock of $2.3 million, offset by $1.0 million paid to repurchase common stock
and make payments on the related notes.

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 our term loan and all outstanding indebtedness under our credit
facility, $27.1 million to complete the redemption of shares of our capital
stock, primarily shares owned by 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 initial public
offering, we 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

21


shares of common stock from terminated employees for $21.9 million. In fiscal
1999, we also borrowed $6.0 million under COLI contracts and repaid bank
borrowings and other debt aggregating $8.7 million.

Total outstanding borrowings under life insurance policies were $44.9
million, $42.7 million and $37.6 million as of April 30, 2000, 1999 and 1998,
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.

We believe that cash on hand, investments in marketable securities, funds
from operations and available borrowings under our credit facility will be
sufficient to meet our anticipated working capital, capital expenditures, and
general corporate requirements for the foreseeable future.

Recent Events

In June 2000, we completed the acquisition of Westgate Group, a leading
executive recruitment firm, specializing in financial services in New England.
In July 2000, we completed the acquisition of JobDirect.com, an online
recruiting service focused on college graduates and entry-level professionals.
The aggregate purchase price, subject to final due diligence, is expected to
be approximately $42.0 million in cash and stock. These acquisitions will be
accounted for as purchases and the excess of the fair market value of the net
assets acquired over the purchase price, if any, will be recorded as goodwill.

In June 2000, we also signed a letter of intent to invest $8.0 million for
a 16% equity interest in Webhire, Inc. (NasdaqNM:HIRE), the dominant supplier
of corporate platforms in e-recruiting.

Quarterly Results

The following table sets forth certain unaudited statement of operations
data for the quarters in fiscal 1999 and 2000. 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 1999 Fiscal 2000
------------------------------------ -----------------------------------
July 31 Oct. 31 Jan. 31 April 30 July 31 Oct. 31 Jan. 31 April 30
------- ------- ------- -------- -------- -------- -------- --------
(in thousands, except per share amounts)

Revenue................. $84,745 $91,175 $88,466 $ 91,689 $104,780 $116,322 $122,075 $157,566
Operating profit
(loss)................. 3,641 2,256 10,228(1) (70,680)(2) 10,245 11,517 14,397 18,646
Net income (loss)....... 1,519 (147) 5,105(1) (72,903)(2) 5,604 6,502 8,285 10,420
Net income (loss) per
share
Basic.................. 0.06 (0.01) 0.19 (2.15) 0.16 0.18 0.23 0.29
Diluted................ 0.05 (0.01) 0.19 (2.15) 0.15 0.17 0.22 0.27

- --------
(1) 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 our revised compensation program effective May 1, 1998
upon completion of the initial public offering, and non-recurring charges
of $8.4 million related to improving operating efficiencies and the
resignation of the former President and Chief Executive Officer.

(2) We recognized a non-recurring compensation and benefits expense of $79.3
million in the fourth quarter of fiscal 1999, at the completion of the
initial public offering, comprised of (a) $49.3 million representing the
difference between the issuance price of the shares issued by us in the
period beginning twelve months before

22


the initial filing date of the Registration Statement relating to the
initial 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 us of
certain shares of our 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. We 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.

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
October 1, 2002, the participating countries will introduce Euro notes and
coins and withdraw all legacy currencies so that they will no longer be
available.

We have assessed our information technology systems and determined that
they allow for transactions to take place in both the legacy currencies and
the Euro and accommodate the eventual elimination of the legacy currencies.
Our currency risk may be affected 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 we will continue to evaluate
issues involving introduction of the Euro throughout the transition period.
The conversion to the Euro has not had a significant impact on our operations
to date.

Recently Issued Accounting Standards

During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and 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 us as of May 1,
2001. We do not expect that the adoption of this standard will have an impact
on our consolidated financial statements or require additional disclosure
since we do 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
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. We adopted SOP 98-1 in fiscal 2000. The adoption
of this standard did not have a material effect on the consolidated financial
statements or our capitalization policy.

The Emerging Issues Task Force ("EITF") of the FASB reached a consensus in
March 2000 on Issue No: 00-2 ("EITF 00- 2"), "Accounting for Web Site
Development Costs". EITF 00-2 provides guidance over accounting for web site
development costs similar to the requirements of SOP 98-1 and is effective for
fiscal quarters beginning after June 30, 2000, with earlier application
encouraged. We plan to adopt EITF 00-2 in the first fiscal quarter of 2001 and
do not expect that adoption of this standard will have a material effect on
the consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

As a result of its global operating activities, we are exposed to market
risks, including changes in foreign currency fluctuations, fluctuations in
interest rates and variability in interest rate spread relationships. We
manage our exposure to these risks in the normal course of our business as
described below. We have not utilized financial instruments for trading or
other speculative purposes nor do we trade in derivative financial
instruments.

Foreign Currency Risk

Generally, financial results of our 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 revenue
and expenses are translated at

23


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 rates of exchange and any translation adjustments are included in
determining net income.

Historically, we have 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 our offices are located and investment of
excess cash balances in U.S. dollar denominated accounts. In fiscal 2000, we
recognized a foreign currency loss of $1.7 million after tax of which
$1.3 million is related to our operations in Europe. This European translation
loss was mainly due to the translation of European intercompany payables
denominated in U.S. dollars and reflected the significant appreciation of the
U.S. dollar against substantially all European currencies in fiscal 2000. We
mitigate any realized loss through the timing of repayment of these
intercompany borrowings.

Interest Rate Risk

We primarily manage our exposure to fluctuations in interest rates through
our regular financing activities that generally are short term and provide for
variable market rates. We have no outstanding balance on our revolving line of
credit as of April 30, 2000. At April 30, 2000, $31,664 was payable on long-
term notes payable to shareholders through fiscal 2004 at variable market
rates. Of this amount, $14,748 matures in fiscal 2001, $8,806 matures in
fiscal 2002, $8,028 matures in 2003 and $82 matures in 2004. We have
investments in interest bearing securities at market rates with original
maturities ranging from May 2000 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.

24


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 2001," "Nominees for
Director--Class 2002," and "Nominees for Directors--Class 2003" in our fiscal
2000 Proxy Statement, and is incorporated herein by reference. See also
"Executive Officers" 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 our fiscal 2000 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 our fiscal
2000 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 our fiscal 2000 Proxy
Statement, and is incorporated herein by reference.

25


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.............................................................. F-1

2. Financial Statement Schedules:

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

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

3. Exhibits:




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

2.1 Agreement and Plan of Merger of Korn/Ferry International, a
California corporation and Korn/Ferry International, a Delaware
corporation, dated as of September 22, 1999. Filed as Exhibit 2.1
to the Company's Current Report on Form 8-K dated September 22,
1999, and incorporated herein by reference.
3.1 Certificate of Incorporation of the Company. Filed as Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q dated December 14,
1999, and incorporated herein by reference.
3.2 Bylaws of the Company. Filed as Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q dated December 14, 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.


26




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

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* 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. Filed as Exhibit 10.17A to the
Company's Annual Report on Form 10-K, for the fiscal year ended
April 30, 1999, and incorporated herein by reference.
10.13* 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.
10.14* 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.
10.15* Employment Agreement between the Company and Windle B. Priem
effective May 1, 1999. Filed as Exhibit 10.21 to the Company's
Annual Report on Form 10-K, for the fiscal year ended April 30,
1999, and incorporated herein by reference.
10.16* Employment Agreement between the Company and Peter L. Dunn
effective April 29, 1999. Filed as Exhibit 10.22 to the Company's
Annual Report on Form 10-K, for the fiscal year ended April 30,
1999, and incorporated herein by reference.
10.17* Employment Agreement between the Company and Elizabeth S.C.S.
Murray effective April 29, 1999. Filed as Exhibit 10.23 to the
Company's Annual Report on Form 10-K, for the fiscal year ended
April 30, 1999, and incorporated herein by reference.
10.18 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.
10.19 First Amendment to Credit Agreement dated as of April 15, 1999, by
and among the Company, the lenders named therein and Mellon Bank,
N.A., issuing bank and as agent for the lenders.
10.20 Second Amendment to Credit Agreement dated as of December 31,
1999, by and among the Company, Mellon Bank, N.A. and Bank of
America National Trust and Savings Association, as lenders, 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.
10.21 Third Amendment to Credit Agreement dated as of January 27, 2000
by and among the Company, Mellon Bank, N.A. and Bank of America
National Trust and Savings Association, as lenders, 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.
10.22* Employment agreement between Korn/Ferry International and Gary C.
Hourihan effective March 6, 2000.


27




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

10.23 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.
21.1 Subsidiaries of Korn/Ferry International.
23.1 Consent of Independent Public Accountants
24.1 Power of Attorney (contained on the signature page)
27.1 Financial Data Schedule for Fiscal Year Ended April 30, 2000


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

(b) REPORTS ON FORM 8-K.

During the quarter ended April 30, 2000 no reports on Form 8-K were filed by
the registrant.

28


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

/s/ Elizabeth S.C.S. Murray
By: _________________________________
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 27, 2000
____________________________________ Director
Richard M. Ferry

/s/ Windle B. Priem Chief Executive Officer, July 25, 2000
____________________________________ President and Director
Windle B. Priem (Principal Executive
Officer)

/s/ Elizabeth S.C.S. Murray Chief Financial Officer, July 25, 2000
____________________________________ Treasurer and Executive Vice
Elizabeth S.C.S. Murray President (Principal
Financial Officer)

/s/ Donald E. Jordan Senior Vice President of July 25, 2000
____________________________________ Finance
Donald E. Jordan (Principal Accounting
Officer)

/s/ James E. Barlett Director July 25, 2000
____________________________________
James E. Barlett

/s/ Paul Buchanan-Barrow Director July 25, 2000
____________________________________
Paul Buchanan-Barrow


29




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


/s/ Frank V. Cahouet Director July 26, 2000
____________________________________
Frank V. Cahouet

/s/ Peter L. Dunn Director July 25, 2000
____________________________________
Peter L. Dunn

/s/ Timothy K. Friar Director July 26, 2000
____________________________________
Timothy K. Friar

/s/ Sakie Fukushima Director July 27, 2000
____________________________________
Sakie Fukushima

/s/ Scott E. Kingdom Director July 27, 2000
____________________________________
Scott E. Kingdom

/s/ Charles D. Miller Director July 27, 2000
____________________________________
Charles D. Miller

/s/ Manuel A. Papayanopulos Director July 27, 2000
____________________________________
Manuel A. Papayanopulos

/s/ Gerhard Schulmeyer Director July 28, 2000
____________________________________
Gerhard Schulmeyer

/s/ Michael A. Wellman Director July 27, 2000
____________________________________
Michael A. Wellman


30


INDEX TO FINANCIAL STATEMENTS



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

Consolidated Balance Sheets as of April 30, 2000 and 1999................ F-3

Consolidated Statements of Operations for the three years ended April 30,
2000.................................................................... F-4

Consolidated Statements of Shareholders' Equity for the three years ended
April 30, 2000.......................................................... F-5

Consolidated Statements of Cash Flows for the three years ended April 30,
2000.................................................................... F-6

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

INDEX TO FINANCIAL STATEMENT SCHEDULE

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

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


F-1


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Korn/Ferry International:

We have audited the accompanying consolidated balance sheets of KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES (the "Company"), a Delaware corporation, as of
April 30, 2000 and 1999, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended April 30, 2000. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audits 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, 2000 and 1999, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended April 30, 2000, in conformity with accounting principles
generally accepted in the United States.

/s/ Arthur Andersen LLP

Los Angeles, California
June 13, 2000

F-2


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(in thousands)



April 30,
------------------
2000 1999
-------- --------

ASSETS
Cash and cash equivalents.................................. $ 86,975 $113,741
Marketable securities...................................... 59,978 21,839
Receivables due from clients, net of allowance for doubtful
accounts of $12,538 and $7,847............................ 101,506 63,139
Other receivables.......................................... 8,112 3,337
Deferred income taxes...................................... 3,814 1,861
Prepaid expenses........................................... 7,453 5,736
-------- --------
Total current assets.................................... 267,838 209,653
-------- --------
Property and equipment:
Computer equipment and software........................... 32,532 17,554
Furniture and fixtures.................................... 18,175 14,646
Leasehold improvements.................................... 15,304 11,785
Automobiles............................................... 1,793 1,716
-------- --------
67,804 45,701
Less: Accumulated depreciation and amortization............ (31,992) (24,591)
-------- --------
Property and equipment, net............................... 35,812 21,110
-------- --------
Cash surrender value of company owned life insurance
policies, net of loans.................................... 50,632 41,973
Marketable securities...................................... 1,129 8,218
Deferred income taxes...................................... 17,790 16,321
Goodwill and other intangibles, net of accumulated
amortization of $8,709 and $5,351......................... 96,643 3,639
Other...................................................... 6,150 3,210
-------- --------
Total assets............................................ $475,994 $304,124
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable and current maturities of long-term debt..... $ 16,147 $ 1,356
Accounts payable........................................... 11,896 10,384
Income taxes payable....................................... 407 2,323
Accrued liabilities:
Compensation.............................................. 75,866 35,212
Payroll taxes............................................. 41,393 20,546
Other..................................................... 39,081 21,910
-------- --------
Total current liabilities............................... 184,790 91,731
Deferred compensation...................................... 37,483 33,531
Long-term debt............................................. 16,916 2,360
Other...................................................... 2,361 1,775
-------- --------
Total liabilities....................................... 241,550 129,397
-------- --------
Non-controlling shareholders' interest..................... 3,220 2,041
-------- --------
Shareholders' equity:
Common stock, no par value-authorized 150,000 shares,
36,748 and 35,633 shares issued and outstanding.......... 283,277 253,021
Deficit................................................... (35,615) (66,426)
Accumulated other comprehensive loss...................... (7,300) (2,360)
-------- --------
Shareholders' equity.................................... 240,362 184,235
Less: Notes receivable from shareholders.................. (9,138) (11,549)
-------- --------
Total shareholders' equity.............................. 231,224 172,686
-------- --------
Total liabilities and shareholders' equity.............. $475,994 $304,124
======== ========


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

F-3


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

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



Fiscal Year Ended April
30,
---------------------------
2000 1999 1998
-------- -------- --------

Revenue............................................ $500,743 $356,075 $300,954
Compensation and benefits.......................... 298,908 226,568 197,790
General and administrative expenses................ 147,030 94,860 87,797
Non-recurring charges.............................. 89,202
Interest income and other income, net.............. 7,402 4,178 2,823
Interest expense................................... 4,436 4,463 4,234
-------- -------- --------
Income (loss) before provision for income taxes
and non-controlling shareholders' interest...... 57,771 (54,840) 13,956
Provision for income taxes......................... 24,126 9,026 6,687
Non-controlling shareholders' interest............. 2,834 2,560 2,025
-------- -------- --------
Net income (loss)................................ $ 30,811 $(66,426) $ 5,244
======== ======== ========
Basic earnings (loss) per common share............. $ 0.85 $ (2.37) $ 0.24
======== ======== ========
Basic weighted average common shares outstanding... 36,086 28,086 21,885
======== ======== ========
Diluted earnings (loss) per common share........... $ 0.82 $ (2.37) $ 0.23
======== ======== ========
Diluted weighted average common shares
outstanding....................................... 37,680 28,086 23,839
======== ======== ========



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

F-4


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)



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

Balance as of April 30,
1997................... $13 $ 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.......... (761) 726 (35) (761)
--------
Comprehensive income.... $ 4,483
--- -------- -------- ------- -------- -------- ========
Balance as of April 30,
1998................... 13 16,933 54,015 (4,842) (63,526) 2,593
Purchase of stock..... (13) (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.......... (2,360) (2,360) (2,360)
--------
Comprehensive loss...... $(68,786)
--- -------- -------- ------- -------- -------- ========
Balance as of April 30,
1999................... 253,021 (66,426) (2,360) 184,235
Purchase of stock..... (964) (964)
Issuance of stock..... 31,220 31,220
Comprehensive Income:
Net income............ 30,811 30,811 $ 30,811
Foreign currency
translation
adjustments.......... (4,940) (4,940) (4,940)
--------
Comprehensive income.... $ 25,871
--- -------- -------- ------- -------- -------- ========
Balance as of April 30,
2000................... $283,277 $(35,615) $(7,300) $240,362
=== ======== ======== ======= ======== ========


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

F-5


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)



Fiscal Year Ended April 30,
-----------------------------
2000 1999 1998
--------- -------- --------

Cash from operating activities:
Net income (loss)............................. $ 30,811 $(66,426) $ 5,244
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation................................ 9,975 8,090 6,552
Amortization................................ 3,358 1,169 1,165
Provision for doubtful accounts............. 11,858 6,128 2,427
Cash surrender value and benefits in excess
of premiums paid........................... (1,371) (5,399) (1,767)
Deferred income tax benefit................. (1,463) (2,998) (4,612)
Tax benefit from exercise of stock options.. 2,837
Non-recurring initial public offering
charges.................................... 79,300
Other non-recurring charges................. 5,344
Change in other assets and liabilities, net of
acquisitions:
Deferred compensation....................... 5,400 4,560 6,876
Receivables................................. (53,859) (11,349) (9,996)
Prepaid expenses............................ (1,717) 529 (507)
Income taxes................................ (3,869) (3,219) 1,469
Accounts payable and accrued liabilities.... 71,493 23,249 9,678
Non-controlling shareholders' interest and
other, net................................. 800 (316) 1,953
--------- -------- --------
Net cash provided by operating
activities............................... 74,253 38,662 18,482
--------- -------- --------
Cash from investing activities:
Purchases of property and equipment........... (22,875) (8,102) (9,903)
Purchases of marketable securities............ (31,050) (30,057)
Business acquisitions, net of cash acquired... (42,613) (1,323)
Premiums on life insurance, net of benefits
received..................................... (10,611) (12,421) (12,408)
Redemption of guaranteed investment
contracts.................................... 1,746 1,949
Sale of interest in affiliates................ 2,308 473
--------- -------- --------
Net cash used in investing activities..... (107,149) (47,849) (19,889)
--------- -------- --------
Cash from financing activities:
Increase (decrease) on bank borrowings........ (5,000) 2,000
Payment of debt............................... (2,118) (3,737) (1,957)
Borrowings under life insurance policies...... 3,324 5,956 5,358
Purchase of common and preferred stock and
payments on related notes.................... (964) (23,777) (2,761)
Issuance of common stock and receipts on
shareholders' notes.......................... 8,427 150,888 6,588
IPO related non-recurring charges............. (31,400)
--------- -------- --------
Net cash provided by financing
activities............................... 8,669 92,930 9,228
--------- -------- --------
Effect of exchange rate changes on cash flows... (2,539) (2,360) (761)
--------- -------- --------
Net (decrease) increase in cash and cash
equivalents.................................... (26,766) 81,383 7,060
Cash and cash equivalents at beginning of the
period......................................... 113,741 32,358 25,298
--------- -------- --------
Cash and cash equivalents at end of the period.. $ 86,975 $113,741 $ 32,358
========= ======== ========


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

F-6


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000
(dollars in thousands, except per share amounts)

1. Organization and Summary of Significant Accounting Policies

Nature of Business

Korn/Ferry International, a Delaware corporation, and its subsidiaries are
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 ("KFY"), all of its wholly and majority owned domestic and
international subsidiaries, and affiliated companies in which KFY 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 accounting
principles generally accepted in the United States, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. As a result, actual results could differ from
these estimates.

Reclassifications

Certain prior year reported amounts have been reclassified in order to
conform to the current year consolidated financial statement presentation.

Revenue Recognition

Substantially all professional fee revenue is derived from fees for
professional services related to executive recruitment, consulting and related
services. Fee revenue is 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 included in
revenue, represent specifically identified and allocated costs related to
professional services that are billed to clients.

Translation of Foreign Currencies

Generally, financial results of our 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.

Gains and losses from foreign currency transactions of these subsidiaries
and the translation of the financial results of subsidiaries operating in
highly inflationary economies are included in general and administrative
expenses. Net foreign currency transaction and translation losses, on an after
tax basis, included in net earnings, were $1,710, $612 and $541 in fiscal 2000,
1999 and 1998, respectively.

F-7


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

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


Cash Flows

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

Net cash from operating activities includes cash payments for interest of
$3,591, $4,339 and $4,381 in fiscal 2000, 1999 and 1998, respectively. Cash
payments for income taxes, net of refunds, amounted to $27,284, $14,989 and
$9,830 in fiscal 2000, 1999 and 1998, 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 May 2000 through October 2001
and are classified as available-for-sale. Available-for-sale securities are
reported at fair value, with unrealized gains and losses excluded from
earnings and reported as a component of shareholders' equity. At April 30,
2000, the estimated fair value of the investments approximated the amortized
cost and, therefore, there were no significant unrealized gains or losses.
Investments in marketable securities consisted of the following:



As of April 30, As of April 30,
2000 1999
----------------- -----------------
Current Long-term Current Long-term
------- --------- ------- ---------

U.S. Treasury and government
securities........................... $ 1,996 $13,939 $ 496
Short term municipals................. 41,150
Municipals auction preferred.......... 5,000
Corporate auction preferred........... 5,400
Certificate of deposits............... 3,998 3,996
Commercial paper...................... 1,506 3,904
Asset-backed securities............... 928 $1,129 7,722
------- ------ ------- ------
Marketable securities............... $59,978 $1,129 $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. 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.

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)
(dollars in thousands, except per share amounts)


Property and Equipment

Property and equipment is carried at cost, less accumulated depreciation.
Leasehold improvements are amortized over the useful life of the asset, or the
lease term, whichever is less, using the straight-line method. Software
development costs are capitalized and, once placed in service, amortized using
the straight-line method over the estimated useful life, generally five years.
All other property and equipment is depreciated or amortized over the
estimated useful lives of three to ten years, using the straight-line method.

Goodwill and Other Intangibles

Goodwill represents the excess of the acquisition cost over the net assets
acquired in business combinations and is amortized primarily on a straight-
line basis over the estimated useful life, currently five to fifteen 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 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 ("FASB") issued 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. The Company does
not expect that the adoption of this standard will have an impact on the
consolidated financial statements or require additional 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
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. The Company adopted SOP 98-1 in fiscal 2000. The
adoption of this standard did not have a material effect on the consolidated
financial statements or the Company's capitalization policy.

The Emerging Issues Task Force ("EITF") of the FASB reached a consensus in
March 2000 on Issue No: 00-2 ("EITF 00-2"), "Accounting for Web Site
Development Costs." EITF 00-2 provides guidance over accounting for web site
development costs similar to the requirements of SOP 98-1 and is effective for
fiscal quarters beginning after June 30, 2000 with earlier application
encouraged. The Company plans to adopt EITF 00-2 in the first fiscal quarter
of 2001 and does not expect that adoption of this standard will have a
material effect on the consolidated financial statements.

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 10.0 million shares were sold by the Company and 1.8 million

F-9


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

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

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.

In fiscal 1999, 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.
The Company used the remaining proceeds of $81.5 million in fiscal 2000 for
acquisitions, the expansion of Futurestep, and continued development of
technology, information systems and infrastructure.

3. Basic and Diluted Earnings (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 common shares outstanding and
dilutive common equivalent shares. Following is a reconciliation of the
numerator (income or loss) and denominator (shares in thousands) used in the
computation of basic and diluted EPS:



Fiscal year ended April 30,
-------------------------------------------------------------------------
2000 1999 1998
----------------------- ------------------------- ----------------------
Weighted Per Weighted Per Weighted Per
Average Share Average Share Average Share
Income Shares Amount (Loss) Shares Amount Income Shares Amount
------- -------- ------ -------- -------- ------ ------ -------- ------

Basic EPS
Income (loss) available
to common
shareholders........... $30,811 36,086 $0.85 $(66,426) 28,086 $(2.37) $5,244 21,885 $0.24
===== ====== =====
Effect of dilutive
securities
Shareholder common stock
purchase commitments... 373 318
Stock options........... 1,221
Phantom stock units..... 161 1,219
Stock appreciation
rights................. 14 417
------- ------ -------- ------ ------ ------
Diluted EPS
Income (loss) available
to common shareholders
plus assumed
conversions............ $30,811 37,680 $0.82 $(66,426) 28,086 $(2.37) $5,419 23,839 $0.23
======= ====== ===== ======== ====== ====== ====== ====== =====


The share amounts in the table above reflect a four-to-one stock split
approved by the Board of Directors ("the Board") 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.

F-10


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

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

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
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.

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 350,000 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 2000.

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 1,050,000. A non-employee director may not receive awards of
more than 50,000 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 2,000 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. In fiscal 2000, the Company granted 8,000 stock options to Non-
Employee Directors.

The Company issued 2,063,750 stock options to certain employees effective
as of the IPO 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 1,510,350 shares of common stock that
will vest in equal installments over three years. The weighted average fair
value of options granted during fiscal 1999 is $9.67 per share. The weighted
average remaining contractual term of all outstanding options at April 30,
1999 was approximately 6.9 years. No options were exercisable as of April 30,
1999.

F-11


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

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


The status of the Company's stock option plans is summarized below:



Number of Weighted
Shares Average
(in thousands) Exercise Price
-------------- --------------

Granted in fiscal 1999......................... 3,574 $13.76
Canceled/forfeited............................. (2) 14.00
----- ------
Outstanding at May 1, 1999..................... 3,572 13.76
Granted........................................ 897 25.30
Exercised...................................... (443) 13.89
Canceled/forfeited............................. (197) 14.81
----- ------
Outstanding at April 30, 2000.................. 3,829 $16.40
===== ======


In June 2000, the Board approved the issuance of additional options under
the Plan with a grant date of June 6, 2000, a fair value per share of $17.05
and an exercise price per share equal to the closing market price on the date
of the grant of $22.00. The Company plans to issue approximately 2.5 million
options under this award in the first quarter of fiscal 2001.

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 for stock option awards
granted at or above fair market value.

The following table presents pro forma information regarding net income and
earnings per share determined as if the Company had accounted for its employee
stock options under the fair value method prescribed by SFAS No. 123
"Accounting for Stock-Based Compensation".



Fiscal Year
Ended April 30,
----------------
2000 1999
------- --------

Net earnings (loss)
As reported.............................................. $30,811 $(66,426)
Pro forma................................................ 22,849 (67,307)
Basic earnings (loss) per share
As reported.............................................. 0.85 (2.37)
Pro forma................................................ 0.63 (2.40)
Dilutive earnings (loss) per share
As reported.............................................. 0.82 (2.37)
Pro forma................................................ 0.61 (2.40)


The weighted average fair value of options granted during fiscal 2000,
estimated at the date of grant using a Black-Scholes option pricing model was
$17.99. The fair value of options granted in fiscal 2000 was estimated on the
date of grant using the following assumptions: average risk-free interest rate
of 6.33%, dividend rate of zero, expected volatility of 55.3% and expected
option life ranging from five to nine years. The weighted average fair value
of options granted during fiscal 1999, estimated at the date of the grant
using a Black-Scholes option pricing model, was $9.67 per share. The fair
value of options granted in fiscal 1999 was 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.

F-12


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

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


Summary information about the Company's stock options outstanding at April
30, 2000 is presented in the following table:



Options Outstanding Options Exercisable
----------------------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life in years Price Exercisable Price
---------------- ------------- ------------- -------- -------------- --------
(in thousands) (in thousands)

$ 8.40 to $12.60 16 9.0 $11.81
12.60 to 16.80 3,163 7.0 13.75 818 $13.69
16.80 to 21.00 17 9.4 17.67
21.00 to 25.20 98 9.6 22.69
25.20 to 29.40 26 9.9 26.35
29.40 to 33.60 391 9.6 29.87
33.60 to 37.80 101 9.7 34.82
37.80 to 42.00 17 9.8 42.00
------------- ----- --- ------ --- ------
$ 8.40 to $42.00 3,829 7.5 $16.40 818 $13.69
------------- ----- --- ------ --- ------


5. One-time Non-recurring Charges

At the completion of the IPO 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 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.

Additionally, the Company completed an evaluation of its worldwide
operations and revenue, compensation costs and other operating expenses for
each of its offices and geographic locations in the fourth quarter of fiscal
1999. 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 50 employees that were terminated and three underperforming
European offices that were 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 $3.1
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.
There were no additional charges to earnings related to these items in fiscal
2000.

In fiscal 1999, 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 was comprised of $1.5 million for compensation
and other amounts payable over the next seven months, of which $0.8 million
and $0.7 million was

F-13


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

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

paid in fiscal 2000 and 1999, respectively, 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 1999, eligible executives of Korn/Ferry International
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 consolidated balance sheets. For
purposes of EPP purchases and sales, book value per share, adjusted for the
four-to-one stock split, was $2.79 at April 30, 1998. 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 3,016,000 shares at the book value of $2.79 per share. The
Company repurchased a total of 2,646,000 shares in fiscal 1999 all at book
value.

The Board 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 110,000 shares of common stock at the fair market value of $10.98 per
share, appraised as of June 30, 1998 and 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 438,000 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,
substantially identical to ownership of the Company's common stock, excluding
voting rights. Compensation expense, recognized based on the change in the
book value of the common stock since the grant date, was $279 in fiscal 1998.

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 276,000 phantom
stock units and 114,000 stock rights outstanding as of June 30, 1998, the
effective date of termination of these Plans. The Company issued 1,551,000
shares of common stock (reflecting the four-to-one stock split in July 1998)
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 releases 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.

As of April 30, 2000 and 1999, notes receivable from shareholders for
common stock purchases were $7,221 and $10,679, respectively. The Company
issued common stock in exchange for notes receivable from shareholders of
$9,262 and $6,184 in fiscal 1999 and 1998, respectively. The Company issued no
new common stock in exchange for notes receivable from shareholders in fiscal
2000. 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.

F-14


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

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


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 discretionary accrued contribution to this
plan was $3,027, $2,622 and $2,400 for fiscal 2000, 1999 and 1998,
respectively. 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.

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 Board. 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 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 fiscal 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 our average monthly bank borrowing
rate, ranging from 6.4% to 8.0% 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

F-15


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

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

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.

As of April 30, 2000 and 1999, the Company had unrecognized losses related
to these deferred compensation plans of $5,244 and $7,728 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 7.75% and 7.50% in
fiscal 2000 and 1999, respectively.

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



Fiscal
Year Ended April 30,
----------------------
2000 1999
---------- ----------

Benefit obligation at beginning of year.............. $ 34,586 $ 35,362
Service cost......................................... 3,177 3,498
Interest cost........................................ 927 1,650
Plan participants' contributions..................... 2,071 3,233
Recognized loss due to change in assumption.......... 436 555
Benefits paid........................................ (2,611) (9,712)
---------- ----------
Benefit obligation at end of fiscal year............. $ 38,586 $ 34,586
Less: current portion of benefit obligation.......... (1,103) (1,055)
---------- ----------
Long-term benefit obligation at end of year.......... $ 37,483 $ 33,531
========== ==========


The Company purchased COLI contracts insuring participants and former
participants. The gross CSV of these contracts of $95,560 and $84,628 is offset
by outstanding policy loans of $44,928 and $42,655, on the accompanying
consolidated balance sheets as of April 30, 2000 and 1999, respectively.

Total death benefits payable under COLI contracts were $257,878 and $248,605
at April 30, 2000 and 1999, 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 policies are held in trusts to provide additional benefit
security for deferred compensation plans. As of April 30, 2000, COLI contracts
with a net cash surrender value of $43,762 and death benefits payable of
$190,556 were held in trust for these purposes.

9. Notes Payable and Long-Term Debt

At April 30, 2000, 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 7.75% and 9.0%, respectively, at April 30, 2000.
There was no outstanding balance under the revolving line of credit as of April
30, 2000.


F-16


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

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

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



As of April 30,
-----------------
2000 1999
-------- -------

Unsecured subordinated notes payable to shareholders due
through 2004, bearing interest at various rates up to
8.75%................................................... $ 31,664 $ 3,716
Term loan due to bank on December 31, 2000 bearing
interest at various rates ranging from 3.9% to 5.2%..... 1,399
-------- -------
Total debt............................................. 33,063 3,716
Less: current maturities of long-term debt............... (16,147) (1,356)
-------- -------
Long-term debt......................................... $ 16,916 $ 2,360
======== =======


The Company issued notes payable to shareholders of $30,439 related to the
acquisition of businesses in fiscal 2000 and $1,620 for the purchase of common
stock in fiscal 1999.

Annual maturities of long-term debt for the five fiscal years subsequent to
April 30, 2000 are: $16,147 in 2001, $8,806 in 2002, $8,028 in 2003 and $82 in
2004.

The Company also has outstanding borrowings against the CSV of COLI
contracts of $44,928 and $42,655 at April 30, 2000 and 1999, 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).

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,
-------------------------
2000 1999 1998
------- ------- -------

Current income taxes:
Federal.......................................... $12,419 $ 1,474 $ 2,953
State............................................ 4,583 407 1,022
------- ------- -------
Total........................................... 17,002 1,881 3,975
------- ------- -------
Deferred income taxes:
Federal.......................................... (1,097) (2,248) (3,458)
State............................................ (366) (750) (1,154)
------- ------- -------
Total........................................... (1,463) (2,998) (4,612)
------- ------- -------
Foreign income taxes.............................. 8,587 10,143 7,324
------- ------- -------
Provision for income taxes...................... $24,126 $ 9,026 $ 6,687
======= ======= =======


F-17


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

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


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,
-------------------------
2000 1999 1998
------- -------- -------

Domestic......................................... $36,589 $(80,544) $(4,635)
Foreign.......................................... 21,182 25,704 18,591
------- -------- -------
Income (loss) before provision for income taxes
and minority interest......................... $57,771 $(54,840) $13,956
======= ======== =======


The Company has not provided for deferred income taxes on undistributed
earnings of foreign subsidiaries considered permanently invested in these
entities.

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,
-------------------
2000 1999 1998
---- ---- -----

U.S. federal statutory tax
rate..................... 35.0 % 35.0 % 35.0 %
Foreign source dividend
income................... 9.1 12.7 30.6
Foreign income tax credits
utilized................. (7.3) (8.5) (21.5)
Income subject to higher
(lower) foreign tax
rates.................... 2.1 5.3 5.9
COLI CSV increase, net.... (3.0) (7.0) (5.4)
Other..................... 5.9 4.5 3.3
---- ---- -----
Effective tax rate...... 41.8 % 42.0 % 47.9 %
==== ==== =====


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



As of April 30,
----------------
2000 1999
------- -------

Deferred income tax assets (liabilities):
Deferred compensation..................................... $15,519 $14,031
Accrued operating expenses................................ 5,390 5,430
Other accrued liabilities................................. (2,170) (1,686)
Property and equipment.................................... 1,332 832
Other (foreign)........................................... 1,533 (425)
------- -------
Deferred income tax asset................................ $21,604 $18,182
======= =======


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

F-18


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

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


11. Business Segments

The Company operates two global business segments in the retained executive
recruitment industry. These business segments, executive recruitment and
Futurestep, are distinguished primarily by the method used to identify
candidates and the candidates' level of compensation. The executive
recruitment business segment is managed by geographic regions led by a
regional president and Futurestep's worldwide operations are managed by a
Chief Executive Officer (CEO). A summary of the Company's operations by
business segment and geographic area follows:



Fiscal Year Ended April
30,
--------------------------
2000 1999 1998
-------- -------- --------

Revenue:
Executive recruitment:
North America.................................. $271,313 $185,525 $154,903
Europe......................................... 112,045 101,515 81,543
Asia/Pacific................................... 48,603 35,024 34,411
Latin America, including Mexico................ 30,488 29,673 30,097
Futurestep....................................... 38,294 4,338
-------- -------- --------
Total revenue................................ $500,743 $356,075 $300,954
======== ======== ========




Fiscal Year Ended April
30,
----------------------------
2000 1999 1998
-------- -------- --------

Operating profit (loss):
Executive recruitment:
North America................................ $ 52,783 $(56,394) $ 10,138
Europe....................................... 13,034 3,817 (540)
Asia/Pacific................................. 5,174 2,684 620
Latin America, including Mexico.............. 7,692 7,916 5,973
Futurestep..................................... (23,878) (12,578) (824)
-------- -------- --------
Total operating profit (loss).............. $ 54,805 $(54,555) $ 15,367
======== ======== ========

As of April 30,
----------------------------
2000 1999 1998
-------- -------- --------

Identifiable assets:
Executive recruitment:
North America (1)............................ $285,474 $208,627 $100,842
Europe....................................... 91,790 54,910 40,600
Asia/Pacific................................. 33,376 20,209 18,529
Latin America, including Mexico.............. 18,631 17,104 16,400
Futurestep..................................... 46,723 3,274
-------- -------- --------
Total identifiable assets.................. $475,994 $304,124 $176,371
======== ======== ========

- --------
(1) North America executive recruitment includes the Corporate office
identifiable assets of $144,739, $144,771 and $34,162 in fiscal 2000, 1999
and 1998, respectively.


F-19


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

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

A summary of Futurestep's revenue by geographic area follows:



Fiscal Year
Ended April
30,
--------------
2000 1999
------- ------

Revenue:
North America............................................... $20,595 $4,338
Europe...................................................... 15,445
Asia/Pacific................................................ 2,254
------- ------
Total revenue............................................. $38,294 $4,338
======= ======


Futurestep's identifiable assets at April 30, 2000 by geographic area were:
$9,856 in North America, $33,548 in Europe and $3,319 in Asia/Pacific.

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
revenue during fiscal 2000, 1999 or 1998.

12. Acquisitions and Divestitures

During fiscal 2000, the Company completed a total of ten acquisitions: seven
executive recruitment firms in North America, including three in Canada; one in
Europe; and one in Asia/Pacific. The aggregate purchase price of these
acquisitions was $84.5 million, consisting of the Company's stock valued at
$21.8 million, notes payable of $31.8 million, cash of $22.8 million and
accrued liabilities of $8.1 million. In addition, Futurestep completed the
acquisition of the executive search and selection business of the PA Consulting
Group with operations in Europe and Asia/Pacific for $19.8 million payable in
cash and $1.7 million payable as deferred compensation over a three year
period. These acquisitions were accounted for under the purchase method and
resulted in $98.1 million of intangible assets, primarily goodwill. The
operating results of these entities, including executive recruitment and
Futurestep revenue of $24.2 million and $7.3 million, respectively, have been
included in the consolidated financial statements from their acquisition dates.

Effective in May 1998, the Company acquired Didier, Vuchot & Associates in
France for approximately six million dollars 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 when earned.

Effective in June 1998, the Company acquired all of the outstanding shares
of Ray and Berndston SA in Switzerland for $3.6 million in cash, notes and
common stock of Korn/Ferry International. 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.

Effective in February 1996, the Company divested its 47% interest in
Strategic Compensation Associates for a cash payment of $357 and notes
receivable of $3,215. The outstanding balance of notes receivable at April 30,
1998 of $2,308 was paid in full in December 1998.

F-20


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

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


The following selected unaudited pro forma information is provided to
present a summary of the combined results of the Company and the ten and two
acquisitions for fiscal years 2000 and 1999, respectively, as if the
acquisitions had occurred as of the beginning of the respective periods,
giving effect to these purchases. The pro forma data is presented for
informational purposes only and may not necessarily reflect the results of
operations of the Company had these companies operated as part of the Company
for each of the periods presented, nor are they necessarily indicative of the
results of future operations.


Fiscal Year
Ended April 30,
-----------------
2000 1999
-------- --------

Revenue................................................... $563,443 $442,695
Net income (loss)......................................... 33,700 (64,274)
Earnings (loss) per share.................................
Basic................................................... 0.92 (2.22)
Diluted................................................. 0.88 (2.22)


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 2000, 1999 and 1998 amounted to $23,050, $13,026 and $12,948,
respectively. At April 30, 2000, minimum future commitments under
noncancelable operating leases with lease terms in excess of one year
aggregated $83,833 payable as follows: $18,466 in 2001, $16,941 in 2002,
$13,912 in 2003, $9,359 in 2004, $7,501 in 2005 and $17,654 thereafter. As of
April 30, 2000, the Company has outstanding standby letters of credit of
$2,072 in connection with office leases.

In connection with a three year contract effective June 1998, for an
exclusive alliance with The Wall Street Journal, Futurestep purchased
approximately $3.9 and $3.0 million of advertising in fiscal 2000 and 1999,
respectively. Future commitments to purchase advertising amount to $4.0
million through June 2001. In addition, the Company and Futurestep have agreed
not to promote competing services during the initial term of the contract.

Effective April and May 1999, the Company entered into employment
agreements with three executive officers for initial terms through April 30,
2002 that provide certain benefits if these executives are terminated or
resign under certain limited circumstances. In March 2000, the Company entered
into an employment agreement with an executive officer for an initial term
through April 30, 2002. The maximum amount payable under these agreements is
$6.7 million and $11.4 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.

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 of Korn/Ferry
International.

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 Korn/Ferry International:

We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Korn/Ferry
International and Subsidiaries (the "Company") included in this Form 10-K
report and have issued our report thereon dated June 13, 2000. 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 and Subsidiaries
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 13, 2000

F-22


SCHEDULE II
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS



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

Allowance for Doubtful
Accounts
Year Ended April 30,
2000................. $7,847 $11,858 $7,167 $12,538
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

Reserve for Severance
and Costs Under
Corporate Restructuring
Program
Year Ended April 30,
2000................. 1,549 1,549
Year Ended April 30,
1999................. 89,202 87,653 1,549

Reserve for Acquired
Termination Costs
Year Ended April 30,
2000................. 2,520 2,520


F-23