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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, 2001

[_] 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) 556-8553
(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, par value $0.01 per share 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 26, 2001
was 37,501,527 shares. The aggregate market value of the Registrant's common
stock held by non-affiliates of the Registrant on July 26, 2001 (assuming that
the Registrant's only affiliates are its officers, directors and 10% or
greater stockholders) was approximately $546,143,922, based upon the closing
market price of $15.69 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 2001 Annual
Meeting of Stockholders scheduled to be held on September 25, 2001 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, 2001



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...................................................... 12

PART II.

Item 5.Market for Registrant's Common Equity and Related Stockholder
Matters................................................................ 13

Item 6.Selected Financial Data.......................................... 14

Item 7.Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 15

Item 7A.Quantitative and Qualitative Disclosures About Market Risk...... 24

Item 8.Financial Statements and Supplementary Data...................... 25

Item 9.Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................... 25

PART III.

Item 10.Directors and Executive Officers of the Registrant.............. 26

Item 11.Executive Compensation.......................................... 26

Item 12.Security Ownership of Certain Beneficial Owners and Management.. 26

Item 13.Certain Relationships and Related Transactions.................. 26

PART IV.

Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-
K...................................................................... 27
(a)1. Index to Financial Statements
2. Financial Statement 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

Business Overview

Korn/Ferry International, or KFY, is the world's preeminent recruitment
firm with the broadest global presence in the recruitment industry. In 2001,
we were named the "World's Largest Executive Search Firm" by Executive
Recruiter News and the "Number One Executive Search Firm in the U.S. and
Worldwide" by Hunt-Scanlon Corporation. Since 1969 when we opened our first
office in Los Angeles, we have grown to 79 cities across 41 countries. In
1998, we extended our market reach into the middle-management recruitment
market with the introduction of Futurestep, our technology based recruitment
service. In 2000, we expanded our technology based services to enter the
college recruitment and recruitment software markets. As of April 30, 2001, we
have over 2,700 employees, including 574 executive recruitment and 102
Futurestep consultants who are primarily responsible for client services. Our
clients include 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 81% of the executive recruitment assignments we
performed in fiscal 2001 were on behalf of clients for whom we had conducted
multiple assignments over the last three fiscal years.

We provide the following recruitment services:

Executive Recruitment: Executive recruitment, our core business, focuses on
board level, chief executive and other senior executive positions for clients
predominantly in the advanced technology, consumer goods, industrial,
financial services, healthcare and professional services industries. The
relationships that we develop through this business are valuable for
introducing our other service offerings to clients.

Middle-Management Recruitment: Futurestep, our leading on-line middle-
management recruitment business, leverages technology, assessment tools, our
brand name and search expertise combined with the reach of the Internet to
provide a wide range of technology based recruitment services. At April 30,
2001, the Futurestep database contained over 970,000 candidates.

Other Technology Based Services: We continue to invest in technology to
extend our market position and bring a broader set of capabilities and
services to new and existing clients.

. In May 2000, we invested in Jungle Interactive Media, a company that
provides Internet based information, entertainment, products and
services to targeted groups within higher education, such as graduate
school candidates, in order to facilitate student interaction with
schools, recruiters, advertisers and other students.

. In July 2000, we acquired JobDirect, a leading on-line college
recruitment company that provides technology outsourcing tools to our
clients that enable them to track college graduates throughout the
entire recruitment process.

. In August 2000, we made a strategic investment in Webhire, a leading
business services and technology solutions provider in the Internet
recruitment marketplace.

Industry Overview

We have historically operated in the executive search market and have
aggressively used technology to expand our presence into the middle-management
search and college recruitment markets.

Executive Recruitment: The executive recruitment market concentrates on
searches for positions with annual compensation of $150,000 or more, which
generally involve board level, chief executive and other senior executive
positions. The industry is comprised of retained and contingency search firms.
Retained firms typically charge a fee

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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 firms generally work on a non-exclusive basis and are compensated
only upon successfully placing a recommended candidate.

Middle-Management Recruitment: The middle-management recruitment market
focuses on searches for middle and lower management positions with annual
compensation of $75,000 to $150,000. Firms in this market usually operate on a
contingency basis. This market has undergone a fundamental transformation over
the past two years towards a technology based environment. Technology and the
Internet have made identifying, targeting and reaching potential candidates
much quicker. This market also benefits from the efficiencies of maintaining
large databases of qualified candidates, employing advanced assessment
software, and reducing placement times. As a result, technology enabled on-
line recruiting services are becoming more important.

College Recruitment: The college recruitment market focuses on placing
undergraduate and graduate students in entry-level positions with employers.
Most of this market is characterized by the hiring of large numbers, often
hundreds or thousands, of students by Fortune 3000 corporations and other
large organizations. Communicating with students, coordinating with career
offices and managing the process are critical to successful recruitment in
this market.

In addition to the executive, middle-management and college recruitment
markets, we believe that technology based recruitment and human resource
management software tools address a significant and largely undeveloped
market. As the labor markets continue to evolve, we believe that companies
will increasingly use technology to become more effective in recruiting and
hiring employees and in lowering their overall recruitment costs.

Industry Trends

There are and will be times, such as the present, when the recruitment
industry is adversely affected by the worldwide economic conditions. However,
we believe that a number of favorable trends will contribute to the long-term
growth of the recruitment industry:

One-Stop Shopping of Multiple Service Offerings--In choosing their
recruitment and human resource service providers, companies are increasingly
looking to those companies who can address all of their recruitment needs,
from high-end executive search to college and intern recruiting. Clients,
therefore, expect a broader range of service offerings to be performed by
fewer providers, or by a one-stop service provider of multiple service
offerings to achieve lower cost through economies of scale. Since companies
view human capital as a key element of their success, we believe they will
seek to partner with companies who not only find and assess candidates and
employees but also manage the movement of this strategic resource.

Increased Use of Advanced Technology--The emphasis of the recruitment
business is shifting from candidate identification to candidate assessment and
placement. The emphasis on assessment and placement is being driven by
enhancements in technology as it has become easier to identify candidates in
on-line and off-line databases. In addition, information technology and the
Internet are creating efficient ways to manage the recruitment process and
identify, recruit and assess candidates. At the same time, new barriers to
entry into the executive recruitment industry are being created as investments
in information technology become critical to serve clients' needs globally.

Increased Outsourcing of Recruitment Functions--Recent economic factors are
requiring companies to focus on core competencies and to outsource recruitment
functions to providers who can efficiently provide high quality recruitment
services. The current shortage of qualified management-level candidates has
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 industry and specific geographic market
information

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. Access leading search technology software

. Maintain management focus on strategic business issues

Globalization of Business--As the world markets continue to integrate into
one global economy, more companies are required to supplement internal talent
with experienced senior executives who can operate effectively in a global
economy. The rapidly changing competitive environment increasingly challenges
multinational and local companies to identify qualified executives with the
right combination of skills, experience and cultural compatibility. Clients
are increasingly turning only to those firms that have the necessary proven
expertise and intimate knowledge of key industries and local markets that
enables them to address their clients' global recruitment needs.

Other Industry Trends--In addition to the industry trends mentioned above,
we believe the following trends will also contribute to the growth of the
recruitment industry:

. Increasing demand for managers with broader qualifications

. Increasing desire by candidates to more actively manage their careers

. Aging baby-boom generation resulting in a smaller pool of available
candidates

. Shortening executive management tenures and more frequent job changes

Growth Strategy

Our objective is to expand our position as the preeminent global
recruitment firm. The principal elements of our strategy include:

Expanding Our Market Reach and Presence Through Technology and Assessment
Solutions

An advanced technology infrastructure has become a critical element of the
recruitment business. We continue to invest in Futurestep and have invested in
other recruitment technology solutions addressing the college and recruitment
software markets. In the executive recruitment market, we have invested
approximately $55 million over the past three fiscal years to develop a state-
of-the-art technology infrastructure, including a worldwide network and
Searcher, our proprietary executive recruitment software. In June 2000, we
introduced e-Korn/Ferry, our executive search Internet tool that allows
executives to submit relevant employment information to us. This feature
efficiently makes candidates accessible to our consultants, and over 57,000
candidates have participated in this program to date. We will continue to
invest in technology, including our exclusive candidate assessment tools, in
order to strengthen our relationships with our existing clients, attract new
clients, expand into new markets and position ourselves to gain a competitive
advantage in marketing complementary services.

Leveraging Our Leadership and Brand Name in Executive Recruitment

We believe that there are significant opportunities to extend our market
share and develop new client relationships by aggressively marketing our
proven global recruitment expertise. Our leadership in executive recruitment
enables us to grow our business by increasing the number of recruitment
assignments we handle for existing clients in all areas of recruitment. We
also believe that our strong relationships and well-recognized brand name will
enable us to introduce new services to our existing clients and potential new
clients and that our brand name will allow us to build communities of
candidates to directly market services, such as career management, to
executives and other candidates who are actively seeking to manage their
careers.

Pursuing Strategic Acquisitions and Investments

We view strategic acquisitions and investments as a key component of our
long-term growth strategy and will actively pursue opportunities that enhance
and expand our technology position, consultancy expertise and specialization,
geographic presence, client relationships and databases.

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In fiscal 2001, we acquired Westgate Group and JobDirect and made
investments in Webhire and Jungle Interactive Media. 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 significantly expanded the international footprint
of Futurestep through the acquisition of a search and selection business in
the United Kingdom, with a presence in 18 countries in Europe and
Asia/Pacific.

Our Services and Organization

We address the global recruitment needs of our clients at all levels of
management by offering the following services:

Executive Recruitment Services

Overview. Our executive recruitment services are typically used to fill
executive-level positions, such as board of directors, chief executive
officers, chief financial officers and other senior executive officers. Once
we are retained by a client to 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
2001, we performed over 8,600 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 direction 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
resources, 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 resources, and our
databases that contain profiles of over 1,800,000 executives, including those
obtained through e-Korn/Ferry, 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.

Industry Specialization. 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 their 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.

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Percentage of Fiscal 2001 Assignments by Industry Specialization



Advanced Technology...................................................... 22%
Industrial............................................................... 17%
Financial Services/Investments........................................... 17%
Consumer Goods........................................................... 13%
Healthcare (Products and Providers)...................................... 9%
Professional Services.................................................... 7%
Entertainment & Media Practice........................................... 4%
Governmental and Not-for-profit.......................................... 4%
Retail................................................................... 4%
Energy & Utilities....................................................... 3%


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 board of directors
to meet the growing demands for accountability and more effective board
performance. The shortage of experienced directors, the tightening of
governance policies and the desire on the part of companies to broaden their
board bases are raising the standards required to identify and recruit
directors with the needed skills. 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, adding both a renown firm franchise and new key
management to our board services practice. Members of functional groups are
located throughout our regions and across our specialty practice groups.

Percentage of Fiscal 2001 Assignments by Functional Expertise



Board Level/CEO/CFO/Senior Executive and General Management.............. 52%
Marketing and Sales...................................................... 22%
Finance and Control...................................................... 8%
Manufacturing/Engineering/Research and Development/Technology............ 7%
Human Resources and Administration....................................... 7%
Information Systems...................................................... 4%


Organization

North America--We opened our first office in Los Angeles in 1969, and
currently have 25 offices throughout the United States and Canada. The North
America region has grown from $125.8 million in revenue in fiscal 1997 to
$343.1 million in fiscal 2001. We have been ranked first in worldwide revenue
among Hunt-Scanlon's top executive recruitment firms based in North America in
March 2001 and believe we currently generate the highest revenue of any
executive recruitment firm. In fiscal 2001, we handled nearly 3,700
assignments in this region, with an average of 293 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 $74.9 million in revenue in fiscal 1997 to $135.3 million in fiscal 2001.
We handled over 2,800 assignments in fiscal 2001 in this region, with an
average of 167 consultants.

Asia/Pacific--We opened our first Asia/Pacific office in Tokyo in 1973, and
have built a 14-office network throughout eleven countries in the region. The
region has grown from $33.5 million in revenue in fiscal 1997 to $54.0 million
in fiscal 2001. We handled over 1,000 assignments in fiscal 2001 in this
region, with an average of

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63 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, 2001, we operated a network of nine offices in seven countries
covering the entire region. The region has grown from $24.9 million in revenue
in fiscal 1997 to $34.6 million in fiscal 2001. We handled over 1,000
assignments in fiscal 2001 in this region, with an average of 36 consultants.

Client Base. Our clients are many of the world's largest and most
prestigious public and private companies, including nearly half of the Fortune
500 companies. In fiscal 2001, approximately 5.8% of our total revenue was
derived from our top ten customers. We have established strong client loyalty;
more than 81% of the executive recruitment assignments we performed in fiscal
2001 were on behalf of clients for whom we had conducted multiple assignments
over the last three fiscal years.

Competition. We are the preeminent global executive recruitment firm. Other
multinational executive recruitment firms include Heidrick & Struggles
International, Inc., and Spencer Stuart & Associates. Although these firms are
our primary competitors, we 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 recognized worldwide. We also believe that our equity
based compensation scheme distinguishes us from many of our competitors and is
important for retaining consultants.

Middle-Management Recruitment Services

Overview. Our Futurestep subsidiary combines our extensive executive
recruitment expertise, our brand name, 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 significantly reduces 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. Our assessment tools 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 to register with
Futurestep, we provide career management feedback on a candidate's salary
potential, the industries and functions for which the candidate is most
qualified and the most compatible corporate culture.

When we receive an assignment from a client, a preliminary list of
candidates is selected from the Futurestep database and the most qualified are
contacted by a Futurestep recruitment consultant for further evaluation. The
consultant schedules a 45-minute to one-hour video or in-person 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 interviews with the candidate, and
advises and consults throughout the negotiation process to structure the final
offer package and position responsibilities.

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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 a Futurestep consultant explicit
permission to release the information to the client.

In June 1998, we entered into a three-year exclusive contract 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 12". The Wall Street Journal is obligated to use reasonable commercial
efforts to offer each employer which advertises positions in The Wall Street
Journal the option of retaining Futurestep's services. The contract with The
Wall Street Journal had an initial term through June 2001 and we are currently
operating under a month-to-month extension of this contract while
renegotiating a new long-term alliance agreement.

In June 2000, we entered into an agreement with the Graduate Management
Admission Council. Futurestep has created a website targeted at future and
current MBA students, and those registering for the GMAT will be given the
opportunity to register with Futurestep at the same time.

In June 2001, we entered into an agreement with Yahoo! Inc. Our goal is to
build the dominant on-line career channel for executives, middle-management,
technology and professional positions earning $75,000 or more. Futurestep and
Korn/Ferry International will be the exclusive sponsors of the executive
center, co-branded with Yahoo!

Client Base. A majority of Futurestep's business is currently sourced
through existing relationships that have been built during KFY's 30 years of
experience in executive recruitment. We believe that this represents only a
portion of the available market and continue to aggressively target and market
prospective and current clients.

Organization. We opened our first Futurestep office in Los Angeles in May
1998. In January 2000, we acquired the ESS business of PA Consulting with
operations in Europe and Asia/Pacific and by April 2000, we had substantially
completed our worldwide rollout of Futurestep. At April 30, 2001, we had a
worldwide network of 29 Futurestep offices: five in North America, 17 in
Europe and seven in Asia/Pacific.

Competition. We believe that there is no competitor that currently competes
directly with all of the services provided by Futurestep. Futurestep competes
for assignments:

. generally, with contingency firms who do not have the same pricing
structure or provide all of the same services;

. in the technology based middle-management recruitment industry, with
firms such as TMP Worldwide; and

. to a lesser extent, with recruitment technology services such as job
boards.

Although technology oriented companies may be drawn to the recruitment
business by their ability to leverage their existing technology, their lack of
a recognized brand name, experienced consultants and global footprint act as
significant barriers to entry.

Other Technology Based Services

College Recruitment Services. In July 2000, we completed the acquisition of
JobDirect, which has allowed us to begin providing outsourced technology
services to our clients for tracking and evaluating college candidates.
JobDirect is an Internet based recruiting company that provides an entry-level
recruiting solution to employers, college career offices and students to
reduce the inefficiencies and costs of entry-level recruiting. JobDirect
maintains contracts with over 400 corporate clients and has established
several significant marketing relationships to develop co-branded and
integrated websites that can be used to extend the Korn/Ferry brand to the
student market. JobDirect has developed a software tool called Resume
Exchange, which is given to college career offices to automate their

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career placement service and create a link between those offices and JobDirect
Internet applications. This proprietary software tool is currently used in
over 400 college career offices.

In May 2000, we invested in Jungle Interactive Media, a company providing
Internet based information, entertainment, products and services to groups
within higher education. Their mission is to facilitate the efficient
interaction of students with schools, recruiters, advertisers and other
students. Jungle creates separate but co-branded websites that target
undergraduate, business, law and medical students and Jungle branded magazines
act as marketing vehicles that drive traffic to these sites. Under a strategic
alliance agreement with Jungle, we are the only recruitment firm to sponsor
Jungle's websites and we have exclusive access among our competitors to
Jungle's resume database.

Recruitment Management Services. In August 2000, we made a strategic
investment in Webhire, a leading business services and technology solutions
provider in the Internet recruitment marketplace. This strategic investment
was undertaken in recognition of the increasing importance to clients of the
need for a corporate human resource application service provider and allows us
to enhance and expand our Internet based services. Webhire designs, markets,
implements and supports Internet and intranet based recruiting solutions to
automate candidate sourcing, Internet job posting and recruitment management
at corporations, organizations, Internet portals and on-line career sites.
Webhire's Internet recruiting software tools, offered on an application
service provider basis, are designed to help employers use the Internet
quickly and cost-effectively to post job openings, collect incoming resumes
into searchable databases, search through external resume pools for potential
candidates and manage the hiring process.

Management Assessment. Our global management assessment practice is growing
rapidly in Europe and we have expanded this service to cover North America and
Latin America in fiscal 2001. This service is directed towards helping
corporate leadership evaluate the individual and collective performance of
their senior management team. This service, which further extends the range of
leadership capital solutions we can offer to clients, is a valuable tool for
the chief executive, board of directors and other senior officers to use to
pursue organizational transformation and top leadership alignment in keeping
with their strategic goals. This service is in direct response to our clients'
needs for an assessment tool to meet the challenges of changing company
relationships and global restructuring and, for venture capital investment
firms, to evaluate the strengths of the leadership team in existing or
prospective portfolio companies. The assessment is performed by consultants
who have years of experience in interviewing and evaluating the most senior
level executives and who understand the relevant business and industry
challenges. With our global network and assessment technology, we are able to
effectively evaluate a company's senior management team.

Technology

Our technology is designed to enhance the functionality, speed and quality
of our information management. It also represents a long-term strategic
initiative and is designed to create competitive advantages and sustained
growth.

Central to our technology infrastructure is the maintenance of
professionally-managed data storage facilities. We currently maintain two
facilities for our executive search databases. The primary facility is located
in Burbank, California and is managed by Qwest. We manage a second facility in
Century City, California. We also maintain a separate data storage facility in
El Segundo, California for Futurestep which is managed by Exodus. Our
professionals use our information technology infrastructure to:

. develop and manage company and candidate profiles

. obtain information from and correspond with candidates

. identify market needs and new business opportunities

. coordinate and implement marketing, communication, financial and
administrative functions throughout our global operations

We use in-house developers to develop much of our technology, including
Searcher, our executive management databases that are accessible and
searchable by all of our consultants. Our technology is designed to be
scaleable and accommodate future growth in our current services, as well as
the addition of new services. Following an acquisition, we either replace the
acquired company's existing systems with ours or enable their systems to
operate with ours.

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Organization

Our executive recruitment business is managed on a geographic basis through
four regions: North America, Europe, Asia/Pacific and Latin America, including
Mexico. Futurestep is managed on a worldwide basis with operations in North
America, Europe and Asia/Pacific. JobDirect is managed domestically through
college career offices from their Stamford, Connecticut headquarters.

Professional Staff and Employees

As of April 30, 2001, we had approximately 2,137 executive recruitment
employees consisting of 350 vice presidents, 224 principals, 355 senior
associates and associates, 345 researchers, 220 corporate professionals and
643 administrative and support staff. Futurestep had 524 employees at April
30, 2001 consisting of 102 consultants and 422 administrative and support
staff. JobDirect employed 60 sales staff and 21 administrative and support
staff at April 30, 2001. We have not been a party to a collective bargaining
agreement and consider our relations with our employees to be good.

In executive search, 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.

The following table provides information relating to each of our business
segments for fiscal 2001:



Operating Number of Number of
Revenue Profit (Loss) Offices as of Consultants as of
(in millions) (in millions) April 30, 2001 April 30, 2001
------------- ------------- -------------- -----------------

Executive Recruitment:
North America......... $343.1 $65.0 25 301
Europe................ 135.3 20.0 27 172
Asia/Pacific.......... 54.0 6.6 14 65
Latin America......... 34.6 8.5 9 36
Futurestep.............. 82.1 (26.0) 29 102
JobDirect............... 4.7 (11.2) 1


See "Notes to the Consolidated Financial Statements, Note 10" for business
segment and geographic area results for the past three fiscal years.

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 and our JobDirect North
America office. As of April 30, 2001, we leased an aggregate of approximately
926,000 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 2001.

11


Executive Officers as of April 30, 2001



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

Richard M. Ferry........ 63 Chair of the Board and Director
Windle B. Priem......... 63 Chief Executive Officer, President and Director
Peter L. Dunn........... 56 Vice Chair, General Counsel and Director
Elizabeth S.C.S.
Murray................. 45 Chief Financial Officer, Treasurer and Executive Vice President
Gary C. Hourihan........ 52 Executive Vice President--Organizational Development
Michael D. Bekins....... 47 Chief Operating Officer and Executive Vice President


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, 2001.

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.

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. He has been a Director of Korn/Ferry International
since 1992 and serves as our General Counsel. 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, 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.

Michael D. Bekins has been the Chief Operating Officer and Executive Vice
President since May 2000. Prior to that, he was the 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.

Effective June 30, 2001, the Board of Directors elected Paul C. Reilly to
the position of Chairman of the Board and Chief Executive Officer. Mr. Reilly
joins Korn/Ferry International from KPMG International, where he was Chief
Executive Officer. Mr. Reilly joined KPMG International in 1987. Upon the
election of Mr. Reilly, Mr. Ferry remained a Director and was named Founder
Chairman and Mr. Priem remained a Director.

12


PART II.

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

Common Stock

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, 2001 High Low
-------------------------------- ------ ------

First Quarter................................................. $36.63 $21.13
Second Quarter................................................ $40.44 $29.69
Third Quarter................................................. $38.00 $16.25
Fourth Quarter................................................ $20.60 $14.90


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

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 26, 2001, the last reported sales price on the New York Stock
Exchange for the common stock was $15.69 per share and there were
approximately 2,400 beneficial holders of the common stock.

Dividends

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. Our
credit facility also contains provisions that may limit our ability to pay
dividends.

Recent Sales of Unregistered Securities

We issued 133,929 shares of common stock in June 2000 to Westgate Group LLC
in connection with the acquisition of the business of that entity. This
issuance was exempt pursuant to Section 4(2) under the Securities Act.

We issued 20,994 shares of common stock in July 2000 to five individuals in
connection with the acquisition of JobDirect.com. These issuances were exempt
pursuant to Section 4(2) under the Securities Act.

We issued 30,800 shares of common stock in July 2000 to three individuals
in Switzerland in connection with the acquisition of an executive recruitment
firm in that country, which closed in fiscal 1999. These issuances were exempt
pursuant to Regulation S under the Securities Act.

We issued 10,076 shares of common stock in February 2001 to four
individuals in Australia in connection with the acquisition of the Australian
business of Amrop International, which closed in fiscal 2000. These issuances
were exempt pursuant to Regulation S under the Securities Act.

We issued 105,672 shares of common stock in April 2001 to three individuals
in France in connection with the acquisition of an executive recruitment firm
in that country, which closed in fiscal 1999. These issuances were exempt
pursuant to Regulation S under the Securities Act.

13


Item 6. Selected Financial Data

The following selected financial data are qualified by reference to, and
should be read together 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, 2001, 2000 and 1999 and the selected balance
sheet data as of April 30, 2001 and 2000 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, 1998 and 1997 and the balance sheet
data as of April 30, 1999, 1998 and 1997 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,
-----------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(in thousands, except per share amounts)

Selected Statement of
Operations Data:
Revenue....................... $653,777 $500,743 $356,075 $300,954 $259,067
Compensation and benefits..... 387,776 298,908 226,568 197,790 166,854
General and administrative
expenses..................... 203,094 147,030 94,860 87,797 74,153
Non-recurring charges (1)..... 89,202
-------- -------- -------- -------- --------
Operating profit (loss)....... 62,907 54,805 (54,555) 15,367 18,060
Interest and other income
(expense).................... (2,608) 2,966 (285) (1,411) (815)
-------- -------- -------- -------- --------
Income (loss) before provision
for income taxes and non-
controlling shareholders'
interest..................... 60,299 57,771 (54,840) 13,956 17,245
Provision for income taxes.... 25,326 24,126 9,026 6,687 6,658
Non-controlling shareholders'
interest..................... 3,960 2,834 2,560 2,025 1,588
-------- -------- -------- -------- --------
Net income (loss)............. $ 31,013 $ 30,811 $(66,426) $ 5,244 $ 8,999
======== ======== ======== ======== ========
Net income (loss) per share:
Basic........................ $ 0.83 $ 0.85 $ (2.37) $ 0.24 $ 0.42
Diluted...................... 0.81 0.82 (2.37) 0.23 0.40
Weighted average common shares
outstanding:
Basic........................ 37,266 36,086 28,086 21,885 21,382
Diluted...................... 38,478 37,680 28,086 23,839 23,481
Other Data:
Revenue by business segment:
Executive recruitment:
North America................ $343,095 $271,313 $185,525 $154,903 $125,767
Europe....................... 135,278 112,045 101,515 81,543 74,891
Asia/Pacific................. 53,977 48,603 35,024 34,411 33,547
Latin America................ 34,662 30,488 29,673 30,097 24,862
Futurestep................... 82,082 38,294 4,338
JobDirect.................... 4,683
Number of offices (at period
end)......................... 105 104 71 71 66
Number of consultants (at
period end).................. 676 595 425 404 334
Number of assignments......... 11,706 9,089 6,771 5,879 4,774
Selected Balance Sheet Data:
Cash and cash equivalents..... $ 88,463 $ 86,975 $113,741 $ 32,358 $ 25,298
Marketable securities,
current...................... 16,397 59,978 21,839
Working capital............... 55,208 83,048 117,922 26,573 20,051
Total assets.................. 500,329 475,994 304,124 176,371 148,405
Total long-term debt.......... 11,842 16,916 2,360 6,151 3,206
Total shareholders' equity and
mandatorily redeemable
stock........................ 270,166 231,224 172,686 58,754 50,812

--------
(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

14


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 and experienced consultants, portability of client relationships,
local political or economic developments in or affecting countries where we
have operations, ability to manage growth and control expenses, 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 and JobDirect, 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 preeminent recruitment firm with the broadest global
presence in the recruitment industry. In 2001, we were named the "World's
Largest Executive Search Firm" by Executive Recruiter News and the "Number One
Executive Search Firm in the U.S. and Worldwide" by Hunt-Scanlon Corporation.
Our services include executive recruitment, middle-management recruitment
(through Futurestep), and other technology based services including services
addressing the college recruitment market. We lead the industry with
approximately 574 executive recruitment consultants and 102 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. Over half of the executive recruitment searches we
performed in fiscal 2001 were for board level, chief executive and other
senior executive positions and our 5,236 clients included nearly half of the
Fortune 500 companies. We have established strong client loyalty; more than
81% of the executive recruitment assignments we performed in fiscal 2001 were
on behalf of clients for whom we had conducted multiple assignments over the
last three fiscal years.

Over the past three fiscal years, we completed twelve acquisitions in
executive recruitment.

. In fiscal 2001, we acquired Westgate, a leading executive recruitment
firm specializing in financial services in the eastern United States.

15


. In fiscal 2000, we completed nine acquisitions. We acquired the
Australian business of Amrop International and Hoffman Herbold &
Partner, a leading German firm based in Frankfurt specializing in high-
end executive recruitment, management audits and board consultancy. In
the United States, we completed four acquisitions: Levy-Kerson, a
leading recruitment firm specializing in the retail/fashion industry;
Pearson, Caldwell and Farnsworth, a leading search firm focused on
senior-level assignments for the financial services industry; Helstrom
Turner & Associates, specializing in retail and e-commerce clients; and
Crist Partners, specializing in board level recruitment assignments for
Fortune 500 companies. 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. that was integrated with our existing office in Toronto,
strengthening our technology and financial services practices and
providing leadership to the Canadian operations.

. In late fiscal 1999, we acquired two European firms significantly
enhancing our presence in France and Switzerland.

We introduced Futurestep, our middle-management recruitment service, in May
1998. 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 and assess cultural compatibility.
In January 2000, we completed the acquisition of the ESS business of PA
Consulting, primarily to provide a European and Asia/Pacific footprint for
Futurestep's international expansion. By April 30, 2000, we had completed the
roll-out of Futurestep across the North America, Europe and Asia/Pacific
regions. As of April 30, 2001, over 970,000 candidates worldwide had completed
a detailed on-line profile.

In fiscal 2001, we expanded our technology based services to enter the
college recruitment and recruitment software markets. We completed the
acquisition of JobDirect, a leading on-line college recruitment company
exclusively servicing clients' requirements for entry-level college graduates
and we acquired a 16.8% interest in Jungle Interactive, a company providing
Internet based information, entertainment, products and services to targeted
groups within higher education. We also purchased a 16% equity investment in
Webhire, the leading business services and technology solutions provider in
the Internet recruitment marketplace.

Through executive recruitment, Futurestep and JobDirect, supported by our
strategic investments in Webhire and Jungle Interactive, we are well
positioned to execute our strategy to provide clients with end-to-end human
capital management solutions.

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,
---------------------------
2001 2000 1999
---- ---- ----

Revenue......................................... 100% 100% 100%
Compensation and benefits....................... 59 60 64
General and administrative expenses............. 31 29 27
Non-recurring charges........................... 25
Operating profit (loss) (1)..................... 10 11 (15)
Net income (loss)............................... 5 6 (19)

--------
(1) For the fiscal years ended April 30, 2001, 2000 and 1999, operating profit
as a percentage of revenue excluding Futurestep, JobDirect and non-
recurring charges is 18%, 17% and 13%, respectively.

16


Revenue

We generate revenue from providing recruitment and related consulting
services in three business segments: executive recruitment (in four geographic
regions), middle-management (through Futurestep) and college recruitment
(through JobDirect). We experienced growth in all of our business segments
from fiscal 1999 through 2001. The following table summarizes our revenue by
business segment 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,
----------------------------------------
2001 2000 1999
------------ ------------ ------------
Dollars % Dollars % Dollars %
-------- --- -------- --- -------- ---
(dollars in thousands)

Revenue
Executive recruitment:
North America..................... $343,095 52% $271,313 54% $185,525 52%
Europe............................ 135,278 21 112,045 22 101,515 29
Asia/Pacific...................... 53,977 8 48,603 10 35,024 10
Latin America..................... 34,662 5 30,488 6 29,673 8
Futurestep......................... 82,082 13 38,294 8 4,338 1
JobDirect.......................... 4,683 1
-------- --- -------- --- -------- ---
Total revenue...................... $653,777 100% $500,743 100% $356,075 100%
======== === ======== === ======== ===


Operating Profit (Loss)

In executive recruitment, compensation and benefits is the largest
component of our operating expenses and consultant bonuses are the largest
component of executive recruitment compensation. Consultant bonuses are
primarily dependent upon revenue billed and collected. As a percentage of
revenue, compensation and benefits has decreased over the past three years due
primarily to benefits realized from the non-recurring charge in fiscal 1999,
primarily in Europe, and a reduction in executive recruitment bonuses as a
percentage of revenue in fiscal 2001.

General and administrative expenses consist of occupancy expenses
associated with our leased premises, information and technology
infrastructure, marketing and other general office expenses. These expenses
have increased as a percentage of revenue over the past three fiscal years
primarily due to increased office costs resulting from the acquisitions in
executive recruitment, the international expansion of Futurestep and the
acquisition of JobDirect.

The following table summarizes our 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 operating profit
generated from our operations in Mexico with Latin America.



Fiscal Year Ended April 30,
--------------------------------------------------
2001 2000 1999
---------------- ---------------- ----------------
Dollars Margin Dollars Margin Dollars Margin
-------- ------ -------- ------ -------- ------
(dollars in thousands)

Operating profit (loss)
(excluding
non-recurring charges
(1))
Executive recruitment:
North America.......... $ 65,080 19.0% $ 52,783 19.5% $ 27,435 14.8%
Europe................. 19,960 14.8 13,034 11.6 8,331 8.2
Asia/Pacific........... 6,632 12.3 5,174 10.6 3,543 10.1
Latin America.......... 8,506 24.5 7,692 25.2 7,916 26.7
Futurestep.............. (26,022) (23,878) (12,578)
JobDirect............... (11,249)
-------- ---- -------- ---- -------- ----
Total operating profit.. $ 62,907 9.6% $ 54,805 10.9% $ 34,647 9.7%
======== ==== ======== ==== ======== ====

--------
(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."

17


Based on the current economic outlook for North America and Europe and
preliminary results, we believe that executive recruitment revenue for the
first quarter of fiscal 2002 will be less than the fourth quarter of fiscal
2001. The impact of the lower revenue on operating profit and operating margin
is not currently determinable and may be impacted by our ability to manage and
eliminate excess costs in the first quarter.

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

Fiscal 2001 Compared to Fiscal 2000

Revenue

Revenue increased $153.1 million, or 31%, to $653.8 million for fiscal 2001
from $500.7 million for fiscal 2000. The increase in revenue was primarily the
result of an 11% increase in the number of executive recruitment engagements,
an 11% increase in the average fee per executive recruitment engagement,
executive recruitment acquisitions in fiscal 2000, an increase in revenue from
Futurestep of $43.8 million compared to the prior year and revenue of $4.7
million from JobDirect in the current year.

Executive Recruitment--In North America, revenue increased $71.8 million,
or 26%, to $343.1 million in fiscal 2001 from $271.3 million in fiscal 2000.
In Europe, revenue increased $23.3 million, or 21%, to $135.3 million in
fiscal 2001 from $112.0 million in the prior fiscal year. Excluding the
negative effects of foreign currency translation into U.S. dollars, European
revenue increased approximately 34% on a constant dollar basis. Revenue growth
in North America and Europe, on a constant dollar basis, was primarily due to
an increase in the number of engagements and the average fee per engagement.
In North America and Europe, revenue from fiscal 2001 acquisitions accounted
for approximately one-third of the percent increase in revenue in North
America and two-thirds of the percent increase in revenue in Europe. The
increase in revenue in Asia/Pacific of $5.4 million, or 11%, to $54.0 million
in fiscal 2001 compared to $48.6 million in fiscal 2000 was due primarily to
an increase in the average fee which more than offset a decline in the number
of engagements. In Latin America, revenue increased $4.2 million, or 14%, to
$34.7 million in fiscal 2001 from $30.5 million in fiscal 2000 due primarily
to an increase in the average fee per engagement.

Futurestep--Revenue increased $43.8 million to $82.1 million in fiscal 2001
from $38.3 million in fiscal 2000. The increase in revenue is primarily driven
by the international expansion of Futurestep in late fiscal 2000. Of the total
increase in revenue, Europe contributed $29.8 million or 68% and Asia/Pacific
contributed $8.1 million or 19%.

JobDirect--Revenue of $4.7 million reflects annual subscription fees from
over 400 corporate clients at April 30, 2001. As of April 30, 2001, over 1.4
million students had registered on the database and over 400 college career
offices were using their service. JobDirect charges corporate clients an
annual fee, payable monthly based on the estimated number of students the
client expects to interview.

Compensation and Benefits

Compensation and benefits expense increased $88.9 million, or 30%, to
$387.8 million in fiscal 2001 from $298.9 million in fiscal 2000, primarily
due to an increase in the number of executive recruitment consultants, an
increase of $30.6 million related primarily to the international expansion of
Futurestep in late fiscal 2000 and $6.4 million from the acquisition of
JobDirect in the current fiscal year. Executive recruitment compensation and
benefits costs increased $51.9 million in the current fiscal year compared to
the prior fiscal year. This increase reflects a 28% increase in the average
number of consultants for fiscal 2001 over fiscal 2000 and a 10% reduction in
our workforce in the last half of fiscal 2001 due primarily to a decline in
revenue related to the slow down in the United States economy during this
period. On a comparable basis, excluding Futurestep and JobDirect,
compensation and benefits expense as a percentage of revenue decreased to
57.8% in fiscal 2001 from 59.6% in fiscal 2000 due primarily to a decrease in
executive recruitment bonuses as a percentage of revenue.

General and Administrative Expenses

General and administrative expenses increased $56.1 million, or 38%,
including JobDirect expenses of $9.5 million in the current fiscal year to
$203.1 million in fiscal 2001 from $147.0 million in fiscal 2000. In executive

18


recruitment, general and administrative expenses increased $31.2 million or
29% due primarily to additional costs related to an increase in our leased
premises resulting from acquisitions in North America and Europe. Futurestep
general and administrative expenses increased $15.3 million or 39%, mainly due
to office costs and professional fees primarily related to the international
expansion in late fiscal 2000. As a percentage of revenue, general and
administrative expenses, excluding Futurestep and JobDirect related expenses,
increased to 24.6% in fiscal 2001 from 23.4% in fiscal 2000 reflecting these
additional costs.

Operating Profit

Operating profit increased $8.1 million in the current fiscal year, to
$62.9 million, or 9.6% of revenue, from $54.8 million, or 10.9% of revenue, in
the prior fiscal year. Excluding the Futurestep losses of $26.0 million and
JobDirect losses of $11.2 million in fiscal 2001 and Futurestep losses of
$23.9 million in fiscal 2000, operating profit for the current fiscal year
increased $21.5 million, or 27% to $100.2 million compared to $78.7 million in
the prior fiscal year. Operating profit was 18% and 17% as a percentage of
revenue for the fiscal years ended 2001 and 2000, respectively. The increased
margin is driven primarily by our operations in Europe and Asia/Pacific and
reflects the increase in revenue and a decline in general and administrative
expense as a percentage of revenue relative to the prior fiscal year and a
decline in compensation and benefits expense as a percentage of revenue in
Europe compared to the prior fiscal year. The percentage of operating profit
contributed by each region within executive recruitment remained relatively
constant in fiscal 2001 compared to the last fiscal year.

Interest Income and Other Income, Net

Interest income and other income, net includes interest income of $4.8
million and $6.7 million for fiscal 2001 and 2000, respectively. The decrease
in interest income of $1.9 million is due primarily to lower average cash and
marketable securities balances compared to the prior year. The decrease in
other income is due to losses on the disposal of property of $0.7 million in
fiscal 2001.

Interest Expense

Interest expense increased $3.0 million in the current fiscal year, to $7.4
million from $4.4 million in the prior fiscal year, primarily due to
borrowings under the line of credit associated with acquisitions during the
first quarter of fiscal 2001 and to an increase in notes payable to
shareholders resulting from acquisitions in the fourth quarter of fiscal 2000.

Provision for Income Taxes

The provision for income taxes increased $1.2 million to $25.3 million in
fiscal 2001 from $24.1 million in fiscal 2000. The effective tax rate was 42%
and 41.8% for fiscal 2001 and 2000, respectively.

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 $1.2 million to $4.0 million in fiscal 2001
from $2.8 million in fiscal 2000 and reflects the increase in net income
generated by our Mexico subsidiaries in fiscal 2001.

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.

19


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 fee per engagement compared to the prior fiscal
year and revenue from acquisitions in fiscal 2000. 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 fiscal
2000 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 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 fiscal 2000 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 in fiscal 2000,
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 fiscal
2000 increased $31.5 million, or 67% to $78.7 million compared to $47.2
million in fiscal 1999. 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 fiscal 1999. 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 fiscal 2000 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 both fiscal years. The Latin
America region contribution decreased to 10% for fiscal 2000 from 17% in the
prior fiscal year due primarily to the increased contribution of operating
profit by North America in fiscal 2000.

20


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.

Liquidity and Capital Resources

We finance operating expenditures primarily through cash flows from
operations. To provide additional liquidity, we maintain a $100 million credit
facility with Bank of America. The credit facility is a revolving facility
that matures on November 2, 2002 and includes a standby letter of credit
subfacility. Borrowings under the line of credit bear interest on a sliding
scale based on a leverage ratio. We have the option of borrowing using either
LIBOR or the higher of the bank's prime lending rate or the Federal Funds rate
plus 0.5%. The financial covenants include a minimum fixed charge coverage
ratio, a maximum leverage ratio, a quick ratio and other customary events of
default. As of April 30, 2001 and 2000, we had no outstanding borrowings under
the revolving credit facility. In July 2001, we borrowed $52.0 million on the
line of credit to partially fund fiscal 2001 bonus payments, primarily in
North America.

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



As of April 30,
------------------------
2001 2000 1999
------- ------- --------
(in thousands)

Cash and cash equivalents(1)....................... $88,463 $86,975 $113,741
Working capital(1)................................. 55,208 83,048 117,922
Total long-term debt, net of current maturities.... 11,842 16,916 2,360
Borrowings under life insurance policies........... 47,925 44,928 42,655

--------
(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."

The decrease in working capital of $27.8 million, or 34%, in fiscal 2001
compared to the prior fiscal year is due primarily to the sale of marketable
securities. The decrease in working capital of $34.9 million, or 30%, in
fiscal 2000 compared to fiscal 1999 reflects an increase in notes payable of
$14.8 million and accrued liabilities of $78.7 million partially offset by an
increase in accounts receivable of $38.4 million and total cash and marketable
securities of $11.4 million.

Cash provided by operating activities was $63.4 million, $74.5 million and
$38.7 million for fiscal 2001, 2000 and 1999, respectively. Operating cash
generated in fiscal 2001 compared to the prior fiscal year decreased $11.1
million. The most significant change in operating cash flows was a decrease in
cash provided by accounts payable and accrued liabilities of $80.3 million in
the current fiscal year. This decrease is due to bonus expense and the
resulting accrued liabilities and reflects an increase in bonus expense of $43
million, or 70%, in fiscal 2000 compared to fiscal 1999

21


while bonus expense in fiscal 2001 compared to fiscal 2000 remained fairly
constant. This increase was offset by a decrease in cash used by accounts
receivable and income taxes of $38.4 million and $6.2 million, respectively,
and an increase in non-cash charges to income, primarily depreciation,
amortization and bad debt expense of $26.7 million compared to last year.

The $35.8 million increase in operating cash flow in fiscal 2000 compared
to fiscal 1999 was due primarily to an increase in net income of $13.3 million
excluding the non-recurring charges, 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 also reflects an increase in cash used
by accounts receivable of $42.5 million offset by an increase in cash provided
by accounts payable and accrued liabilities of $50.2 million due primarily to
an increase in bonus expense in fiscal 2000.

Cash used in investing activities was $55.8 million, $107.4 million and
$47.8 million for fiscal years ended April 30, 2001, 2000 and 1999,
respectively. In the current year, cash used in investing activities included
$44.5 million for business acquisitions and $12.6 million for the purchase of
equity investments in Jungle Interactive and Webhire compared to $42.9 million
and $1.3 million for business acquisitions in fiscal 2000 and 1999,
respectively. Excluded from cash flows is a non-cash charge to other
comprehensive income of $3.0 million, representing the unrealized loss, net of
tax, on our investment in Webhire. This unrealized loss was due to a temporary
decline in the market price per share from the $2.35 investment price to $0.85
at April 30, 2001. Net sales of marketable securities were $44.7 million in
the current fiscal year compared to purchases of $31.1 million in the prior
year.

Capital expenditures totaled approximately $34.0 million, $22.9 million and
$8.1 million for fiscal 2001, 2000 and 1999, respectively. These expenditures
consisted primarily of systems hardware and software costs, upgrades to
information systems and leasehold improvements. The $11.1 million increase in
capital expenditures in fiscal 2001 over the prior fiscal year, primarily
relates to increased fixed asset spending at Futurestep to support its
worldwide infrastructure and to the installation of a new financial system in
Europe. The $14.8 million increase in capital expenditures from fiscal 1999 to
fiscal 2000 primarily relates to the installation of a new financial system in
the United States.

Cash flows from investing activities also includes 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, net of
benefits received, were $9.5 million, $10.6 million and $12.4 million in
fiscal 2001, 2000 and 1999, respectively. Generally, we borrow against the
cash surrender value of the COLI contracts to partially 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 (used in) or provided by financing activities was ($2.3) million, $8.7
million and $92.9 million in fiscal 2001, 2000 and 1999, respectively. In the
current fiscal year, we made payments of $14.2 million on shareholder
acquisition notes and received proceeds from the issuance of common stock of
$10.3 million, including proceeds from stock options exercised of $5.9
million. During fiscal 2000, we borrowed $3.3 million under COLI contracts and
received proceeds from the issuance of common stock of $8.4 million, including
proceeds from stock options exercised of $6.1 million, offset by $1.5 million
paid to repurchase common stock and make payments on the related notes.

During fiscal 1999, cash provided by financing activities of $92.9 million,
resulted 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 prior 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

22


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 $5.0 million.

Total outstanding borrowings under life insurance policies were $47.9
million, $44.9 million and $42.7 million as of April 30, 2001, 2000 and 1999,
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 2001, we hired a new Chief Executive Officer, Paul Reilly. We
entered into an employment agreement with Mr. Reilly with terms similar to our
existing contracts with our five highest paid executive officers, including
provisions requiring certain payments upon termination without cause. In
addition, we issued 100,000 shares of restricted stock and 450,000 options
with an exercise price of $15.50 per share, of which 300,000 options vest in
equal installments over three years and 150,000 options vest in installments
based on the attainment of certain price levels for KFY stock, ranging from
$28 to $38 per share.

Mr. Reilly is currently reviewing our business operations, investments and
employees in light of current worldwide economic conditions and our financial
results and evaluating our strategy and opportunities to eliminate excess
costs going forward.

Also, in June 2001, we entered into a Service Integration and Promotion
Agreement with Yahoo! Inc. We have joined forces to create a Yahoo!-Careers
Executive Center with the goal of building the dominant on-line career channel
for executives, middle-management, technology and professional positions
earning $75,000 or more. Korn/Ferry and Futurestep will be the exclusive
sponsors of the executive center, co-branded with Yahoo! In connection with
this agreement, we funded $0.6 million at the effective date and committed to
fund $0.3 million quarterly beginning July 1, 2001 through January 1, 2003 to
promote the executive center.

Quarterly Results

The following table sets forth certain unaudited statement of operations
data for the quarters in fiscal 2000 and 2001. 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 2000 Fiscal 2001
----------------------------------- ----------------------------------
July 31 Oct. 31 Jan. 31 April 30 July 31 Oct. 31 Jan. 31 April 30
-------- -------- -------- -------- -------- -------- ------- --------
(in thousands, except per share amounts)

Revenue................. $104,780 $116,322 $122,075 $157,566 $173,623 $173,621 157,171 149,362
Operating profit........ 10,245 11,517 14,611 18,432 18,540 13,588 14,952 15,827
Net income.............. 5,604 6,502 8,285 10,420 10,007 6,108 6,903 7,995
Net income per share
Basic................. 0.16 0.18 0.23 0.29 0.27 0.16 0.18 0.21
Diluted............... 0.15 0.17 0.22 0.27 0.26 0.16 0.18 0.21


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.

23


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. 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.

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

The Financial Accounting Standards Board ("FASB") has finalized new
accounting standards covering business combinations, goodwill and intangible
assets. These new rules published in July 2001, will consist of Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and
SFAS No. 142 "Goodwill and Other Intangible Assets". In conjunction with these
new accounting standards the FASB has issued "Transition Provisions for New
Business Combination Accounting Rules" ("Provisions") that allow non-calendar
year-end companies to cease amortization of goodwill and adopt the new
impairment approach as of the beginning of their fiscal year that starts
during either 2001 or 2002. We are currently evaluating the impact of the new
accounting standards on existing goodwill and other intangible assets. While
the ultimate impact of the new accounting standards has yet to be determined,
we may elect to cease amortization of existing goodwill as early as the first
quarter of fiscal 2002 in accordance with the Provisions. Amortization of
goodwill was $12.2 million, $3.4 million and $1.1 million in fiscal 2001, 2000
and 1999, respectively.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

As a result of its global operating activities, we are exposed to certain
market risks, including foreign currency exchange 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 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 realized any significant translation gains or
losses on transactions involving U.S. dollars and other currencies. This is
primarily due to natural hedges of revenue 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 2001, 2000
and 1999, we recognized foreign currency losses, after income taxes, of $0.5
million, $1.7 million and $0.6 million, respectively, primarily related to our
Europe and Asia/Pacific operations. Realization of translation gains or losses
due to the translation of intercompany payables denominated in U.S. dollars is
mitigated through the timing of repayment of these intercompany borrowings.

24


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, 2001. At April 30, 2001, we had $47.9 million of
borrowings against the cash surrender value of COLI contracts bearing interest
at variable rates payable at least annually and $23.7 million of notes
payable, of which $23.1 million is due to shareholders resulting from business
acquisitions in fiscal 2000 and 2001, at rates ranging from 5.5% to 8.5%, of
which $11.9 million matures in 2002 and $11.8 million matures in 2003. We have
investments in interest bearing securities at market rates with original
maturities ranging from May 1, 2001 through March 14, 2002 and an average
maturity period of less than two months.

Item 8. Financial Statements and Supplementary Data

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

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

None.

25


PART III.

Item 10. Directors and Executive Officers of the Registrant

The information required by this Item will be included under the captions
"The Board of Directors," "Nominees for Director--Class 2002," "Nominees for
Director--Class 2003," and "Nominees for Directors--Class 2004" in our fiscal
2001 Proxy Statement, and is incorporated herein by reference. See also
"Executive Officers of the Registrant" in Part I of this report.

Item 11. Executive Compensation

The information required by this Item will be included under the captions
"Executive Compensation--Summary Compensation Table," "Executive
Compensation--Option Grant Table," "Executive Compensation--Aggregated Option
Exercises and Year-end Option Values" and "Employment Agreements" in our
fiscal 2001 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
2001 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 2001 Proxy
Statement, and is incorporated herein by reference.

26


PART IV.

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

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



Page
----

1. Index to Financial Statements:

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

2. Financial Statement Schedules:

Report of Independent Public Accountants........................... F-24

Schedule II--Valuation and Qualifying Accounts..................... F-25

3. Exhibits:




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

3.1 Certificate of Incorporation of the Company. Filed as Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q, for the fiscal
quarter ended October 31, 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, for the fiscal quarter ended
October 31, 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-3 (No. 333-49286), 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* Amendments to Performance Award Plan.
10.4* Form of U.S. and International Worldwide Executive Benefit
Retirement Plan. Filed as Exhibit 10.3 to the Company's
Registration Statement of Form S-1 (No. 333-61697), effective
February 10, 1999, and incorporated herein by reference.
10.5* 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.
10.6* 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.
10.7* 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.
10.8* Form of U.S. and International Senior Executive Incentive Plan.
Filed as Exhibit 10.7 to the Company's Registration Statement on
Form S-1 (No. 333-61697), effective February 10, 1999, and
incorporated herein by reference.
10.9* 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.
10.10* 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.


27




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

10.11* 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.
10.12* 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.
10.13* Letter Agreement between the Company and Richard M. Ferry dated
January 8, 2001. Filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q, for the fiscal quarter ended
January 31, 2001, and incorporated herein by reference.
10.14* Employment Agreement between the Company and Paul C. Reilly,
dated May 24, 2001.
10.15* 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.
10.16* 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.
10.17* Employment Agreement between the Company and Gary C. Hourihan
effective March 6, 2000. Filed as Exhibit 10.22 to the Company's
Annual Report on Form 10-K, for the fiscal year ended April 30,
2000, and incorporated herein by reference.
10.18* Employment Agreement between the Company and Michael Bekins,
dated May 1, 2000. Filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q, for the fiscal quarter ended
January 31, 2001, and incorporated herein by reference.
10.19* Korn/Ferry International Special Severance Pay Policy, dated
January 1, 2000. Filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q, for the fiscal quarter ended
January 31, 2001, and incorporated herein by reference.
10.20 Loan Agreement dated as of October 31, 2000, by and among the
Company, Bank of America, N.A. and other Lenders named therein.
Filed as Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended October 31, 2000, and
incorporated herein by reference.
10.21 Amendment I, dated as of January 30, 2001, to the Loan
Agreement, dated as of October 31, 2000 by and among the
Company, and Bank of America, N.A. and the other Lenders named
therein. Filed as Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q, for the fiscal quarter ended January 31, 2001, and
incorporated herein by reference.
10.22 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).


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

(b) REPORTS ON FORM 8-K.

Current report event date May 24, 2001 (Item 5 and Item 7) was filed with
the SEC on May 24, 2001.

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/ Paul C. Reilly Chairman of the Board and July 27, 2001
____________________________________ Chief Executive Officer
Paul C. Reilly

/s/ Elizabeth S.C.S. Murray Chief Financial Officer, July 27, 2001
____________________________________ Treasurer And Executive Vice
Elizabeth S.C.S. Murray President (Principal
Financial Officer)

/s/ Donald E. Jordan Senior Vice President of July 27, 2001
____________________________________ Finance (Principal
Donald E. Jordan Accounting Officer)

/s/ James E. Barlett Director July 27, 2001
____________________________________
James E. Barlett

/s/ Frank V. Cahouet Director July 27, 2001
____________________________________
Frank V. Cahouet

/s/ Peter L. Dunn Director July 27, 2001
____________________________________
Peter L. Dunn


29




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


/s/ Richard M. Ferry Director July 27, 2001
____________________________________
Richard M. Ferry

/s/ Timothy K. Friar Director July 27, 2001
____________________________________
Timothy K. Friar

Director
____________________________________
Sakie Fukushima

/s/ Patti S. Hart Director July 27, 2001
____________________________________
Patti S. Hart

Director
____________________________________
Scott E. Kingdom

/s/ Charles D. Miller Director July 27, 2001
____________________________________
Charles D. Miller

/s/ Windle B. Priem Director July 27, 2001
____________________________________
Windle B. Priem

/s/ Gerhard Schulmeyer Director July 26, 2001
____________________________________
Gerhard Schulmeyer

Director
____________________________________
Mark Thompson


30


INDEX TO FINANCIAL STATEMENTS



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

Consolidated Balance Sheets as of April 30, 2001 and 2000............... F-3

Consolidated Statements of Operations for the three years ended April
30, 2001............................................................... F-4

Consolidated Statements of Shareholders' Equity for the three years
ended April 30, 2001................................................... F-5

Consolidated Statements of Cash Flows for the three years ended April
30, 2001............................................................... F-6

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

INDEX TO FINANCIAL STATEMENT SCHEDULE

Report of Independent Public Accountants................................ F-24

Schedule II--Valuation and Qualifying Accounts.......................... F-25


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, 2001 and 2000, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended April 30, 2001. 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 audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of KORN/FERRY INTERNATIONAL
AND SUBSIDIARIES as of April 30, 2001 and 2000, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended April 30, 2001, in conformity with accounting principles
generally accepted in the United States.

/s/ Arthur Andersen LLP

Los Angeles, California
June 11, 2001

F-2


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)



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

ASSETS
------
Cash and cash equivalents.................................. $ 88,463 $ 86,975
Marketable securities...................................... 16,397 59,978
Receivables due from clients, net of allowance for doubtful
accounts of $13,319 and $12,538........................... 91,513 101,506
Other receivables.......................................... 11,299 8,112
Deferred income taxes...................................... 8,821 3,814
Prepaid expenses........................................... 9,909 7,453
-------- --------
Total current assets.................................... 226,402 267,838
-------- --------
Property and equipment:
Computer equipment and software........................... 48,715 32,532
Furniture and fixtures.................................... 24,223 18,175
Leasehold improvements.................................... 23,814 15,304
Automobiles............................................... 1,889 1,793
-------- --------
98,641 67,804
Less: Accumulated depreciation and amortization............ (43,652) (31,992)
-------- --------
Property and equipment, net............................... 54,989 35,812
-------- --------
Cash surrender value of company owned life insurance
policies, net of loans.................................... 54,361 50,632
Marketable securities and other investments................ 6,894 1,129
Deferred income taxes...................................... 24,942 17,790
Goodwill and other intangibles, net of accumulated
amortization of $20,872 and $8,709........................ 128,066 96,643
Other...................................................... 4,675 6,150
-------- --------
Total assets............................................ $500,329 $475,994
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Notes payable and current maturities of long-term debt..... $ 11,881 $ 16,147
Accounts payable........................................... 13,360 11,896
Income taxes payable....................................... 2,728 407
Compensation and related taxes............................. 110,702 117,259
Other accrued liabilities.................................. 32,523 39,081
-------- --------
Total current liabilities............................... 171,194 184,790
Deferred compensation...................................... 41,522 37,483
Long-term debt............................................. 11,842 16,916
Other...................................................... 2,319 2,361
-------- --------
Total liabilities....................................... 226,877 241,550
-------- --------
Non-controlling shareholders' interest..................... 3,286 3,220
-------- --------
Shareholders' equity:
Common stock, $0.01 par value, 150,000 shares authorized,
38,082 and 37,257 shares issued and 37,516 and
36,748 shares outstanding................................ 296,069 283,277
Deficit................................................... (4,602) (35,615)
Accumulated other comprehensive loss...................... (16,598) (7,300)
-------- --------
Shareholders' equity.................................... 274,869 240,362
Less: Notes receivable from shareholders.................. (4,703) (9,138)
-------- --------
Total shareholders' equity.............................. 270,166 231,224
-------- --------
Total liabilities and shareholders' equity.............. $500,329 $475,994
======== ========


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,
--------------------------
2001 2000 1999
-------- -------- --------

Revenue............................................ $653,777 $500,743 $356,075
Compensation and benefits.......................... 387,776 298,908 226,568
General and administrative expenses................ 203,094 147,030 94,860
Non-recurring charges.............................. 89,202
Interest income and other income, net.............. 4,813 7,402 4,178
Interest expense................................... 7,421 4,436 4,463
-------- -------- --------
Income (loss) before provision for income taxes
and non-controlling
shareholders' interest.......................... 60,299 57,771 (54,840)
Provision for income taxes......................... 25,326 24,126 9,026
Non-controlling shareholders' interest............. 3,960 2,834 2,560
-------- -------- --------
Net income (loss)................................ $ 31,013 $ 30,811 $(66,426)
======== ======== ========
Basic earnings (loss) per common share............. $ 0.83 $ 0.85 $ (2.37)
======== ======== ========
Basic weighted average common shares outstanding... 37,266 36,086 28,086
======== ======== ========
Diluted earnings (loss) per common share........... $ 0.81 $ 0.82 $ (2.37)
======== ======== ========
Diluted weighted average common shares
outstanding....................................... 38,478 37,680 28,086
======== ======== ========



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,
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 Loss:
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
Purchase of stock..... (118) (118)
Issuance of stock..... 12,910 12,910
Comprehensive Income:
Net income............ 31,013 31,013 $ 31,013
Foreign currency
translation
adjustments.......... (6,336) (6,336) (6,336)
Unrealized loss on
investment, net of
tax benefit of
$2,145............... (2,962) (2,962) (2,962)
--------
Comprehensive income.... $ 21,715
---- -------- -------- -------- -------- -------- ========
Balance as of April 30,
2001................... $296,069 $ (4,602) $(16,598) $274,869
==== ======== ======== ======== ======== ========


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,
-----------------------------
2001 2000 1999
-------- --------- --------

Cash from operating activities:
Net income (loss)............................. $ 31,013 $ 30,811 $(66,426)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation................................. 14,827 9,975 8,090
Amortization of goodwill and intangibles..... 12,163 3,358 1,169
Amortization of note payable discount........ 724 269
Loss on disposition of property and
equipment................................... 651
Provision for doubtful accounts.............. 22,951 11,858 6,128
Cash surrender value (gains) losses and
benefits in excess of premiums paid......... 2,270 (1,371) (5,399)
Deferred income tax benefit.................. (4,220) (1,463) (2,998)
Tax benefit from exercise of stock options... 2,779 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........................ 4,039 5,400 4,560
Receivables.................................. (15,492) (53,859) (11,349)
Prepaid expenses............................. (2,456) (1,717) 529
Income taxes................................. 2,306 (3,869) (3,219)
Accounts payable and accrued liabilities..... (8,809) 71,493 23,249
Non-controlling shareholders' interest and
other, net.................................. 690 800 (316)
-------- --------- --------
Net cash provided by operating activities.. 63,436 74,522 38,662
-------- --------- --------
Cash from investing activities:
Purchase of property and equipment............ (33,962) (22,875) (8,102)
Purchase of marketable securities............. (16,397) (31,050) (30,057)
Sale of marketable securities................. 61,107
Business acquisitions, net of cash acquired... (44,488) (42,882) (1,323)
Premiums on life insurance, net of benefits
received..................................... (9,485) (10,611) (12,421)
Investment in businesses...................... (12,570)
Redemption of guaranteed investment
contracts.................................... 1,746
Sale of interest in affiliates................ 2,308
-------- --------- --------
Net cash used in investing activities...... (55,795) (107,418) (47,849)
-------- --------- --------
Cash from financing activities:
Payment of bank debt.......................... (1,365) (1,000)
Payment of shareholder acquisition notes...... (14,200) (1,555)
Borrowings under life insurance policies...... 3,486 3,324 5,956
Net borrowings on credit line................. (4,000)
Purchase of common and preferred stock and
payment of related notes..................... (533) (1,527) (27,514)
Issuance of common stock and receipts on
shareholders' notes.......................... 10,287 8,427 150,888
Initial public offering related non-recurring
charges...................................... (31,400)
-------- --------- --------
Net cash (used in) provided by financing
activities................................ (2,325) 8,669 92,930
-------- --------- --------
Effect of foreign currency exchange rate changes
on cash flows.................................. (3,828) (2,539) (2,360)
-------- --------- --------
Net increase (decrease) in cash and cash
equivalents.................................... 1,488 (26,766) 81,383
Cash and cash equivalents at beginning of the
period......................................... 86,975 113,741 32,358
-------- --------- --------
Cash and cash equivalents at end of the period.. $ 88,463 $ 86,975 $113,741
======== ========= ========


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, 2001
(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. In addition, college recruitment
services are provided in North America through JobDirect.

Basis of Consolidation and Accounting for Investments

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.

Investments in companies in which KFY does not have a controlling interest,
or an ownership and voting interest so large as to exert significant
influence, are accounted for at market value if the investment is publicly
traded and there are no resale restrictions greater than one year, or if the
investment is not publicly traded, then the investment is accounted for at
cost. Unrealized gains and losses on investments accounted for at market value
are reported net of tax as a component of accumulated other comprehensive
income (loss) until the investment is sold, at which time the realized gain or
loss is included in income. Dividends and other distributions of earnings from
both market-value and cost-method investments are included in income when
declared.

Basis of Presentation

The accounting and reporting policies of the Company conform with
accounting practices generally accepted in the United States and prevailing
practice within the industry.

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 revenue 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, middle-management
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

F-7


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001
(dollars in thousands, except per share amounts)

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 the Company's foreign subsidiaries are
measured in their local currencies. Assets and liabilities are translated into
U.S. dollars at the rates of exchange in effect at the end of each year and
revenue 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 income (loss), were $505, $1,710 and $612 in fiscal
2001, 2000 and 1999, respectively.

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
$7,401, $3,591 and $4,339 in fiscal 2001, 2000 and 1999, respectively. Cash
payments for income taxes, net of refunds, amounted to $28,125, $27,284 and
$14,989 in fiscal 2001, 2000 and 1999, respectively.

Marketable 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 1, 2001 through March 14, 2002 and are classified
as available-for-sale. Upon maturity, the proceeds will be re-invested into
similar short-term, available-for-sale securities. Available-for-sale
securities are reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a component of accumulated other
comprehensive income (loss). At April 30, 2001, 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, 2001 2000
-------------------- -----------------
Current Current Long-term
-------------------- ------- ---------

U.S. Treasury and government
securities........................ $ 1,996
Short term municipals.............. $13,450 41,150
Municipals auction preferred....... 2,000 5,000
Corporate auction preferred........ 5,400
Certificates of deposit............ 947 3,998
Commercial paper................... 1,506
Asset-backed securities............ 928 $1,129
------- ------- ------
Marketable securities............ $16,397 $59,978 $1,129
======= ======= ======


The certificates of deposit as of April 30, 2001 were purchased in November
2000 to serve as collateral for the letters of credit issued under the
Company's former line of credit. The maturity dates of the certificates of
deposit

F-8


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001
(dollars in thousands, except per share amounts)

correspond with the expiration dates of the letters of credit. The final
certificate of deposit maturity date under this arrangement is March 2002.
Certificates of deposit at April 30, 2000 were not related to letters of
credit.

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
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. The fair value of notes receivable from
shareholders based on discounting the estimated future cash flows using a
current market rate approximates the carrying 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 change 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 7).

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. The Company has not
recorded any charges against income for impairment based on these evaluations.

New Accounting Pronouncements

The Financial Accounting Standards Board ("FASB") has finalized new
accounting standards covering business combinations, goodwill and intangible
assets. These new rules published in July 2001, will consist of Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and
SFAS No. 142 "Goodwill and

F-9


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001
(dollars in thousands, except per share amounts)

Other Intangible Assets". In conjunction with these new accounting standards
the FASB has issued "Transition Provisions for New Business Combination
Accounting Rules" ("Provisions") that allow non-calendar year-end companies to
cease amortization of goodwill and adopt the new impairment approach as of the
beginning of their fiscal year that starts during either 2001 or 2002. The
Company is currently evaluating the impact of the new accounting standards on
existing goodwill and other intangible assets. While the ultimate impact of
the new accounting standards has yet to be determined, the Company may elect
to cease amortization of existing goodwill as early as the first quarter of
fiscal 2002 in accordance with the Provisions. Amortization of goodwill was
$12,163, $3,358 and $1,169 in fiscal 2001, 2000 and 1999, respectively.

2. 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,
-------------------------------------------------------------------------
2001 2000 1999
----------------------- ----------------------- -------------------------
Weighted Per Weighted Per Weighted Per
Average Share Average Share Average Share
Income Shares Amount Income Shares Amount (Loss) Shares Amount
------- -------- ------ ------- -------- ------ -------- -------- ------

Basic EPS
Income (loss) available
to common
shareholders........... $31,013 37,266 $0.83 $30,811 36,086 $0.85 $(66,426) 28,086 $(2.37)
===== ===== ======
Effect of dilutive
securities
Shareholder common stock
purchase commitments... 270 373
Stock options........... 942 1,221
------- ------ ------- ------ -------- ------
Diluted EPS
Income (loss) available
to common shareholders
plus assumed
conversions............ $31,013 38,478 $0.81 $30,811 37,680 $0.82 $(66,426) 28,086 $(2.37)
======= ====== ===== ======= ====== ===== ======== ====== ======


There were no dilutive stock options or common stock purchase commitments
at April 30, 1999 included in the computation of diluted EPS as the exercise
prices were greater than the average market price of common shares outstanding
during the period.

3. 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 of Directors ("the Board") or 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 thirteen 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

F-10


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001
(dollars in thousands, except per share amounts)

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"), 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 cash bonuses, stock options and SARs
have been granted under the Plan in fiscal 1999, 2000 and 2001.

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
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 2,500 shares of common stock when the person takes office and on the
day of each annual shareholders meeting, 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 2001, the Company granted
15,000 stock options to Non-Employee Directors.

F-11


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001
(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 April 30, 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
Granted........................................ 4,125 23.71
Exercised...................................... (429) 13.65
Canceled/forfeited............................. (466) 20.47
----- ------
Outstanding at April 30, 2001.................. 7,059 $20.66
===== ======


In June 2001, the Board approved the issuance of up to 1.5 million
additional options under the Plan with respect to performance during the
fiscal year ended April 30, 2001. These options have a grant date of June 27,
2001 and an exercise price per share equal to the closing market price on the
date of the grant of $16.04.

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,
------------------------
2001 2000 1999
------- ------- --------

Net earnings (loss)
As reported...................................... $31,013 $30,811 $(66,426)
Pro forma........................................ 10,484 22,849 (67,307)
Basic earnings (loss) per share
As reported...................................... 0.83 0.85 (2.37)
Pro forma........................................ 0.28 0.63 (2.40)
Dilutive earnings (loss) per share
As reported...................................... 0.81 0.82 (2.37)
Pro forma........................................ 0.27 0.61 (2.40)



F-12


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001
(dollars in thousands, except per share amounts)

The weighted average fair value of options granted in fiscal 2001, 2000 and
1999 was $16.49, $17.99 and $9.67, respectively. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with a zero dividend rate and the following assumptions:



Fiscal Year Ended April 30,
-------------------------------
2001 2000 1999
--------- --------- ---------

Expected stock volatility................... 64.5% 55.3% 62.4%
Risk-free interest rate..................... 5.37% 6.33% 5.18%
Expected option life (in years)............. 5 to 9 5 to 9 7 to 9


Summary information about the Company's stock options outstanding at April
30, 2001 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 8 7.9 $11.75 6 $11.79
12.60 to
16.80 2,535 6.1 13.76 1,472 13.75
16.80 to
21.00 70 9.5 18.13 5 17.69
21.00 to
25.20 3,223 9.1 22.41 33 22.69
25.20 to
29.40 531 8.4 28.01 51 28.11
29.40 to
33.60 412 8.7 30.30 101 29.78
33.60 to
37.80 259 8.8 35.25 48 35.25
37.80 to
42.00 21 7.1 41.46 6 42.00
-------- ----- --- ------ ----- ------
$ 8.40
to
$42.00 7,059 7.9 $20.66 1,722 $16.00
-------- ----- --- ------ ----- ------


As of April 30, 2001, Futurestep has granted 2,467,459 options and SARs
under its stock compensation plan. All awards have been granted at an estimate
of the fair value on the date of the grant, as determined by the Futurestep
Board of Directors. The maximum number of shares to be awarded under the
Futurestep stock compensation plan is 3,500,000. If all options outstanding as
of April 30, 2001 were exercised, the option holders would own approximately
10.9% of Futurestep.

4. One-time Non-recurring Charges

At the completion of the Company's initial public offering (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 SARs.

F-13


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001
(dollars in thousands, except per share amounts)


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 and $0.7 million was paid in fiscal 1999 and 2000, respectively. 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 and 2001.

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 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.

5. 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 were 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.

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 shares classified as mandatorily redeemable at April
30, 1998, were reclassified to common stock in fiscal 1999.

F-14


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001
(dollars in thousands, except per share amounts)


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. 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 a 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.

In fiscal 1999, the final year of the stock purchase programs, the Company
issued common stock in exchange for notes receivable from shareholders of
$9,262 under the EPP, supplemental EPP and interim EPP. 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. As of April
30, 2001 and 2000, notes receivable from shareholders for common stock
purchases were $3,848 and $7,221, respectively.

6. 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 $3,892, $3,027 and $2,622 for fiscal 2001, 2000 and 1999,
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.

7. 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 presidents 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

F-15


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001
(dollars in thousands, except per share amounts)

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 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, 2001 and 2000, the Company had unrecognized losses related
to these deferred compensation plans of $5,815 and $5,244 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 7.25% and 7.75%
in fiscal 2001 and 2000, respectively.

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



Fiscal Year
Ended April 30,
----------------
2001 2000
------- -------

Benefit obligation at beginning of year.................... $38,586 $34,586
Service cost............................................... 4,061 3,177
Interest cost.............................................. 619 927
Plan participants' contributions........................... 3,093 2,071
Recognized loss due to change in assumption................ 325 436
Benefits paid.............................................. (3,823) (2,611)
------- -------
Benefit obligation at end of fiscal year................... $42,861 $38,586
Less: current portion of benefit obligation................ (1,339) (1,103)
------- -------
Long-term benefit obligation at end of year................ $41,522 $37,483
======= =======


The Company purchased COLI contracts insuring participants and former
participants. The gross CSV of these contracts of $102,286 and $95,560 is
offset by outstanding policy loans of $47,925 and $44,928, on the accompanying
consolidated balance sheets as of April 30, 2001 and 2000, respectively.

F-16


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001
(dollars in thousands, except per share amounts)


Total death benefits payable under COLI contracts were $248,460 and
$257,878 at April 30, 2001 and 2000, respectively. Management intends to use
the future death benefits (if any) 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, 2001, COLI contracts with a net cash surrender value of $46,436 and
death benefits payable of $192,392 were held in trust for these purposes.

8. Notes Payable and Long-Term Debt

At April 30, 2001, the Company maintained a $100.0 million credit facility
with Bank of America. Borrowings under the line of credit bear interest on a
sliding scale based on a leverage ratio and use, at management's discretion,
either LIBOR or the higher of the bank's prime lending rate or the Federal
Funds rate plus 0.5%, which were 7.5% and 5.0%, respectively, at April 30,
2001. The financial covenants include a minimum fixed charge coverage ratio, a
maximum leverage ratio, a quick ratio and other customary events of default.
There was no outstanding balance under the revolving line of credit as of
April 30, 2001.

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



As of April 30,
------------------
2001 2000
-------- --------

Unsecured subordinated notes payable to shareholders due
through 2004,
bearing interest at various rates up to 8.75%.......... $ 23,723 $ 31,664
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............................................ 23,723 33,063
Less: current maturities of long-term debt.............. (11,881) (16,147)
-------- --------
Long-term debt........................................ $ 11,842 $ 16,916
======== ========


The Company issued notes payable to shareholders of $5,000 and $30,439
related to the acquisition of businesses in fiscal 2001 and 2000,
respectively.

Annual maturities of long-term debt subsequent to April 30, 2001 are:
$11,881 in 2002, $11,760 in 2003 and $82 in 2004.

The Company has outstanding borrowings against the CSV of COLI contracts of
$47,925 and $44,928 at April 30, 2001 and 2000, 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 7).

9. 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.

F-17


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001
(dollars in thousands, except per share amounts)


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



Fiscal Year Ended April
30,
-------------------------
2001 2000 1999
------- ------- -------

Current income taxes:
Federal.......................................... $10,499 $12,419 $ 1,474
State............................................ 3,618 4,583 407
------- ------- -------
Total........................................... 14,117 17,002 1,881
------- ------- -------
Deferred income taxes:
Federal.......................................... (4,231) (1,097) (2,248)
State............................................ 11 (366) (750)
------- ------- -------
Total........................................... (4,220) (1,463) (2,998)
------- ------- -------
Foreign income taxes.............................. 15,429 8,587 10,143
------- ------- -------
Provision for income taxes...................... $25,326 $24,126 $ 9,026
======= ======= =======


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,
------------------------
2001 2000 1999
------- ------- --------

Domestic........................................... $24,840 $36,589 $(80,544)
Foreign............................................ 35,459 21,182 25,704
------- ------- --------
Income (loss) before provision for income taxes
and minority interest........................... $60,299 $57,771 $(54,840)
======= ======= ========

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,
----------------
2001 2000 1999
---- ---- ----

U.S. federal statutory tax rate............................ 35.0% 35.0% 35.0%
Foreign source dividend income............................. 11.4 9.1 12.7
Foreign income tax credits utilized........................ (9.8) (7.3) (8.5)
Income subject to net higher foreign tax rates............. 4.7 2.1 5.3
COLI CSV decrease (increase), net.......................... 1.1 (3.0) (7.0)
Nondeductible goodwill amortization........................ 3.6 1.1 0.4
Other...................................................... (4.0) 4.8 4.1
---- ---- ----
Effective tax rate....................................... 42.0% 41.8% 42.0%
==== ==== ====


F-18


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001
(dollars in thousands, except per share amounts)


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



As of April 30,
----------------
2001 2000
------- -------

Deferred income tax assets (liabilities):
Deferred compensation..................................... $15,490 $15,519
Allowance for doubtful accounts........................... 3,319 3,914
Other accrued liabilities................................. (472) (694)
Property and equipment.................................... 2,101 1,332
Loss and credit carryforwards............................. 9,217
Other (foreign)........................................... 4,108 1,533
------- -------
Deferred income tax asset................................ $33,763 $21,604
======= =======


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.

At April 30, 2001, the Company has net operating tax loss carryforwards in
the United States of approximately $4,953 which will expire between 2011 and
2013. The Company also has foreign tax credit carryforwards of $4,264 at April
30, 2001 to offset future tax liabilities in the United States that expire
between 2002 and 2005. As of April 30, 2000, the Company had applied a
valuation allowance to the foreign tax credit carryforwards. Management
determined this valuation allowance was not required at April 30, 2001.

10. Business Segments

The Company operates in three business segments in the recruitment
industry. In retained recruitment, the Company operates in two global business
segments, executive recruitment and Futurestep. These segments are
distinguished primarily by the method used to identify candidates and
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. With the
acquisition of JobDirect in fiscal 2001, the Company expanded into the related
college recruitment market. JobDirect has operations throughout the United
States and is managed by a chief executive officer. For purposes of the
geographic information below, Mexico's operating results are included in Latin
America.

F-19


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001
(dollars in thousands, except per share amounts)


A summary of the Company's operations (excluding interest income and other
income, and interest expense) by business segment follows:



Fiscal Year Ended April
30,
----------------------------
2001 2000 1999
-------- -------- --------

Revenue:
Executive recruitment:
North America............................... $343,095 $271,313 $185,525
Europe...................................... 135,278 112,045 101,515
Asia/Pacific................................ 53,977 48,603 35,024
Latin America............................... 34,662 30,488 29,673
Futurestep.................................... 82,082 38,294 4,338
JobDirect..................................... 4,683
-------- -------- --------
Total revenue............................. $653,777 $500,743 $356,075
======== ======== ========

Fiscal Year Ended April
30,
----------------------------
2001 2000 1999
-------- -------- --------

Operating profit (loss):
Executive recruitment:
North America............................... $ 65,080 $ 52,783 $(56,394)
Europe...................................... 19,960 13,034 3,817
Asia/Pacific................................ 6,632 5,174 2,684
Latin America............................... 8,506 7,692 7,916
Futurestep.................................... (26,022) (23,878) (12,578)
JobDirect..................................... (11,249)
-------- -------- --------
Total operating profit (loss)............. $ 62,907 $ 54,805 $(54,555)
======== ======== ========

Amortization expense included in operating profit (loss) by business
segment in fiscal 2001 and 2000 was: $5,673 and $1,218 in North America,
$1,868 and $1,184 in Europe, $560 and $294 in Asia/Pacific, $2,391 and $662 in
Futurestep and $1,671 in JobDirect. In fiscal 1999, amortization expense of
$1,169 was related to acquisitions in Europe.


As of April 30,
----------------------------
2001 2000 1999
-------- -------- --------

Identifiable assets:
Executive recruitment:
North America(1)............................ $258,408 $285,474 $208,627
Europe...................................... 93,736 91,790 54,910
Asia/Pacific................................ 39,259 33,376 20,209
Latin America............................... 18,110 18,631 17,104
Futurestep.................................... 53,021 46,723 3,274
JobDirect..................................... 37,795
-------- -------- --------
Total identifiable assets................. $500,329 $475,994 $304,124
======== ======== ========

--------
(1) The Corporate office identifiable assets of $99,743, $144,739 and $144,771
in fiscal 2001, 2000 and 1999, respectively, are included in North
America.

F-20


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001
(dollars in thousands, except per share amounts)


Goodwill, net included in identifiable assets by business segment in fiscal
2001 and 2000 was: $58,934 and $51,385 in North America, $19,468 and $21,270
in Europe, $833 and $1,252 in Asia/Pacific, $17,821 and $20,052 in Futurestep
and $28,951 in JobDirect. In fiscal 1999, goodwill, net of $628 was included
in Europe.

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



Fiscal Year Ended
April 30,
----------------------
2001 2000 1999
------- ------- ------

Revenue:
North America...................................... $26,507 $20,595 $4,338
Europe............................................. 45,196 15,445
Asia/Pacific....................................... 10,379 2,254
------- ------- ------
Total revenue.................................... $82,082 $38,294 $4,338
======= ======= ======

As of April 30,
----------------------
2001 2000 1999
------- ------- ------

Identifiable assets:
North America...................................... $11,139 $ 9,856 $3,274
Europe............................................. 37,572 33,548
Asia/Pacific....................................... 4,310 3,319
------- ------- ------
Total identifiable assets........................ $53,021 $46,723 $3,274
======= ======= ======


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 2001, 2000 or 1999.

11. Acquisitions and Other Investments

During fiscal 2001, the Company completed two acquisitions: Westgate Group,
a leading executive recruitment firm, specializing in financial services in
the eastern United States and JobDirect, an on-line recruiting service focused
on college graduates and entry-level professionals. The aggregate purchase
price of these acquisitions was $47.2 million, consisting of the Company's
stock valued at $3.6 million, notes payable of $5.0 million and cash of $38.6
million. These acquisitions were accounted for under the purchase method and
resulted in $42.5 million of goodwill. Operating results of these businesses
have been included in the consolidated financial statements from their
acquisition dates.

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.

F-21


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001
(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 these
acquisitions for fiscal years 2001 and 2000 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,
-----------------
2001 2000
-------- --------

Revenue.................................................... $655,466 $567,534
Net income................................................. 29,016 30,078
Earnings per share.........................................
Basic.................................................... 0.78 0.82
Diluted.................................................. 0.75 0.79


In fiscal 2001, the Company purchased equity investments in Webhire, Inc.
(Webhire) and Jungle Interactive Media, Inc. (Jungle). The Company invested
$8.0 million for a 16% equity interest in Webhire, a leading business services
and technology solutions provider in the Internet recruitment marketplace. The
shares are publicly traded and a temporary decline in the market value of this
investment to $2.9 million at April 30, 2001 resulted in a $3.0 million
unrealized loss, net of tax, included as a component of other comprehensive
income (loss) in shareholders' equity at April 30, 2001. The Company also
invested $4.0 million for a 16.8% interest in Jungle, a company providing
Internet based information, entertainment, products and services to targeted
groups within higher education. The shares are not publicly traded and the
investment is reported at cost.

In connection with certain business acquisitions, the Company has
guaranteed minimum annual cash bonuses of $4,463 in fiscal 2002 and $367 in
fiscal 2003.

12. Commitments and Contingencies

The Company leases office premises and certain office equipment under
leases expiring at various dates through 2015. Total rental expense for fiscal
years 2001, 2000 and 1999 amounted to $25,892, $23,050 and $13,026,
respectively. At April 30, 2001, minimum future commitments under
noncancelable operating leases with lease terms in excess of one year
aggregated $165,858 payable as follows: $29,223 in 2002, $24,222 in 2003,
$20,343 in 2004, $17,910 in 2005, $14,957 in 2006 and $59,203 thereafter. As
of April 30, 2001, the Company has outstanding standby letters of credit of
$6,929 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 $4.5 million and $3.9 million of advertising in fiscal 2001 and
2000, respectively. The Company is currently operating under a month-to-month
extension of this contract while renegotiating a new long-term alliance
agreement.

As of April 30, 2001, the Company has employment agreements with the five
highest paid executive officers, with initial terms through April 30, 2002 for
four executives and May 1, 2003 for one executive that provide certain
benefits if these executives are terminated or resign under certain limited
circumstances. The maximum amount payable under these agreements, in
aggregate, is $8.3 million and $13.0 million prior to and following a change
in control, respectively. In addition, all outstanding options will
immediately vest and remain exercisable for periods ranging from three months
to their original expiration date following termination of employment.

F-22


KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001
(dollars in thousands, except per share amounts)


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. In addition, the
Company has a severance policy for all of its vice presidents that provides
for minimum payments based on length of service. Upon termination without
cause, the Company is required to pay the greater of the amount due under the
employment contract or the severance policy. 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, and for a period of up to
two years after their employment ends. 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 the Company.

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-23


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 11, 2001. 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 11, 2001

F-24


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



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

Allowance for Doubtful
Accounts
Year Ended April 30,
2001................. $12,538 $22,951 $22,170 $13,319
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

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,
2001................. 2,520 2,520
Year Ended April 30,
2000................. 2,520 2,520


F-25