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    Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended April 30, 2017 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-14505 KORN/FERRY INTERNATIONAL (Exact Name of Registrant as Specified in its Charter) Delaware 95-2623879 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification Number) 1900 Avenue of the Stars, Suite 2600, Los Angeles, California 90067 (Address of principal executive offices) (Zip code) (310) 552-1834 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, par value $0.01 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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. ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ (Do not check if a smaller reporting company) Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑ The number of shares outstanding of our common stock as of June 20, 2017 was 56,954,101 shares. The aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates of the registrant on October 31, 2016, the last business day of the registrant’s most recently completed second fiscal quarter, (assuming that the registrant’s only affiliates are its officers, directors and 10% or greater stockholders) was approximately $1,069,775,603 based upon the closing market price of $20.39 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 2017 Annual Meeting of Stockholders scheduled to be held on September 27, 2017 are incorporated by reference into Part III of this Form 10-K.


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    Table of Contents KORN/FERRY INTERNATIONAL Index to Annual Report on Form 10-K for the Fiscal Year Ended April 30, 2017 Item # Description Page Part I. Item 1 Business 1 Item 1A Risk Factors 11 Item 1B Unresolved Staff Comments 23 Item 2 Properties 23 Item 3 Legal Proceedings 23 Item 4 Mine Safety Disclosures 23 Executive Officers 23 Part II. Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 25 Item 6 Selected Financial Data 27 Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 29 Item 7A Quantitative and Qualitative Disclosures About Market Risk 55 Item 8 Financial Statements and Supplementary Data 56 Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 56 Item 9A Controls and Procedures 56 Item 9B Other Information 56 Part III. Item 10 Directors, Executive Officers and Corporate Governance 57 Item 11 Executive Compensation 57 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 57 Item 13 Certain Relationships and Related Transactions, and Director Independence 57 Item 14 Principal Accounting Fees and Services 57 Part IV. Item 15 Exhibits, Financial Statement Schedules 58 Signatures 62 Financial Statements and Financial Statement Schedules F-1


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    Table of Contents PART I. Item 1. Business About Korn Ferry Korn/Ferry International (referred to herein as the “Company,” “Korn Ferry,” or in the first person notations “we,” “our,” and “us”) is the preeminent global people and organizational advisory firm. We opened our first office in Los Angeles in 1969 and currently operate in 114 offices in 53 countries. We have the ability to deliver our solutions on a global basis, wherever our clients do business. As of April 30, 2017, we had 7,232 full-time employees, including 1,330 consultants (517 Executive Search, 557 Hay Group (formerly known as Leadership & Talent Consulting (“Legacy LTC”) which was combined with HG (Luxembourg) S.à.r.l (“Legacy Hay”) in December 2015), and 256 Futurestep) 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 government and nonprofit organizations. We have built strong client loyalty with 82% of our assignments performed during fiscal 2017 on behalf of clients for whom we had conducted assignments in the previous three fiscal years. We have made significant investments in our business with the acquisitions of PDI Ninth House and Global Novations in fiscal 2013, Pivot Leadership in fiscal 2015, and Legacy Hay in fiscal 2016. These acquisitions have strengthened our intellectual property, enhanced our geographical presence, added complimentary capabilities to further leverage search relationships and broadened the capabilities for assessment and development. They also improved our ability to support the global business community not only in attracting top talent and designing compensation and reward incentives, but also with an integrated approach to the entire leadership and people continuum. We were originally formed as a California corporation in November 1969 and reincorporated as a Delaware corporation in fiscal 2000. The Korn Ferry Opportunity Historically, the Human Resources (“HR”) industry has offered piecemeal views of people based on inconsistent processes, technologies and measurement. Korn Ferry has assembled intellectual property which we bring to market through a holistic framework that sits at the intersection of an organization’s strategy and its people. Superior performance happens when an organization establishes the conditions for success and when the right people are enabled and engaged, sitting in the right seats and are developed and rewarded. We can help a client operationalize its business strategy through our six solution sets: Strategy Execution & Organization Design We establish the conditions for success by clarifying strategy; designing an operating model and organization structure that aligns to it; and defining a high performance culture. We enable strategic change by engaging and motivating people to perform. Talent Strategy and Work Design We map talent strategy to business strategy and help organizations put their plan into action. We make sure they have the right people, in the right roles, engaged and enabled to do the right things. Rewards and Benefits We help organizations align reward with strategy. We help them pay their people fairly for doing the right things – with rewards they value – at a cost the organization can afford. Assessment and Succession We provide actionable, research-backed insights that allow organizations to understand the true capabilities of their people so they can make decisions that ensure the right leaders are ready – when and where they are needed – in the future. 1


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    Table of Contents Executive Search and Recruitment We integrate scientific research with our practical experience and industry-specific expertise to recruit professionals of all levels and functions at organizations across every industry. Leadership Development We activate purpose, vision, and strategy through leaders at all levels and organizations. We combine expertise, science, and proven techniques with forward thinking and creativity to build leadership experiences that help entry to senior-level leaders grow and deliver superior results. About Our Intellectual Property and Technology Korn Ferry is a knowledge-based company with deep intellectual property (“IP”) and research that allow us to deliver meaningful outcomes for our clients. The Korn Ferry Institute, our research and analytics arm, unites the following areas: talent and organizational analytics, research and thought leadership, and assessment and IP development. These teams work together to leverage data and build IP in ways that give Korn Ferry a competitive advantage and a privileged understanding of how people and organizations can best achieve superior performance. We do research that underpins our products and consulting services across Korn Ferry’s three business lines, and supports our six solution sets in the service of solving our clients’ most complex business issues, from creating growth to becoming digitally sustainable to navigating mergers and acquisitions. Our vast library of proprietary tools and techniques has been acquired or developed through research by our social scientists, statisticians and IP development specialists. We have unique insight into what makes great leaders and how strategic talent decisions help contribute to competitive advantage and success. Our talent data includes five million assessments, profiles of eight million candidates, reward data on twenty million professionals and engagement data on six million professionals. This database provides the insight and intelligence for Korn Ferry’s team of social scientists and consultants to determine the true drivers of leadership, performance and value in the market and how any individual or organization measures up. Solutions leveraging this IP help to deliver on Korn Ferry’s holistic framework that sits at the intersection of an organization’s strategy and its people. In fiscal 2017, the Korn Ferry Institute, in partnership with thought leaders across our business, established the Korn Ferry Superior Performance Model. This is a foundational framework that captures the key success factors that drive organizational performance. Divided into organizational enablers and people enablers, our research shows the relationship between the different levers that drive discretionary energy and financial performance. In the fiscal year ahead, our IP strategy will be to: § Embed our Superior Performance Model framework into our consulting methodology with clients; § Develop a compelling, research-based framework that brings together the vast people and organizational IP from the legacy firms and clearly describes what drives superior performance; § Simplify and integrate our portfolio of products, solutions and data assets around this framework and; § Focus our innovation efforts on the areas within this framework to build differentiated offerings, leverage the vast amounts of data we have, and promote thought leadership that builds the brand. Leadership Assessment, Succession and Development will be core solution areas, where we have industry-leading capabilities and IP and significant competitive advantages including recognition as a market leader in leadership agility. The next frontier of agility will extend beyond individuals to the collective agility of teams and organizations. Given our newly acquired expertise from Legacy Hay in the area of Strategy Execution and Organization Design, we are now positioned to bring together the people and organizational aspects of agility, establish differentiated thought leadership and develop a distinctive solution. In the area of Strategy Execution and Organization Design, we will fine-tune a new organizational diagnostic based on drivers of superior business performance that can be applied to the C-suite and cascaded down through an organization. 2


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    Table of Contents Within Rewards, we believe the market for total rewards strategies and approaches will remain strong, especially given the increased demand for pay parity. We are developing solutions, growing our rewards database and providing research-based thought leadership to assist organizations optimize the biggest expense item on their operating ledger. Within Executive Search, we will continue to add more discipline and scientific research into the recruitment process, with emphasis shifting from candidate identification to candidate assessment, fit, attraction, engagement and rewards. Driving this focus is our enhanced technology as the power of the Internet, big data and online talent communities make it possible to efficiently identify greater numbers of qualified candidates. We will continue making enhancements to Korn Ferry’s Four Dimensions of Leadership & Talent (KF4D), our talent assessment and analytics engine, including integrating new pay and work measurement IP from Legacy Hay. Finally, we will further embed our IP into new and existing tools commercialized through Korn Ferry’s Products Group, creating unique value for this growing business line that provides data, analytics and insight products that aid in recruiting, assessing, developing, engaging and rewarding talent. Examples of this include enhanced blended assessments that can be used in recruitment and talent management scenarios, and development targeted to success profiles for roles. About Our Business Segments Korn Ferry solutions and intellectual property are delivered through the following business segments: Executive Search: Korn Ferry Executive Search helps clients attract the best executive talent for moving their companies in the right direction. The business is managed by geographical region leaders with a focus on recruiting board-level, chief executive and other senior executive positions for clients predominantly in the consumer, financial services, industrial, life sciences/healthcare provider, technology and educational/not-for-profit industries. We also have centers of functional expertise; our Board & CEO Services group, for example, focuses exclusively on placing CEOs and board of directors in organizations around the world. The relationships that we develop through this business allow us to add incremental value to our clients through the delivery of our other people and organizational advisory solutions. Our executive search services concentrate on searches for positions with annual cash compensation of $300,000 or more, or comparable compensation in foreign locations, which may involve board-level, chief executive and other senior executive positions. The industry is comprised of retained and contingency recruitment firms. Retained firms, such as Korn Ferry, typically charge a fee for their services equal to approximately one-third of the first-year annual cash compensation for the position being filled regardless of whether the position is filled. Contingency firms generally work on a non-exclusive basis and are compensated only upon successfully placing a recommended candidate. Hay Group: Korn Ferry Hay Group helps an organization to align its people to their strategy – developing, engaging, and rewarding them to reach new heights. We deliver this through a combination of solutions consulting and product services that addresses how people work, and how to nurture them so that strategies succeed. We capitalize on the breadth of our intellectual property, service offerings and expertise to do what is right for the client. Services are delivered by an experienced team of consultants and includes one of the richest and most comprehensive people data sets. Futurestep: Korn Ferry Futurestep draws from Korn Ferry’s four decades of recruitment experience to offer fully scalable, flexible services that help organizations attract top people while reducing costs and time to hire. Our portfolio of services includes Recruitment Process Outsourcing (“RPO”), Project Recruitment, Professional Search, Talent Consulting and Employer Branding. We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (the “SEC”), pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”). You may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. Our reports, proxy statements and other documents filed electronically with the SEC are available at the website maintained by the SEC at www.sec.gov. 3


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    Table of Contents We also make available, free of charge on the Investor Relations portion of our website atwww.kornferry.com, our annual, quarterly, and current reports, and, if applicable, amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the SEC. We also make available on the Investor Relations portion of our website atwww.kornferry.com earnings presentations and other important information, which we encourage you to review. Our Corporate Governance Guidelines, Code of Business Conduct and Ethics and the charters of the Audit Committee, Compensation and Personnel Committee, and Nominating and Corporate Governance Committee of our Board of Directors are also posted on our website at http://ir.kornferry.com. Stockholders may request copies of these documents by writing to our Corporate Secretary at 1900 Avenue of the Stars, Suite 2600, Los Angeles, California 90067. Industry Trends In this competitive global economic environment, our clients are seeking new pathways to drive sustainable profitable growth. CEOs are increasingly demanding an agile workforce that can innovate and drive growth across borders. We believe Korn Ferry is uniquely positioned to help leaders and organizations succeed by releasing the full power and potential of people. Consolidation of Talent Management Solution Providers – In choosing recruitment and human resource service providers, we believe: § Companies are actively in search of preferred providers in order to create efficiencies and consolidate vendor relationships; § Companies that can offer a full suite of talent management solutions are becoming increasingly attractive; and § Clients seek trusted advisors who understand their business and unique organizational culture in order to manage the multiple needs of their business on a global scale. Skills Gaps – There are not enough highly “skilled” people coming into the labor market to fill open jobs. Particularly at the senior management levels, the available talent pool is inadequate. New leaders must step into bigger, more complex, and more global roles faster – and with less experience – than their predecessors. Given this, learning agility – one’s ability to solve complex problems, easily adapt in a constantly changing world and drive change – is more important than ever. We believe employers will increasingly seek service providers who can help them find, develop and retain highly qualified, learning agile talent that secures a competitive advantage. Human Capital is One of the Top CEO Challenges – The people, the minds, the alliances and the culture that can create and then nurture innovative ideas – are seen as central to CEOs. In fact, according to The Conference Board, human capital – how best to develop, engage, manage and retain talent – is the single biggest challenge facing CEOs in 2017. Talent Analytics – Companies are increasingly leveraging big data and predictive analytics to measure the influence of activities across all aspects of their business, including HR. They expect their service providers to deliver superior metrics and better ways of communicating results. Korn Ferry’s go-to-market approach is increasingly focused on talent analytics. Leveraging a large set of data on talent accumulated over decades of research, we have cataloged the elements of talent and isolated the most potent facets. The result, Korn Ferry’s Four Dimensions of Leadership & Talent, is the talent intelligence engine that powers many of our solutions and products. Within our Hay Group segment, we also possess several of the richest HR databases in the world, so our clients can benchmark salaries, leadership potential, employee engagement, organizational culture and other HR data by industry at a global and country level. Increased Outsourcing of Recruitment Functions – More companies are focusing on core competencies and outsourcing non-core, back-office functions to providers who can provide efficient, high-quality services. Third-party providers can apply immediate and long-term approaches for improving all aspects of talent acquisition. Advantages to outsourcing part or all of the recruitment function include: § Access to a diverse and highly qualified pool of candidates, which is refreshed on a regular basis; 4


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    Table of Contents § Reduction or elimination of the costs required to maintain and train an in-house recruiting department in a rapidly changing industry; § Ability to use the workflow methodologies we have developed over tens of thousands of assignments, which allows clients to fulfill positions on a streamlined basis; § Ability to quickly review millions of resumes and provide the right fit for the client; § Access to the most updated industry and geographic market information; § Access to cutting-edge search technology software and proprietary intellectual property; and § Ability to maintain management focus on core strategic business issues. Other Industry Trends – In addition to the industry trends mentioned above, we believe the following factors will have a long-term positive impact on the talent management industry: § Increasing demand for professionals with not just the right technical skills, but also the right leadership style, values and motivation to meet the specific requirements of the position and organizational culture; § Decreasing executive management tenure and more frequent job changes; § Retiring baby boomers, creating a skills gap in the workforce; § Shifting balance of power towards the employee as more people take charge of their own careers, and the new norm of employee-driven development; § Increasing importance of talent mobility in engaging and developing people within an organization; § Increased attention on succession planning due to heightened scrutiny on CEOs, pressure to generate growth, shorter CEO tenures and the emphasis being placed on making succession planning a systemic governance process within global organizations; § Executive pay and governance practices under more scrutiny than ever; and § The high turnover rate and varying high volume hiring needs commonly associated with the new shared economy. Growth Strategy Our objective is to expand our position as the preeminent global people and organizational advisory firm. In order to meet this objective, we will continue to pursue five strategic initiatives: 1. Drive an Integrated, Solutions-Based Go-to-Market Strategy Differentiating Client Value Proposition – Korn Ferry offers its clients a total approach to talent. Historically, the HR industry has offered piecemeal views of people based on inconsistent processes, technologies and measurement. Korn Ferry seeks to disrupt the traditional approach and has assembled intellectual property that we bring to market through a holistic framework that sits at the intersection of an organization’s strategy and its people. In analyzing talent management across the entire value chain, Korn Ferry has developed a robust suite of offerings and leverages our market-leading position in executive search to extend the value we bring our clients through our diversified capabilities along the rest of the talent lifecycle through our Hay Group and Futurestep businesses. Our synergistic go-to-market strategy, utilizing all three of our business segments, is driving more integrated, scalable client relationships, while accelerating our evolution to a consultative solutions-based organization. This is evidenced by the fact that approximately 61% of our revenues come from clients that utilize multiple lines of business. We are an increasingly diversified enterprise in the world of human capital services and products, an industry that represents an estimated $600 billion global market opportunity. Korn Ferry seeks to position itself as the preeminent global provider of solutions that represents a subset of the human capital services and products industry. In an effort to gain operational efficiencies and drive superior performance, we expect that multinational clients increasingly will turn to strategic partners who can manage their people and organizational advisory needs on a centralized basis. This will require vendors with a global network of offices and technological support systems to manage engagements across geographical regions. We established our Marquee Accounts program to act as a catalyst for change as we transform our Company from individual operators to an integrated talent solutions provider, in an effort to drive major global and regional strategic account development as well as to provide a framework for all of our client development activities. Today, the program consists of global colleagues from every 5


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    Table of Contents line of business and geography, and is centrally coordinated by global account leaders who have deep expertise in serving the evolving needs of large global clients. We are cascading this methodology throughout every market, country and office. 2. Deliver Unparalleled Client Excellence World-class Intellectual Property – Korn Ferry continues to scale and more deeply embed our industry-leading intellectual property within the talent management processes of our global clients. Our IP-driven tools and services are being utilized by our clients for everything from organizational development and job profiling to selection, training, individual and team development, succession planning and more. Our subscription services that are delivered on-line are products that help us generate long-term relationships with our clients through large scale and technology-based HR programs on an annuity basis. We continue to seek ways to scale our product offering to our global clients. Global organizations utilizing our Company’s validated assessment capability are realizing the power and benefits of Korn Ferry IP in their people processes. Our assessment capability is currently utilized by more than 60% of our Executive Search clients. We have observed that candidates who utilize our online assessment tools stay longer with an organization and are promoted more frequently. Our IP orientation is further expanded by our acquisitions of Legacy Hay, Pivot Leadership, PDI Ninth House and Global Novations. By acquiring these firms, we now offer a variety of pay, leadership development, organization and talent strategy design, coaching and assessment solutions for different organizational levels, as well as technology- driven talent management solutions. We possess several of the richest HR databases in the world, spanning 114 countries – including reward data on twenty million professionals, engagement data on six million professionals and assessment data on five million professionals. Technology – Information technology is a critical element of all of our businesses. In fiscal 2017, we continued to invest in enhanced tools and knowledge management to gain a competitive advantage. We further improved our technology platform to support delivery of Korn Ferry’s Four Dimensions of Leadership (“KF4D”), our newest and most robust assessment for Executive Search, Hay Group and Futurestep. We completed the enhancements to our global SAP and Salesforce enterprise systems and the integration of Legacy Hay into Korn Ferry, providing globally consistent finance, HR, business development and operations processes. We continued to invest in our IT security infrastructure in an effort to protect the Company’s assets against today’s cyber-security threats. In fiscal 2017, we further enhanced our scalable intellectual property content repository, which we are leveraging across all products and services. This enables us to continue to integrate services provided across the entire Hay Group portfolio, as well as Executive Search and Futurestep, and we have continued work on a unified talent analytics layer to support Korn Ferry’s strategy to address this key industry trend. Information technology is a key driver of Futurestep’s growth in RPO, project recruitment and search. Database technology and the Internet have greatly improved capabilities in identifying, targeting and reaching potential candidates. In fiscal 2017, we continued the integration of advanced, Internet-based sourcing, assessment and selection technologies into the engagement workflow including the use of advanced machine learning. We introduced the Recruiter Desktop – a modern, streamlined view of the recruiting workflow across a company’s disparate systems incorporating machine learning which dramatically improves the matching capabilities of a candidate to a job requisition. We will continue to enhance our technology in order to strengthen our relationships with clients, expand our markets through new delivery channels and maintain a competitive advantage in offering the full range of executive talent management services. 3. Extend and Elevate the Korn Ferry Brand Next to our people, the Korn Ferry brand is the strongest asset of the Company. Since inception, Korn Ferry has always maintained an aggressive stance in building our global presence and supporting our vision and ongoing growth through a comprehensive marketing approach. At the highest level, we will continue to extend and elevate the Korn Ferry brand to raise awareness and drive higher market share within each of our lines of business. 6


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    Table of Contents Our leadership in executive search enables us to grow our business by increasing the number of recruitment assignments we handle for existing clients. We also believe that our strong relationships and well-recognized brand name will enable us to bring a broader base of solutions and services to our existing client base and to potential new clients, while allowing us to build communities of candidates to whom we can directly market our services. For example, we will leverage the work our Board & CEO Services practice – recently enhanced by the addition of Legacy Hay’s Executive Pay and Governance capabilities – performs at the top of our clients’ organizations to promote awareness of our various solutions. We believe these engagements will create revenue opportunities across all of our lines of business and lead to the expansion of other high-level, consultative relationships within the board and CEO community. We drive additional awareness and brand equity through a global marketing program that leverages Korn Ferry Institute-generated thought leadership (whitepapers, bylined articles, and our award-winning Briefings periodical), aggressive media relations, social media, a sophisticated demand generation platform and other vehicles that include sponsorships, speaking opportunities, advertising and events. 4. Advance Korn Ferry as a Premier Career Destination As our business strategy evolves, so should our talent strategy in order to drive the growth we need and the culture we want, at a pace we can absorb. Our talent strategy is what allows us to build and attract the best talent for ourselves (and, by extension, for our clients) to achieve our business potential. Our goal is to become the premier career destination for top talent through offering a client-focused culture, promotional/developmental opportunities and compensation that aligns employee behavior to corporate strategy. In fiscal 2018, we will continue our professional development program calledReimagine. Last year all colleagues were invited to take part in a series of pulse surveys, and we have used the results to further inform our internal strategic initiatives. These include the launch of an HR transformation program with a number of work streams addressing areas such as performance management, rewards, career architecture and talent acquisition. We will also expand the Korn Ferry Academy, our firm’s new center for enterprise-wide internal learning and development. We are committed to investing in the professional and personal development of our people throughout their career with us. 5. Pursue Transformational Opportunities Along the Broad Human Resources Spectrum We have an unrivaled ability to address the entire talent continuum, delivering solutions and products in the following areas: § Strategy Execution and Organization Design § Talent Strategy and Work Design § Rewards and Benefits § Assessment and Succession § Executive Search and Recruitment § Leadership Development We will continue to internally develop and add new products and services that our clients demand while pursuing a disciplined acquisition strategy. We have developed a core competency in the identification, acquisition and integration of Merger and Acquisition (“M&A”) targets that play a significant role in the attainment of our strategic objectives and the creation of shareholder value. As we look forward, we will continue building Korn Ferry as the leading authority on driving business performance through people. Our disciplined approach to M&A will continue to play a vital role in this journey and is a critical component of our overall approach to capital deployment. Our Services and Organization Organization The Company operates in three global business segments: Executive Search, Hay Group, and Futurestep. Our executive search business is managed on a geographic basis throughout our four regions: North America, Europe, 7


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    Table of Contents the Middle East and Africa (“EMEA”), Asia Pacific and Latin America. Hay Group and Futurestep are managed on a global basis with operations in North America, EMEA, Asia Pacific and Latin America. We address the people and organizational advisory needs of our clients through our three business segments: Executive Search Overview – Korn Ferry Executive Search helps clients attract the best executive talent for executing and delivering their business strategy. Our services are typically used to fill executive-level positions, such as board directors, chief executive officers, chief financial officers, chief operating officers, chief information officers, chief human resource officers and other senior executive officers. We utilize a standardized and differentiated approach to placing talent that integrates research based IP with our practical experience. Providing a more complete view of the candidate than is otherwise possible, we believe our proprietary tools generate better results in attracting the right person for the position, and open doors to engage with clients about their broader people and organizational needs. As part of being retained by a client to conduct a search, we assemble a team comprised of consultants with appropriate geographic, industry and functional expertise. Our search consultants serve as management advisors who work closely with the client in identifying, assessing and placing qualified candidates. In fiscal 2017, we executed 5,933 new executive search assignments. We emphasize a close working relationship with the client and a comprehensive understanding of the client’s business issues, strategy and culture. The search team consults with its established network of resources and searches our databases containing profiles of approximately five million executives to assist in identifying individuals with the right background, cultural fit and abilities. Through this process, an original list of candidates is carefully screened through phone interviews, video conferences and in-person meetings. Clients and candidates complete Korn Ferry’s Four Dimensional Executive Assessment. Launched in fiscal 2015 and powered by Korn Ferry’s Four Dimensions of Leadership & Talent, this tool gives clients insights about each candidate’s competencies, personality traits, drivers, and past experiences that are aligned to the role. We conduct due diligence and background verification of the candidates throughout this process, at times with the assistance of an independent third party. In fiscal 2017, we integrated Hay Group’s industry standard job grading, job description and salary benchmark methodologies into the executive search process. Industry Specialization – Consultants in our five global markets and regional specialty practice groups bring an in-depth understanding of the market conditions and strategic management issues faced by clients within their specific industry and geography. We are continually looking to expand our specialized expertise through internal development and strategic hiring in targeted growth areas. Percentage of Fiscal 2017 Assignments Opened by Industry Specialization Global Markets: Industrial 31% Consumer 18% Financial Services 17% Life Sciences/Healthcare Provider 17% Technology 12% Regional Specialties (United States): Education/Not-for-Profit 5% Functional Expertise – We have organized executive search centers of functional expertise, composed of consultants who have extensive backgrounds in placing executives in certain functions, such as board directors, CEOs and other senior executive officers. Our Board & CEO Services group, for example, focuses exclusively on placing CEOs and board directors in organizations around the world. This is a dedicated team from the most senior ranks of the Company. Their work is with CEOs and in the board room, and their expertise is organizational leadership and governance. They conduct hundreds of engagements every year, tapping talent from every corner 8


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    Table of Contents of the globe. This work spans all ranges of organizational scale and purpose. Members of functional groups are located throughout our regions and across our industry groups. Percentage of Fiscal 2017 Assignments Opened by Functional Expertise Board Level/CEO/CFO/Senior Executive and General Management 71% Finance and Control 9% Marketing and Sales 6% Manufacturing/Engineering/Research and Development/Technology 5% Information Systems 5% Human Resources and Administration 4% Regions North America – We currently have 20 offices throughout the United States and Canada. In fiscal 2017, the region generated fee revenue of $356.6 million and opened 2,361 new engagements with an average of 236 consultants. EMEA – We currently have 24 offices in 19 countries throughout the region. In fiscal 2017, the region generated fee revenue of $146.5 million and opened 1,755 new engagements with an average of 138 consultants. Asia Pacific – We currently have 20 offices in 10 countries throughout the region. In fiscal 2017, the region generated fee revenue of $80.2 million and opened 1,044 new engagements with an average of 96 consultants. Latin America – We currently have 9 offices in 7 countries covering the entire Latin American region. The region generated fee revenue of $34.4 million in fiscal 2017 and opened 773 new engagements with an average of 34 consultants. Client Base – Our 3,589 search engagement clients include many of the world’s largest and most prestigious public and private companies, and 57% of FORTUNE 500 companies were clients in fiscal 2017. In fiscal 2017, only 1 client represented more than 1% of fee revenue, with that client representing 1.4% of fee revenue. Competition – Other multinational executive search firms include Egon Zehnder International, Heidrick & Struggles International, Inc., Russell Reynolds Associates and Spencer Stuart. Although these firms are our largest competitors in executive search, we also compete with smaller boutique firms that specialize in specific regional, industry or functional searches. We believe our brand name, differentiated business model, systematic approach to client service, cutting-edge technology, unique IP, global network, prestigious clientele, strong specialty practices and high-caliber colleagues are recognized worldwide. We also believe our long-term incentive compensation arrangements, as well as other executive benefits, distinguish us from most of our competitors and are important in attracting and retaining our key consultants. Hay Group Overview – Korn Ferry Hay Group helps an organization align its people to their strategy – organizing, developing, engaging, and rewarding them to reach new heights. We deliver this through a combination of solutions consulting and product services that address how people work, and how to nurture them so that business strategies succeed. We capitalize on the breadth of our intellectual property, service offerings and expertise to do what is right for the client. Services are delivered by an experienced team of consultants and includes one of the richest and most comprehensive people data sets. Solutions consulting fee revenue was $497.7 million, $351.2 million and $203.3 million in fiscal 2017, 2016 and 2015, respectively. Solution consulting fee revenue represented 32%, 27% and 20% of fee revenue in fiscal 2017, 2016 and 2015, respectively. We have made significant investments in these service areas with the acquisitions of Lominger Limited, Inc., Lominger Consulting (“Lominger”) and LeaderSource in fiscal 2007, Lore International in fiscal 2009, SENSA Solutions in fiscal 2010, PDI and Global Novations in fiscal 2013, Pivot Leadership in fiscal 2015, and Legacy Hay in fiscal 2016. Regions – Hay Group solutions are delivered by an experienced team of consultants and the richest and most comprehensive people data and insights in the world. As of April 30, 2017, we had Hay Group operations in 22 cities in North America, 37 in EMEA, 20 in Asia Pacific, and 9 in Latin America. 9


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    Table of Contents Competition – Our main competitors include firms like Aon Hewitt, Willis Towers Watson, Deloitte, McKinsey, RHR International, Development Dimensions International, Center for Creative Leadership, Right Management, Mercer and SHL, a subsidiary of Corporate Executive Board. Although these firms are our largest competitors, we also compete with smaller boutique firms that specialize in specific regional, industry or functional aspects of leadership and organizational advisory services. Futurestep Overview – Korn Ferry Futurestep offers clients a portfolio of talent acquisition solutions, including RPO, Project Recruitment, Professional Search, Talent Consulting and Employer Branding. Each Futurestep engagement leverages a global recruitment process, best-in-class technology and proprietary IP to maximize and measure quality. Futurestep combines traditional recruitment expertise with a multi-tiered portfolio of talent acquisition solutions. Futurestep consultants, based in 26 countries, have access to our databases of pre-screened, mid-level professionals. Our global candidate pool complements our international presence and multi-channel sourcing strategy to provide speed, efficiency and quality service for clients worldwide. Futurestep’s customizable end-to-end RPO solution combines our recruiting expertise with state-of-the-art technologies to help companies streamline recruitment processes, enhance candidate experience, and improve cost of, time to, and quality of hire. In fact, Futurestep was recognized as the number one RPO provider in HRO Today Magazine’s 2016 Baker’s Dozen list, marking its tenth consecutive year on the list. Significant in scope with a defined delivery period, Project Recruitment addresses a specific talent acquisition need at a certain point in time. The impetus for a project engagement is often, though not always, a change or transition within the business. In the area of Professional Search, Futurestep is uniquely positioned to help identify and attract professional and specialized talent, in both single-search and multiple managed search projects. Futurestep’s brand association with Korn Ferry has helped us become regarded by today’s industry leaders as a trusted resource. Talent Consulting services provide a proven process and deep industry expertise to help clients assess their talent acquisition strategy, identify needs, and prioritize next steps in improving their talent acquisition operations. Employer Branding services apply insight and creativity to help clients attract and engage the best candidates. We use the latest research techniques to identify each client’s unique Employer Value Proposition and then bring it to life across the full range of traditional and digital media. Regions – We opened our first Futurestep office in Los Angeles in May 1998. In January 2000, we acquired the Executive Search & Selection business of PA Consulting with operations in Europe and Asia Pacific. As of April 30, 2017, we had Futurestep operations in 14 cities in North America, 13 in EMEA, 18 in Asia Pacific, and 5 in Latin America. Client Base – During fiscal 2017, Futurestep partnered with 1,525 clients across the globe and 41% of Futurestep’s fiscal 2017 fee revenue was referred from Korn Ferry’s Executive Search and Hay Group segments. Competition – Futurestep primarily competes for business with other RPO providers such as Cielo Talent, Alexander Mann Solutions, Hays, Kenexa, Spherion, KellyOCG and ADP, and competes for search assignments with regional contingency recruitment firms and large national retained recruitment firms. Professional Staff and Employees We have assembled a wealth of talent. Our Company brings together the best and brightest from a wide range of disciplines and professions – everything from academic research and technology development to executive recruiting, consulting, and business leadership. We are also a culturally diverse organization. Our people come from all over the world and speak a multitude of languages. For us, this diversity is a key source of strength. It means we have people who are able to challenge convention, offer unique perspectives, and generate innovative ideas. Equally important, it means we can think and act globally – just like our clients. 10


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    Table of Contents As of April 30, 2017, we had a total of 7,232 full-time employees. Of this, 1,791 were Executive Search employees consisting of 517 consultants and 1,274 associates, researchers, administrative and support staff. Hay Group had 3,598 employees as of April 30, 2017, consisting of 557 consultants and 3,041 associates, researchers, administrative and support staff. Futurestep had 1,710 employees as of April 30, 2017, consisting of 256 consultants and 1,454 administrative and support staff. Corporate had 133 professionals at April 30, 2017. We are not party to a collective bargaining agreement and consider our relations with our employees to be good. Korn Ferry is an equal opportunity employer. The following table provides information relating to each of our business segments for fiscal 2017. Financial information regarding our business segments for fiscal 2016 and 2015 and additional information for fiscal 2017 is contained in Note 11 – Business Segments, in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference. Number of Consultants Operating as of Income April 30, Fee Revenue (Loss) 2017 (dollars in thousands) Executive Search: North America $ 356,625 $ 81,550 241 EMEA 146,506 27,854 145 Asia Pacific 80,169 8,580 97 Latin America 34,376 6,268 34 Total Executive Search 617,676 124,252 517 Hay Group 724,186 47,302 557 Futurestep 223,659 29,986 256 Corporate — (87,100) — Total $ 1,565,521 $ 114,440 1,330 The following table provides information on fee revenues for each of the last three fiscal years attributable to the regions in which the Company operates: Year Ended April 30, 2017 2016 (1) 2015 (in thousands) Fee Revenue: United States $ 728,871 $ 669,585 $ 557,024 Canada 57,640 40,401 39,252 EMEA 445,681 343,460 248,865 Asia Pacific 249,077 187,631 145,625 Latin America 84,252 51,035 37,386 Total $ 1,565,521 $ 1,292,112 $ 1,028,152 (1) Fee revenue from Legacy Hay was $186.8 million from December 1, 2015, the effective date of the acquisition. Additional financial information regarding the regions in which the Company operates can be found in Note 11 –Business Segments, in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K. Item 1A. Risk Factors The risks described below are the material risks facing our Company. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. 11


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    Table of Contents Competition in our industries could result in our losing market share and/or require us to charge lower prices for services, which could reduce our revenue. We compete for executive search business with numerous executive search firms and businesses that provide job placement services, including other large global executive search firms, smaller specialty firms and web-based firms. In recent years, we have also begun facing increased competition from sole proprietors and in-house human resource professionals whose ability to provide job placement services has been enhanced by professional profiles made available on the internet and enhanced social media-based search tools. The continued growth of the shared economy and related freelancing platform sites may also negatively impact demand for our services by allowing employers seeking services to connect with employees in real time and without any significant cost. Traditional executive search competitors include Egon Zehnder International, Heidrick & Struggles International, Inc., Russell Reynolds Associates and Spencer Stuart. In each of our markets, one or more of our competitors may possess greater resources, greater name recognition, lower overhead or other costs and longer operating histories than we do, which may give them an advantage in obtaining future clients, capitalizing on new technology and attracting qualified professionals in these markets. Additionally, specialty firms can focus on regional or functional markets or on particular industries and executive search firms that have a smaller client base may be subject to fewer off-limits arrangements. There are no extensive barriers to entry into the executive search industry and new recruiting firms continue to enter the market. We believe the continuing development and increased availability of information technology will continue to attract new competitors, especially web-enabled professional and social networking website providers, and these providers may be facilitating a company’s ability to insource their recruiting capabilities. As these providers continue to evolve, they may develop offerings similar to or more expansive than ours, thereby increasing competition for our services or more broadly causing disruption in the executive search industry. Further, as technology continues to develop and the shared economy continues to grow, we expect that the use of freelancing platform sites will become more prevalent. As a result, companies may turn to such sites for their talent needs, which could negatively impact demand for the services we offer. The human resource consulting business has been traditionally fragmented and a number of large consulting firms, such as Accenture, Aon Hewitt, Willis Towers Watson and Deloitte are building businesses in human resource management consulting to serve these needs. These companies are significantly larger than Korn Ferry and have considerable resources at their disposal allowing for potentially significant investment to grow their human resource consulting business. Increased competition, whether as a result of professional and social networking website providers, traditional executive search firms, sole proprietors and in-house human resource professionals (as noted above) or larger consulting firms building human resources consulting businesses, may lead to pricing pressures that could negatively impact our business. For example, increased competition could require us to charge lower prices, and/or cause us to lose market share, each of which could reduce our fee revenue. The talent acquisition business, including RPO, project recruitment, professional search, talent consulting and employee communications is a highly competitive and developing industry with numerous specialists. Our Futurestep division primarily competes for business with other RPO providers such as Cielo, Alexander Mann Solutions, Kenexa, Spherion, and Kelly Services, Inc., and competes for mid-level professional search assignments with regional contingency recruitment firms and large national retained recruitment firms. In addition, some organizations have developed or may develop internal solutions to address talent acquisition that may be competitive with our solutions. To compete successfully and achieve our growth targets for our talent acquisition business, we must continue to support and develop assessment and analytics solutions, maintain and grow our proprietary database, deliver demonstrable return on investment to clients, support our products and services globally, and continue to provide consulting and training to support our assessment products. Our failure to compete effectively with our competitors could adversely affect our operating results and future growth. If we fail to attract and retain qualified and experienced consultants, our revenue could decline and our business could be harmed. We compete with other executive and professional search and consulting firms for qualified and experienced consultants. These other firms may be able to offer greater compensation and benefits or more attractive lifestyle choices, career paths or geographic locations than we do. Attracting and retaining consultants in our industry is 12


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    Table of Contents particularly important because, generally, a small number of consultants have primary responsibility for a client relationship. Because client responsibility is so concentrated, the loss of key consultants may lead to the loss of client relationships. In fiscal 2017, for example, our top three executive search consultants had primary responsibility for generating business equal to approximately 1% of our net revenues, and our top ten executive search consultants had primary responsibility for generating business equal to approximately 3% of our net revenues. This risk is heightened due to the general portability of a consultant’s business; consultants have in the past, and will in the future, terminate their employment with our Company. Any decrease in the quality of our reputation, reduction in our compensation levels relative to our peers or restructuring of our compensation program, whether as a result of insufficient revenue, a decline in the market price of our common stock or for any other reason, could impair our ability to retain existing consultants or attract additional qualified consultants with the requisite experience, skills and established client relationships. Our failure to retain our most productive consultants, whether in Executive Search, Hay Group or Futurestep, or maintain the quality of service to which our clients are accustomed and the ability of a departing consultant to move business to his or her new employer could result in a loss of clients, which could in turn cause our fee revenue to decline and our business to be harmed. We may also lose clients if the departing Executive Search, Hay Group or Futurestep consultant has widespread name recognition or a reputation as a specialist in his or her line of business in a specific industry or management function. We could also lose additional consultants if they choose to join the departing Executive Search, Hay Group or Futurestep consultant at another executive search or consulting firm. If we fail to limit departing consultants from moving business or recruiting our consultants to a competitor, our business, financial condition and results of operations could be adversely affected. Acquisitions, or our inability to effect acquisitions, may have an adverse effect on our business. We have completed several strategic acquisitions of businesses in the last several years, including our acquisitions of Legacy Hay in fiscal 2016, Pivot Leadership in fiscal 2015 and PDI and Global Novations in fiscal 2013. Targeted acquisitions have been part of our growth strategy, and we may in the future selectively acquire businesses that are complementary to our existing service offerings. However, we cannot be certain that we will be able to continue to identify appropriate acquisition candidates or acquire them on satisfactory terms. Our ability to consummate such acquisitions on satisfactory terms will depend on: § the extent to which acquisition opportunities become available; § our success in bidding for the opportunities that do become available; § negotiating terms that we believe are reasonable; and § regulatory approval, if required. Our ability to make strategic acquisitions may also be conditioned on our ability to fund such acquisitions through the incurrence of debt or the issuance of equity. Our credit agreement dated as of June 15, 2016 limits us from consummating permitted acquisitions unless we are in pro forma compliance with our financial covenants, our pro forma leverage ratio is no greater than 2.50 to 1.00, and domestic liquidity after giving effect to the acquisition is at least $50.0 million. If we are required to incur substantial indebtedness in connection with an acquisition, and the results of the acquisition are not favorable, the increased indebtedness could decrease the value of our equity. In addition, if we need to issue additional equity to consummate an acquisition, doing so would cause dilution to existing stockholders. If we are unable to make strategic acquisitions, or the acquisitions we do make are not on terms favorable to us or not effected in a timely manner, it may impede the growth of our business, which could adversely impact our profitability and our stock price. We may not be able to successfully integrate or realize the expected benefits from our acquisitions. Our future success may depend in part on our ability to complete the integration of acquisition targets successfully into our operations. The process of integrating an acquired business, may subject us to a number of risks, including: § diversion of management attention; § amortization of intangible assets, adversely affecting our reported results of operations; 13


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    Table of Contents § inability to retain and/or integrate the management, key personnel and other employees of the acquired business; § inability to properly integrate businesses resulting in operating inefficiencies; § inability to establish uniform standards, disclosure controls and procedures, internal control over financial reporting and other systems, procedures and policies in a timely manner; § inability to retain the acquired company’s clients; § exposure to legal claims for activities of the acquired business prior to acquisition; and § incurrence of additional expenses in connection with the integration process. If our acquisitions are not successfully integrated, our business, financial condition and results of operations, as well as our professional reputation, could be materially adversely affected. Further, we cannot assure that acquisitions will result in the financial, operational or other benefits that we anticipate. Some acquisitions may not be immediately accretive to earnings and some expansion may result in significant expenditures. Businesses we acquire may have liabilities or adverse operating issues which could harm our operating results. Businesses we acquire may have liabilities or adverse operating issues, or both, that we either fail to discover through due diligence or underestimate prior to the consummation of the acquisition. These liabilities and/or issues may include the acquired business’ failure to comply with, or other violations of, applicable laws, rules, or regulations or contractual or other obligations or liabilities. As the successor owner, we may be financially responsible for, and may suffer harm to our reputation or otherwise be adversely affected by, such liabilities and/or issues. An acquired business also may have problems with internal controls over financial reporting, which could in turn cause us to have significant deficiencies or material weaknesses in our own internal controls over financial reporting. These and any other costs, liabilities, issues, and/or disruptions associated with any past or future acquisitions, and the related integration, could harm our operating results. As a result of our acquisitions, we have substantial amounts of goodwill and intangible assets, and changes in business conditions could cause these assets to become impaired, requiring write-downs that would adversely affect our operating results. All of our acquisitions have been accounted for as purchases and involved purchase prices well in excess of tangible asset values, resulting in the creation of a significant amount of goodwill and other intangible assets. As of April 30, 2017, goodwill and purchased intangibles accounted for approximately 28% and 11%, respectively, of our total assets. Under U.S. generally accepted accounting principles (“GAAP”), we do not amortize goodwill and intangible assets acquired in a purchase business combination that are determined to have indefinite useful lives, but instead review them annually (or more frequently if impairment indicators arise) for impairment. Although we have to date determined that such assets have not been impaired, future events or changes in circumstances that result in an impairment of goodwill or other intangible assets would have a negative impact on our profitability and operating results. An impairment in the carrying value of goodwill and other intangible assets could negatively impact our consolidated results of operations and net worth. Goodwill is initially recorded as the excess of amounts paid over the fair value of net assets acquired. While goodwill is not amortized, it is reviewed for impairment at least annually or more frequently if impairment indicators are present. In assessing the carrying value of goodwill, we make qualitative and quantitative assumptions and estimates about revenues, operating margins, growth rates and discount rates based on our business plans, economic projections, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and management’s judgment in applying these factors. Goodwill valuations have been calculated using an income approach based on the present value of future cash flows of each reporting unit and a market approach. We could be required to evaluate the carrying value of goodwill prior to the annual assessment, if we experience unexpected significant declines in operating results or sustained market capitalization declines. These types of events and the resulting analyses could result in goodwill impairment charges in the future. Impairment charges could substantially affect our results of operations and net worth in the periods of such charges. 14


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    Table of Contents We are a cyclical Company whose performance is tied to local and global economic conditions. Demand for our services is affected by global economic conditions and the general level of economic activity in the geographic regions and industries in which we operate. When conditions in the global economy, including the credit markets, deteriorate, or economic activity slows, many companies hire fewer permanent employees and some companies, as a cost-saving measure, choose to rely on their own human resources departments rather than third-party search firms to find talent and under these conditions companies may cut back on human resource initiatives, all of which negatively affects our financial condition and results of operations. We may also experience more competitive pricing pressure during periods of economic decline. If the current market uncertainty persists, if the national or global economy or credit market conditions in general deteriorate, or if the unemployment rate increases, such uncertainty or changes could put negative pressure on demand for our services and our pricing, resulting in lower cash flows and a negative effect on our business, financial condition and results of operations. In addition, some of our clients may experience reduced access to credit and lower revenues resulting in their inability to meet their payment obligations to us. If we are unable to retain our executive officers and key personnel, or integrate new members of our senior management who are critical to our business, we may not be able to successfully manage our business in the future. Our future success depends upon the continued service of our executive officers and other key management personnel. Competition for qualified personnel is intense, and we may compete with other companies that have greater financial and other resources than we do. If we lose the services of one or more of our executives or key employees, or if one or more of them decides to join a competitor or otherwise compete directly or indirectly with us, or if we are unable to integrate new members of our senior management who are critical to our business, we may not be able to successfully manage our business or achieve our business objectives. If we are unable to maintain our professional reputation and brand name, our business will be harmed. We depend on our overall reputation and brand name recognition to secure new engagements and to hire qualified professionals. Our success also depends on the individual reputations of our professionals. We obtain a majority of our new engagements from existing clients or from referrals by those clients. Any client who is dissatisfied with our services can adversely affect our ability to secure new engagements. If any factor, including poor performance or negative publicity, whether or not true, hurts our reputation, we may experience difficulties in competing successfully for both new engagements and qualified consultants. Failing to maintain our professional reputation and the goodwill associated with our brand name could seriously harm our business. The expansion of social media platforms presents new risks and challenges that can cause damage to our brand and reputation. The inappropriate and/or unauthorized use of certain media vehicles could cause damage to our brand or information leakage that could lead to legal implications, including improper collection and/or dissemination of personally identifiable information of candidates and clients. In addition, negative or inaccurate posts or comments about us on any social networking website could damage our reputation, brand image and goodwill. Technological advances may significantly disrupt the labor market and weaken demand for human capital at a rapid rate. Our success is directly dependent on our customers’ demands for talent. As technology continues to evolve, more tasks currently performed by people may be replaced by automation, robotics, machine learning, artificial intelligence and other technological advances outside of our control. This trend poses a risk to the staffing industry as a whole, particularly in lower-skill job categories that may be more susceptible to such replacement. 15


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    Table of Contents We are subject to potential legal liability from clients, employees and candidates for employment. Insurance coverage may not be available to cover all of our potential liability and available coverage may not be sufficient to cover all claims that we may incur. Our ability to obtain liability insurance, its coverage levels, deductibles and premiums are all dependent on market factors, our loss history and insurers’ perception of our overall risk profile. We are exposed to potential claims with respect to the executive search process. For example, a client could assert a claim for matters such as breach of an off-limit agreement or recommending a candidate who subsequently proves to be unsuitable for the position filled. Further, the current employer of a candidate whom we placed could file a claim against us alleging interference with an employment contract, a candidate could assert an action against us for failure to maintain the confidentiality of the candidate’s employment search, and a candidate or employee could assert an action against us for alleged discrimination, violations of labor and employment law or other matters. Also, in various countries, we are subject to data protection laws impacting the processing of candidate information and other regulatory requirements. Additionally, as part of our Hay Group services, we often send a team of leadership consultants to our client’s workplaces. Such consultants generally have access to client information systems and confidential information. An inherent risk of such activity includes possible claims of misuse or misappropriation of client intellectual property, confidential information, funds or other property, harassment, criminal activity, torts, or other claims. Such claims may result in negative publicity, injunctive relief, criminal investigations and/or charges, payment by us of monetary damages or fines, or other material adverse effects on our business. We cannot ensure that our insurance will cover all claims or that insurance coverage will be available at economically acceptable rates. Our insurance may also require us to meet a deductible. Significant uninsured liabilities could have a material adverse effect on our business, financial condition and results of operations. We rely heavily on our information systems and if we lose that technology, or fail to further develop our technology, our business could be harmed. Our success depends in large part upon our ability to store, retrieve, process, manage and protect substantial amounts of information. To achieve our strategic objectives and to remain competitive, we must continue to develop and enhance our information systems. This may require the acquisition of equipment and software and the development of new proprietary software, either internally or through independent consultants. If we are unable to design, develop, implement and utilize, in a cost-effective manner, information systems that provide the capabilities necessary for us to compete effectively, or for any reason any interruption or loss of our information processing capabilities occurs, this could harm our business, results of operations and financial condition. Although we have disaster recovery procedures in place and insurance to protect against the effects of a disaster on our information technology, we cannot be sure that insurance or these disaster recovery procedures currently in place will continue to be available at reasonable prices, cover all our losses or compensate us for the possible loss of clients occurring during any period that we are unable to provide business services. Cyber security vulnerabilities could lead to improper disclosure of information obtained from our clients, candidates and employees that could result in liability and harm our reputation. We use information technology and other computer resources to carry out operational and marketing activities and to maintain our business records. The continued occurrence of high-profile data breaches against various entities and organizations provides evidence of an external environment that is increasingly hostile to information security. This environment demands that we continuously improve our design and coordination of security controls across our business groups and geographies in order to protect information that we develop or that is obtained from our clients, candidates and employees. Despite these efforts, given the ongoing and increasingly sophisticated attempts to access the information of entities, our security controls over this information, our training of employees, and other practices we follow may not prevent the improper disclosure of such information. We have incurred costs to bolster our security against attacks; such efforts and expenditures, however, cannot provide absolute assurance that future data breaches will not occur. We depend on our overall reputation and brand name recognition to secure new engagements. Perceptions that we do not adequately protect the privacy of information could inhibit attaining new engagements and qualified consultants, and could potentially damage currently existing client relationships. 16


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    Table of Contents Data security, data privacy and data protection laws such as the E.U. General Data Protection Regulation, and other evolving regulations and cross-border data transfer restrictions, may limit the use of our services and adversely affect our business. We are or may become subject to a variety of laws and regulations in the European Union (including the E.U. General Data Protection Act), United States and abroad regarding data privacy, protection and security. As these laws continue to evolve, we may be required to make changes to our services, solutions and/or products so as to enable the Company and/or our clients to meet the new legal requirements, including by taking on more onerous obligations in our contracts, limiting our storage, transfer and processing of data and, in some cases, limiting our service and/or solution offerings in certain locations. Changes in these laws may also increase our potential exposure through significantly higher potential penalties for non-compliance. The costs of compliance with, and other burdens imposed by, such laws and regulations and client demands in this area may limit the use of, or demand for, our services, solutions and/or products, make it more difficult and costly to meet client expectations, or lead to significant fines, penalties or liabilities for noncompliance, any of which could harm our business. In addition, due to the uncertainty and potentially conflicting interpretations of these laws, it is possible that such laws and regulations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us to comply with applicable laws or satisfactorily protect personal information could result in governmental enforcement actions, litigation, or negative publicity, any of which could inhibit sales of our services, solutions and/or products. Limited protection of our intellectual property could harm our business, and we face the risk that our services or products may infringe upon the intellectual property rights of others. We cannot guarantee that trade secrets, trademark and copyright law protections are adequate to deter misappropriation of our intellectual property (which has become an important part of our business). Existing laws of some countries in which we provide services or products may offer only limited protection of our intellectual property rights. Redressing infringements may consume significant management time and financial resources. Also, we may be unable to detect the unauthorized use of our intellectual property and take the necessary steps to enforce our rights, which may have a material adverse impact on our business, financial condition or results of operations. We cannot be sure that our services and products, or the products of others that we offer to our clients, do not infringe on the intellectual property rights of third parties, and we may have infringement claims asserted against us or our clients. These claims may harm our reputation, result in financial liability and prevent us from offering some services or products. We have invested in specialized technology and other intellectual property for which we may fail to fully recover our investment or which may become obsolete. We have invested in developing specialized technology and intellectual property, including proprietary systems, processes and methodologies, such as Searcher Express and KF Insight, that we believe provide us a competitive advantage in serving our current clients and winning new engagements. Many of our service and product offerings rely on specialized technology or intellectual property that is subject to rapid change, and to the extent that this technology and intellectual property is rendered obsolete and of no further use to us or our clients, our ability to continue offering these services, and grow our revenues, could be adversely affected. There is no assurance that we will be able to develop new, innovative or improved technology or intellectual property or that our technology and intellectual property will effectively compete with the intellectual property developed by our competitors. If we are unable to develop new technology and intellectual property or if our competitors develop better technology or intellectual property, our revenues and results of operations could be adversely affected. We face risks associated with social and political instability, legal requirements and economic conditions in our international operations. We operate in 53 countries and, during the year ended April 30, 2017, generated 53% of our fee revenue from operations outside of the United States. We are exposed to the risk of changes in social, political, legal and 17


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    Table of Contents economic conditions inherent in international operations. Examples of risks inherent in transacting business worldwide that we are exposed to include: § uncertainties and instability in economic and market conditions caused by the U.K.’s vote to exit the European Union; § uncertainty regarding how the U.K.’s access to the EU Single Market and the wider trading, legal, regulatory and labor environments, especially in the U.K. and European Union, will be impacted by the U.K’s vote to exit the European Union, including the resulting impact on our business and that of our clients; § changes in and compliance with applicable laws and regulatory requirements, including U.S. laws affecting the activities of U.S. companies abroad, including the Foreign Corrupt Practices Act of 1977 and sanctions programs administered by the U.S. Department of the Treasury Office of Foreign Assets Control, and similar foreign laws such as the U.K. Bribery Act, as well as the fact that many countries have legal systems, local laws and trade practices that are unsettled and evolving, and/or commercial laws that are vague and/or inconsistently applied; § difficulties in staffing and managing global operations, which could impact our ability to maintain an effective system of internal control; § difficulties in building and maintaining a competitive presence in existing and new markets; § social, economic and political instability; § differences in cultures and business practices; § statutory equity requirements; § differences in accounting and reporting requirements; § repatriation controls; § differences in labor and market conditions; § potential adverse tax consequences; § multiple regulations concerning pay rates, benefits, vacation, statutory holiday pay, workers’ compensation, union membership, termination pay, the termination of employment, and other employment laws; and § the results of the November 2016 U.S. elections, which have introduced greater uncertainty with respect to trade policies, tariffs and government regulation affecting trade between the U.S. and other countries. We cannot ensure that one or more of these factors will not harm our business, financial condition or results of operations. Foreign currency exchange rate risks may adversely affect our results of operations. A material portion of our revenue and expenses are generated by our operations in foreign countries, and we expect that our foreign operations will account for a material portion of our revenue and expenses in the future. Most of our international expenses and revenue are denominated in foreign currencies. As a result, our financial results could be affected by factors, such as changes in foreign currency exchange rates or weak economic conditions in foreign markets in which we have operations. Fluctuations in the value of those currencies in relation to the United States dollar have caused and will continue to cause dollar-translated amounts to vary from one period to another. Given the volatility of exchange rates, we may not be able to manage effectively our currency translation or transaction risks, which may adversely affect our financial condition and results of operations. We may be limited in our ability to recruit candidates from our clients and we could lose those opportunities to our competition, which could harm our business. Either by agreement with clients, or for client relations or marketing purposes, we sometimes refrain from, for a specified period of time, recruiting candidates from a client when conducting searches on behalf of other clients. These off-limit agreements can generally remain in effect for up to two years following completion of an assignment. The duration and scope of the off-limit agreement, including whether it covers all operations of the client and its affiliates or only certain divisions of a client, generally are subject to negotiation or internal policies and may depend on factors such as the scope, size and complexity of the client’s business, the length of the client relationship and the frequency with which we have been engaged to perform executive searches for the client. If a prospective client believes that we are overly restricted by these off-limit agreements from recruiting employees of our existing clients, these prospective clients may not engage us to perform their executive searches. Therefore, 18


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    Table of Contents our inability to recruit candidates from these clients may make it difficult for us to obtain search assignments from, or to fulfill search assignments for, other companies in that client’s industry. We cannot ensure that off-limit agreements will not impede our growth or our ability to attract and serve new clients, or otherwise harm our business. Consolidation in the industries that we serve could harm our business. Companies in the industries that we serve may seek to achieve economies of scale and other synergies by combining with or acquiring other companies. If two or more of our clients merge or consolidate and combine their operations, we may experience a decrease in the amount of services we perform for these clients. If one of our clients merges or consolidates with a company that relies on another provider for its services, we may lose work from that client or lose the opportunity to gain additional work. The increased market power of larger companies could also increase pricing and competitive pressures on us. Any of these possible results of industry consolidation could harm our business, results of operations and financial condition. We have provisions that make an acquisition of us more difficult and expensive. Anti-takeover provisions in our Certificate of Incorporation, our Bylaws and under Delaware law make it more difficult and expensive for us to be acquired in a transaction that is not approved by our Board of Directors. Some of the provisions in our Certificate of Incorporation and Bylaws include: § limitation on stockholder actions; § advance notification requirements for director nominations and actions to be taken at stockholder meetings; and § the ability to issue one or more series of preferred stock by action of our Board of Directors. These provisions could discourage an acquisition attempt or other transaction in which stockholders could receive a premium over the current market price for the common stock. Unfavorable tax laws, tax law changes and tax authority rulings may adversely affect results. We are subject to income taxes in the United States and in various foreign jurisdictions. Domestic and international tax liabilities are subject to the allocation of income among various tax jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings among countries with differing statutory tax rates or changes in tax laws. The amount of income taxes and other taxes are subject to ongoing audits by United States federal, state and local tax authorities and by non-United States authorities. If these audits result in assessments different from estimated amounts recorded, future financial results may include unfavorable tax adjustments. We have deferred tax assets that we may not be able to use under certain circumstances. If we are unable to generate sufficient future taxable income in certain jurisdictions, or if there is a significant change in the time period within which the underlying temporary differences become taxable or deductible, we could be required to increase our valuation allowances against our deferred tax assets. This would result in an increase in our effective tax rate, and an adverse effect on our future operating results. In addition, changes in statutory tax rates may also change our deferred tax assets or liability balances, with either a favorable or unfavorable impact on our effective tax rate. Our deferred tax assets may also be impacted by new legislation or regulation. We may not be able to align our cost structure with our revenue level which in turn may require additional financing in the future that may not be available at all or may be available only on unfavorable terms. We continuously evaluate our cost base in relation to projected near to mid-term demand for our services in an effort to align our cost structure with the current realities of our markets. If actual or projected fee revenues are negatively impacted by weakening customer demand, we may find it necessary to take cost cutting measures so that we can minimize the impact on our profitability. There is, however, no guarantee that if we do take such measures that such measures will properly align our cost structure to our revenue level. Any failure to maintain a balance between our cost structure and our revenue could adversely affect our business, financial condition, and results of operations and lead to negative cash flows, which in turn might require us to obtain additional financing 19


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    Table of Contents to meet our capital needs. If we are unable to secure such additional financing on favorable terms, or at all, our ability to fund our operations could be impaired, which could have a material adverse effect on our results of operations. We invest in marketable securities classified as trading and if the market value of these securities declines materially, they could have an adverse effect on our financial position and results of operations. Marketable securities in which we invest consist of mutual funds. The primary objectives of the mutual funds are to meet the obligations under certain of our deferred compensation plans. If the financial markets in which these securities trade were to materially decline in value, the unrealized losses and potential realized losses could negatively impact the Company’s financial position and results of operations. Our inability to successfully recover should we experience a disaster or other business continuity problem could cause material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability. Should we experience a disaster or other business continuity problem, such as an earthquake, hurricane, terrorist attack, pandemic, security breach, power loss, telecommunications failure or other natural or man-made disaster, our continued success will depend, in part, on the availability of our personnel, our office facilities, and the proper functioning of our computer, telecommunication and other related systems and operations. In such an event, we could experience near-term operational challenges with regard to particular areas of our operations. In particular, our ability to recover from any disaster or other business continuity problem will depend on our ability to protect our technology infrastructure against damage from business continuity events that could have a significant disruptive effect on our operations. We could potentially lose client data or experience material adverse interruptions to our operations or delivery of services to our clients in a disaster. A disaster on a significant scale or affecting certain of our key operating areas within or across regions, or our inability to successfully recover should we experience a disaster or other business continuity problem, could materially interrupt our business operations and cause material financial loss, loss of human capital, regulatory actions, reputational harm, damaged client relationships or legal liability. As we develop new services, clients and practices, enter new lines of business, and focus more of our business on providing a full range of client solutions, the demands on our business and our operating risks may increase. As part of our corporate strategy, we are attempting to leverage our research and advisory services to sell a full range of services across the life cycle of a policy, program, project, or initiative, and we are regularly searching for ways to provide new services to clients. In addition, we plan to extend our services to new clients, into new lines of business, and into new geographic locations. As we focus on developing new services, clients, practice areas and lines of business; open new offices; and engage in business in new geographic locations, our operations may be exposed to additional as well as enhanced risks. In particular, our growth efforts place substantial additional demands on our management and staff, as well as on our information, financial, administrative and operational systems. We may not be able to manage these demands successfully. Growth may require increased recruiting efforts, opening new offices, increased business development, selling, marketing and other actions that are expensive and entail increased risk. We may need to invest more in our people and systems, controls, compliance efforts, policies and procedures than we anticipate. Therefore, even if we do grow, the demands on our people and systems, controls, compliance efforts, policies and procedures may exceed the benefits of such growth, and our operating results may suffer, at least in the short-term, and perhaps in the long-term. Efforts involving a different focus, new services, new clients, new practice areas, new lines of business, new offices and new geographic locations entail inherent risks associated with our inexperience and competition from mature participants in those areas. Our inexperience may result in costly decisions that could harm our profit and operating results. In particular, new or improved services often relate to the development, implementation and improvement of critical infrastructure or operating systems that our clients may view as “mission critical,” and if we fail to satisfy the needs of our clients in providing these services, our clients could incur significant costs and 20


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    Table of Contents losses for which they could seek compensation from us. Finally, as our business continues to evolve and we provide a wider range of services, we will become increasingly dependent upon our employees, particularly those operating in business environments less familiar to us. Failure to identify, hire, train and retain talented employees who share our values could have a negative effect on our reputation and our business. Our financial results could suffer if we are unable to achieve or maintain adequate utilization and suitable billing rates for our consultants. Our profitability depends, to a large extent, on the utilization and billing rates of our professionals. Utilization of our professionals is affected by a number of factors, including: § the number and size of client engagements; § the timing of the commencement, completion and termination of engagements (for example, the commencement or termination of multiple RPO engagements could have a significant impact on our business, including significant fluctuations in our fee revenue, since these types of engagements are generally larger, in terms of both staffing and fee revenue generated, than our other engagements); § our ability to transition our consultants efficiently from completed engagements to new engagements; § the hiring of additional consultants because there is generally a transition period for new consultants that results in a temporary drop in our utilization rate; § unanticipated changes in the scope of client engagements; § our ability to forecast demand for our services and thereby maintain an appropriate level of consultants; and § conditions affecting the industries in which we practice as well as general economic conditions. The billing rates of our consultants that we are able to charge are also affected by a number of factors, including: § our clients’ perception of our ability to add value through our services; § the market demand for the services we provide; § an increase in the number of clients in the government sector in the industries we serve; § introduction of new services by us or our competitors; § our competition and the pricing policies of our competitors; and § current economic conditions. If we are unable to achieve and maintain adequate overall utilization as well as maintain or increase the billing rates for our consultants, our financial results could materially suffer. In addition, our consultants oftentimes perform services at the physical locations of our clients. If there are natural disasters, disruptions to travel and transportation or problems with communications systems, our ability to perform services for, and interact with, our clients at their physical locations may be negatively impacted which could have an adverse effect on our business and results of operations. Changes in our accounting estimates and assumptions could negatively affect our financial position and results of operations. We prepare our consolidated financial statements in accordance with GAAP. These accounting principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of our financial statements. We are also required to make certain judgments that affect the reported amounts of revenues and expenses during each reporting period. We periodically evaluate our estimates and assumptions including those relating to revenue recognition, restructuring, deferred compensation, goodwill and other intangible assets, contingent consideration, annual performance related bonuses, allowance for doubtful accounts, share-based payments and deferred income taxes. We base our estimates on historical experience and various assumptions that we believe to be reasonable based on specific circumstances. Actual results could differ from these estimates, and changes in accounting standards could have an adverse impact on our future financial position and results of operations. 21


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    Table of Contents Our indebtedness could impair our financial condition and reduce funds available to us for other purposes and our failure to comply with the covenants contained in our debt instruments could result in an event of default that could adversely affect our operating results. On June 15, 2016, the Company entered into a senior secured $400 million Credit Agreement with a syndicate of banks made up of a $275 million term loan and $125 million of secured revolving loans. As of April 30, 2017, $259.5 million was outstanding under the term loan and there is no outstanding balance under the revolving loans. If we do not generate sufficient cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing plans. We cannot ensure that we would be able to refinance our debt or enter into alternative financing plans in adequate amounts on commercially reasonable terms, terms acceptable to us or at all, or that such plans guarantee that we would be able to meet our debt obligations. Our existing debt agreements contain financial and restrictive covenants that limit the total amount of debt that we may incur, and may limit our ability to engage in other activities that we may believe are in our long-term best interests, including the disposition or acquisition of assets or other companies or the payment of dividends to our shareholders. Our failure to comply with these covenants may result in an event of default, which, if not cured or waived, could accelerate the maturity of our indebtedness or prevent us from accessing additional funds under our revolving credit facility. If the maturity of our indebtedness is accelerated, we may not have sufficient cash resources to satisfy our debt obligations and we may not be able to continue our operations as planned. You may not receive the level of dividends provided for in the dividend policy our Board of Directors has adopted or any dividends at all. We are not obligated to pay dividends on our common stock. Our Board of Directors adopted a dividend policy on December 8, 2014, that reflects an intention to distribute to our stockholders a regular quarterly cash dividend of $0.10 per share of common stock. Although the Company paid our first dividend under this program on April 9, 2015 and has declared a quarterly dividend every quarter since the adoption of the dividend policy, the declaration and payment of all future dividends to holders of our common stock are subject to the discretion of our Board of Directors, which may amend, revoke or suspend our dividend policy at any time and for any reason, including earnings, capital requirements, financial conditions, and other factors our Board of Directors may deem relevant. The terms of our indebtedness may also restrict us from paying cash dividends on our common stock under certain circumstances. See below “—Our ability to pay dividends will be restricted by agreements governing our debt, including our credit agreement, and by Delaware law.” Over time, our capital and other cash needs may change significantly from our current needs, which could affect whether we pay dividends and the level of any dividends we may pay in the future. If we were to use borrowings under our credit facility to fund our payment of dividends, we would have less cash and/or borrowing capacity available for future dividends and other purposes, which could negatively affect our financial condition, our results of operations, our liquidity and our ability to maintain and expand our business. Accordingly, you may not receive dividends in the intended amounts, or at all. Any reduction or elimination of dividends may negatively affect the market price of our common stock. Our ability to pay dividends will be restricted by agreements governing our debt, including our credit agreement, and by Delaware law. Our credit agreement restricts our ability to pay dividends. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” where we describe the terms of our indebtedness, including provisions limiting our ability to declare and pay dividends. As a result of such restrictions, we may be limited in our ability to pay dividends unless we amend our credit agreement or otherwise obtain a waiver from our lenders. In addition, as a result of general economic conditions, conditions in the lending markets, the results of our business or for any other reason, we may elect or be required to amend or refinance our senior credit facility, at or prior to maturity, or enter into additional agreements for indebtedness. Any such amendment, refinancing or additional agreement may contain covenants which could limit in a significant manner or entirely our ability to pay dividends to you. 22


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    Table of Contents Additionally, under the Delaware General Corporation Law (“DGCL”), our Board of Directors may not authorize payment of a dividend unless it is either paid out of surplus, as calculated in accordance with the DGCL, or if we do not have a surplus, it is paid out of net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. If, as a result of these restrictions, we are required to reduce or eliminate the payment of dividends, a decline in the market price or liquidity, or both, of our common stock could result. This may in turn result in losses by you. Our dividend policy may limit our ability to pursue growth opportunities. If we pay dividends at the level currently anticipated under our dividend policy, we may not retain a sufficient amount of cash to finance growth opportunities, meet any large unanticipated liquidity requirements or fund our operations in the event of a significant business downturn. In addition, because a portion of cash available will be distributed to holders of our common stock under our dividend policy, our ability to pursue any material expansion of our business, including through acquisitions, increased capital spending or other increases of our expenditures, will depend more than it otherwise would on our ability to obtain third party financing. We cannot assure you that such financing will be available to us at all, or at an acceptable cost. If we are unable to take timely advantage of growth opportunities, our future financial condition and competitive position may be harmed, which in turn may adversely affect the market price of our common stock. We are increasingly dependent on third parties for the execution of critical functions. We do not maintain all of our technology infrastructure, and we have outsourced certain other critical applications or business processes to external providers, including cloud-based services. The failure or inability to perform on the part of one or more of these critical suppliers or partners could cause significant disruptions and increased costs. Item 1B. Unresolved Staff Comments Not applicable. Item 2. Properties Our corporate office is located in Los Angeles, California. We lease all 114 of our Executive Search, Hay Group, and Futurestep offices located in North America, EMEA, Asia Pacific and Latin America. As of April 30, 2017, we leased an aggregate of approximately 1.4 million square feet of office space. The leases generally have remaining terms of one to 13 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 a plaintiff and a 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. Mine Safety Disclosures Not applicable. Executive Officers of the Registrant Age as of April 30, Name 2017 Position Gary D. Burnison 56 President and Chief Executive Officer Robert P. Rozek 56 Executive Vice President, Chief Financial Officer and Chief Corporate Officer Mark Arian 56 Chief Executive Officer, Hay Group Byrne Mulrooney 56 Chief Executive Officer, Futurestep 23


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    Table of Contents 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 each of our executive officers. Gary D. Burnison has been President and Chief Executive Officer since July 2007. He was Executive Vice President and Chief Financial Officer from March 2002 until June 30, 2007 and Chief Operating Officer from November 2003 until June 30, 2007. Prior to joining Korn Ferry, Mr. Burnison was Principal and Chief Financial Officer of Guidance Solutions, a privately held consulting firm, from 1999 to 2001. Prior to that, he served as an executive officer and a member of the board of directors of Jefferies and Company, Inc., the principal operating subsidiary of Jefferies Group, Inc. from 1995 to 1999. Earlier, Mr. Burnison was a partner at KPMG Peat Marwick. Robert P. Rozek joined the Company in February 2012 as our Executive Vice President and Chief Financial Officer and in December 2015 also became our Chief Corporate Officer. Prior to joining Korn Ferry, he served as Executive Vice President and Chief Financial Officer of Cushman & Wakefield, Inc., a privately held commercial real estate services firm, from June 2008 to February 2012. Prior to joining Cushman & Wakefield, Inc., Mr. Rozek served as Senior Vice President and Chief Financial Officer of Las Vegas Sands Corp., a leading global developer of destination properties (integrated resorts) that feature premium accommodations, world-class gaming and entertainment, convention and exhibition facilities and many other amenities, from 2006 to 2008. Prior to that, Mr. Rozek held senior leadership positions at Eastman Kodak, and spent five years as a partner with PricewaterhouseCoopers LLP. Mark Arian joined the Company as Chief Executive Officer of Korn Ferry’s Hay Group segment in April 2017. Prior to Korn Ferry, Mr. Arian served as a Managing Principal at Ernst and Young LLP, a multinational professional services firm that provides audit, tax, business risk, technology and security risk services, and human capital services worldwide, from March 2014 until March of 2017. In that capacity, he led the People Advisory Services – Financial Services Sector, and his responsibilities included commercial, people and key account leadership. Between 2008 and 2014, Mr. Arian held various leadership positions at AON and AON Hewitt, a provider of insurance, reinsurance, human capital and management consulting services, serving as an Executive Vice President and leading its strategic M&A and business transformation offering globally. Mr. Arian has also held various leadership positions at Towers Perrin (now Wills Towers Watson) including serving as the Global M&A and Global Change Management Leader, and Hewitt Associates, where Mr. Arian built and led the Corporate Restructuring and Change Practice. Mr. Arian is a graduate of Duke University and holds a juris doctorate from Columbia University. Byrne Mulrooney joined the Company in April 2010 as Chief Executive Officer of Futurestep. Prior to joining Korn Ferry, he was President and Chief Operating Officer of Flynn Transportation Services, a third party logistics company, from 2007 to 2010. Prior to that, he led Spherion’s workforce solutions business in North America, which provides workforce solutions in professional services and general staffing, including recruitment process outsourcing and managed services, from 2003 to 2007. Mr. Mulrooney held executive positions for almost 20 years at EDS and IBM in client services, sales, marketing and operations. Mr. Mulrooney is a graduate of Villanova University in Pennsylvania. He holds a master’s degree in management from Northwestern University’s J.L. Kellogg Graduate School of Management. 24


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    Table of Contents PART II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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: High Low Fiscal Year Ended April 30, 2017 First Quarter $ 30.78 $ 18.57 Second Quarter $ 24.85 $ 19.94 Third Quarter $ 31.53 $ 19.95 Fourth Quarter $ 33.14 $ 27.47 Fiscal Year Ended April 30, 2016 First Quarter $ 36.34 $ 30.73 Second Quarter $ 36.74 $ 32.02 Third Quarter $ 38.93 $ 28.69 Fourth Quarter $ 31.27 $ 25.21 On June 20, 2017, the last reported sales price on the New York Stock Exchange for the Company’s common stock, was $33.72 per share and there were approximately 9,701 beneficial stockholders of the Company’s common stock. Performance Graph We have presented below a graph comparing the cumulative total stockholder return on the Company’s shares with the cumulative total stockholder return on (1) the Standard & Poor’s 500 Stock Index and (2) a company-established peer group. Cumulative total return for each of the periods shown in the performance graph is measured assuming an initial investment of $100 on April 30, 2012 and the reinvestment of any dividends paid by the Company and any company in the peer group on the date the dividends were paid. Our peer group, is comprised of a broad number of publicly traded companies, which are principally or in significant part involved in either professional staffing or consulting. The peer group is comprised of the following 14 companies: CBIZ, Inc. (CBZ), FTI Consulting, Inc. (FCN), Heidrick & Struggles International, Inc. (HSII), Huron Consulting Group Inc. (HURN), ICF International, Inc. (ICFI), Insperity, Inc. (NSP), Kelly Services, Inc. (KELYA), Kforce Inc. (KFRC), Navigant Consulting, Inc. (NCI), Resources Connection, Inc. (RECN), Robert Half International, Inc. (RHI), The Dun & Bradstreet Corporation (DNB), Willis Towers Watson (WLTW) and TrueBlue, Inc. (TBI). We believe this group of professional services firms, is reflective of similar sized companies in terms of our market capitalization, revenue or profitability, and therefore provides a more meaningful comparison of stock performance. The returns of each company have been weighted according to their respective stock market capitalization at the beginning of each measurement period for purposes of arriving at a peer group average. The stock price performance depicted in this graph is not necessarily indicative of future price performance. This graph will not be deemed to be incorporated by reference by any general statement incorporating this Form 10-K into any filing by us under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate this information by reference, and shall not otherwise be deemed soliciting material or deemed filed under the Securities Act of 1933 or the Securities Exchange Act of 1934. 25


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    Table of Contents COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN (*) Among Korn/Ferry International, the S&P 500 Index, and a Peer Group Copyright© 2017 Standard & Poor’s, a division of S&P Global. All rights reserved. (*) $100 invested on April 30, 2012 in stock or index, including reinvestment of dividends. Fiscal year ended April 30, 2017. Capital Allocation Approach The Company and its Board of Directors endorse a balanced approach to capital allocation. The Company’s first priority is to invest in growth initiatives, such as the hiring of consultants, the continued development of intellectual property and derivative products and services, and the investment in synergistic accretive M&A transactions that earn a return superior to the Company’s cost of capital. Next, the Company’s capital allocation approach contemplates the planned return of a portion of excess capital to stockholders, in the form of a regular quarterly dividend, subject to the factors discussed below under “Dividends” and in more detail in the “Risk Factors” section of this Annual Report on Form 10-K. Additionally, the Company considers share repurchases on an opportunistic basis and subject to the terms of our credit agreement. Dividends On December 8, 2014, the Board of Directors adopted a dividend policy, reflecting an intention to distribute to our stockholders a regular quarterly cash dividend of $0.10 per share. In fiscal 2016, the Board of Directors declared the following dividends: Total Amount Declaration Date Dividend Per Share Record Date (in thousands) Payment Date June 10, 2015 $0.10 June 25, 2015 $5,115 July 15, 2015 September 7, 2015 $0.10 September 25, 2015 $5,174 October 15, 2015 December 8, 2015 $0.10 December 21, 2015 $5,770 January 15, 2016 March 8, 2016 $0.10 March 25, 2016 $5,774 April 15, 2016 In fiscal 2017, the Board of Directors declared the following dividends: Total Amount Declaration Date Dividend Per Share Record Date (in thousands) Payment Date June 15, 2016 $0.10 June 27, 2016 $5,909 July 15, 2016 September 7, 2016 $0.10 September 26, 2016 $5,841 October 14, 2016 December 6, 2016 $0.10 December 20, 2016 $5,796 January 17, 2017 March 6, 2017 $0.10 March 23, 2017 $5,772 April 14, 2017 The declaration and payment of future dividends under the quarterly dividend policy will be at the discretion of the Board of Directors and will depend upon many factors, including the Company’s earnings, capital requirements, 26


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    Table of Contents financial conditions, the terms of the Company’s indebtedness and other factors that the Board of Directors may deem to be relevant. The Board may amend, revoke or suspend the dividend policy at any time and for any reason. Our senior secured revolving credit agreement, dated June 15, 2016, permits us to pay dividends to our stockholders and make share repurchases so long as our pro forma leverage ratio, defined as, the ratio of consolidated funded indebtedness to consolidated adjusted EBITDA, is no greater than 2.50 to 1.00, and our pro forma domestic liquidity is at least $50.0 million. Stock Repurchase Program On December 8, 2014, the Board of Directors approved an increase in the Company’s stock repurchase program to an aggregate of $150.0 million. Common stock may be repurchased from time to time in open market or privately negotiated transactions at the Company’s discretion subject to market conditions and other factors. During the second quarter of fiscal 2017, the Company began to repurchase shares through this program. The Company repurchased approximately $28.8 million of the Company’s common stock during fiscal 2017. Our dividend policy as well as any decision to execute on our stock repurchase program will depend on our earnings, capital requirements, financial condition and other factors considered relevant by our Board of Directors. Our credit agreement permits us to pay dividends to our stockholders and make share repurchases so long as our pro forma leverage ratio is no greater than 2.50 to 1.00, and our pro forma domestic liquidity is at least $50.0 million. Issuer Purchases of Equity Securities The following table summarizes common stock repurchased by us during the fourth quarter of fiscal 2017: Shares Approximate Purchased Dollar Value of Average as Part of Shares that Price Publicly- May Yet be Shares Paid Announced Purchased Purchased Per Programs under the (1) Share (2) Programs (2) February 1, 2017 — February 28, 2017 174,384 $ 28.27 174,384 $ 128.8 million March 1, 2017 — March 31, 2017 62,177 $ 30.96 61,380 $ 126.9 million April 1, 2017 — April 30, 2017 196,689 $ 30.65 185,714 $ 121.2 million Total 433,250 $ 29.74 421,478 (1) Represents withholding of a portion of restricted shares to cover taxes on vested restricted shares and shares purchased as part of our publicly announced programs. (2) On December 8, 2014, the Board of Directors also approved an increase in the Company’s stock repurchase program to an aggregate of $150.0 million. The shares can be repurchased in open market transactions or privately negotiated transactions at the Company’s discretion. We repurchased approximately $12.5 million of the Company’s common stock under the program during the fourth quarter of fiscal 2017. 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 Notes to Consolidated Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report on Form 10-K. The selected statement of income data set forth below for the fiscal years ended April 30, 2017, 2016 and 2015 and the selected balance sheet data as of April 30, 2017 and 2016 are derived from our consolidated financial statements, audited by Ernst & Young LLP, appearing elsewhere in this Form 10-K. The selected balance sheet data as of April 30, 2015, 2014 and 2013 and the selected statement of income data set forth below for the fiscal years ended April 30, 2014 and 2013 are derived from consolidated financial statements and notes thereto which are not included in this Form 10-K report and were audited by Ernst & Young LLP. 27


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    Table of Contents Year Ended April 30, 2017 2016 (1) 2015 (2) 2014 2013 (in thousands, except per share data and other operating data) Selected Statement of Income Data: Fee revenue $ 1,565,521 $ 1,292,112 $ 1,028,152 $ 960,301 $ 812,831 Reimbursed out-of-pocket engagement expenses 56,148 54,602 37,914 35,258 36,870 Total revenue 1,621,669 1,346,714 1,066,066 995,559 849,701 Compensation and benefits 1,071,507 897,345 691,450 646,889 555,346 General and administrative expenses 226,232 213,018 145,917 152,040 142,771 Reimbursed expenses 56,148 54,602 37,914 35,258 36,870 Cost of services 71,482 59,824 39,692 39,910 28,977 Depreciation and amortization 47,260 36,220 27,597 26,172 19,004 Restructuring charges, net (3) 34,600 33,013 9,468 3,682 22,857 Total operating expenses 1,507,229 1,294,022 952,038 903,951 805,825 Operating income 114,440 52,692 114,028 91,608 43,876 Other income (loss), net 11,820 (4,167) 7,458 9,769 6,309 Interest (expense) income, net (10,251) 237 (1,784) (2,363) (2,365) Equity in earnings of unconsolidated subsidiaries, net 333 1,631 2,181 2,169 2,110 Income tax provision 29,104 18,960 33,526 28,492 16,637 Net income 87,238 31,433 88,357 72,691 33,293 Net income attributable to noncontrolling interest (3,057) (520) — — — Net income attributable to Korn/Ferry International $ 84,181 $ 30,913 $ 88,357 $ 72,691 $ 33,293 Basic earnings per share $ 1.48 $ 0.58 $ 1.78 $ 1.51 $ 0.71 Diluted earnings per share $ 1.47 $ 0.58 $ 1.76 $ 1.48 $ 0.70 Basic weighted average common shares outstanding 56,205 52,372 49,052 48,162 47,224 Diluted weighted average common shares outstanding 56,900 52,929 49,766 49,145 47,883 Cash dividends declared per common share $ 0.40 $ 0.40 $ 0.10 $ — $ — Other Operating Data: Fee revenue by business segment: Executive search: North America $ 356,625 $ 371,345 $ 330,634 $ 306,768 $ 290,317 EMEA 146,506 144,319 153,465 147,917 128,807 Asia Pacific 80,169 80,506 84,148 84,816 73,221 Latin America 34,376 26,744 29,160 29,374 30,134 Total executive search 617,676 622,914 597,407 568,875 522,479 Hay Group 724,186 471,145 267,018 254,636 168,115 Futurestep 223,659 198,053 163,727 136,790 122,237 Total fee revenue $ 1,565,521 $ 1,292,112 $ 1,028,152 $ 960,301 $ 812,831 Number of offices (at period end) (4) 114 150 78 84 87 Number of consultants (at period end) 1,330 1,164 694 646 607 Number of new engagements opened 8,126 7,430 6,755 6,483 6,126 Number of full-time employees: Executive search 1,791 1,682 1,562 1,566 1,471 Hay Group 3,598 3,626 894 794 886 Futurestep 1,710 1,530 1,147 958 835 Corporate 133 109 84 78 80 Total full-time employees 7,232 6,947 3,687 3,396 3,272 Selected Balance Sheet Data as of April 30: Cash and cash equivalents $ 410,882 $ 273,252 $ 380,838 $ 333,717 $ 224,066 Marketable securities (5) 119,937 141,430 144,576 134,559 141,916 Working capital 385,095 188,010 331,148 270,535 175,038 Total assets 2,062,898 1,898,600 1,317,801 1,233,666 1,115,229 Long-term obligations 517,271 375,035 196,542 191,197 182,210 Total stockholders’ equity 1,087,048 1,047,301 815,249 755,536 664,468 28


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    Table of Contents (1) Due to the acquisition of Legacy Hay on December 1, 2015, which accounted for $186.8 million and $740.2 million of fee revenue and total assets, respectively, during fiscal 2016, financial data trends for fiscal 2017 and 2016 are not comparable to prior periods. See Note 12 – Acquisitions, in the Notes to our Consolidated Financial Statements in this Annual Report on Form 10-K for discussion of fiscal 2016 acquisitions. (2) Due to the acquisition of Pivot Leadership on March 1, 2015, which accounted for $3.7 million and $20.0 million of fee revenue and total assets, respectively, during fiscal 2015, financial data trends for fiscal 2015 are not comparable to prior periods. See Note 12 – Acquisitions, in the Notes to our Consolidated Financial Statements in this Annual Report on Form 10-K for discussion of fiscal 2015 acquisitions. (3) During fiscal 2017, the Company continued to implement the 2016 restructuring plan in order to integrate the Hay Group entities that were acquired in fiscal 2016 by eliminating redundant positions and operational, general and administrative expenses and consolidating office space. This resulted in restructuring charges of $34.6 million, of which $16.0 million related to severance and $18.6 million related to consolidation of office spaces. In fiscal 2016, the Company implemented a restructuring plan in order to rationalize its cost structure by eliminating redundant positions and consolidating office space due to the acquisition of Legacy Hay on December 1, 2015. As a result, we recorded $33.0 million in restructuring charges, of which $32.1 million related to severance and $0.9 million related to consolidation and abandonment of premises. In fiscal 2015, the Company took actions to rationalize its cost structure as a result of efficiencies obtained from prior year technology investments that enabled further integration of the legacy business and the recent acquisitions (PDI and Global Novations), as well as other cost saving initiatives. As a result, we recorded $9.2 million of severance and $0.3 million relating to the consolidation/abandonment of premises. In fiscal 2014, the Company continued the implementation of the fiscal 2013 restructuring plan in order to integrate the prior year acquisitions by consolidating and eliminating certain redundant office space around the world and by continuing to consolidate certain overhead functions. As a result, we recorded $0.8 million and $16.3 million of severance during fiscal 2014 and 2013, respectively, and $2.9 million and $6.5 million related to the consolidation of premises during fiscal 2014 and 2013, respectively. (4) The number of offices decreased by 36 as of April 30, 2017 compared to April 30, 2016, due to the continued implementation of the 2016 restructuring plan. (5) As of April 30, 2017, 2016, 2015, 2014 and 2013, the Company’s marketable securities included $119.9 million, $141.4 million, $131.4 million, $116.2 million, and $98.0 million, respectively, held in trust for settlement of the Company’s obligations under certain of its deferred compensation plans. See Note 5 – Financial Instruments in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K. 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, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. 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,” “likely,” “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, maintaining our brand name and professional reputation, potential legal liability and regulatory developments, portability of client relationships, global and local political or economic developments in or affecting countries where we have operations, currency fluctuations in our international operations, risks related to growth, restrictions imposed by off-limits agreements, competition, reliance on information processing systems, cyber security vulnerabilities, limited protection of our intellectual property, our ability to enhance and develop new technology, our ability to successfully recover from a disaster or business continuity problems, employment liability risk, an impairment in the carrying value of goodwill and other intangible assets, deferred tax assets that we may not be able to use, our ability to develop new products and services, changes in our accounting estimates and assumptions, alignment of our cost structure, risks related to the integration of recently acquired businesses, the utilization and billing rates of our consultants, seasonality and the matters disclosed under the heading “Risk Factors” in the Company’s Exchange Act reports, including Item 1A included in this Annual Report. Readers are urged to consider these 29


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    Table of Contents factors carefully in evaluating the forward-looking statements. The forward-looking statements included in this Annual Report on Form 10-K are made only as of the date of this Annual Report on Form 10-K 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 and related notes included in this Annual Report on Form 10-K. 30


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    Table of Contents Executive Summary Korn/Ferry International (referred to herein as the “Company,” “Korn Ferry,” or in the first person notations “we,” “our,” and “us”) is the preeminent global people and organizational advisory firm. Our services include Executive Search, advisory solutions and products through Hay Group (formerly known as Leadership & Talent Consulting (“Legacy LTC”) which was combined with HG (Luxembourg) S.à.r.l (“Legacy Hay”) in December 2015) and recruitment for non-executive professionals and recruitment process outsourcing (“RPO”) through Futurestep. Approximately 71% of the executive searches we performed in fiscal 2017 were for board level, chief executive and other senior executive and general management positions. Our 3,589 search engagement clients in fiscal 2017 included many of the world’s largest and most prestigious public and private companies, including approximately 57% of the FORTUNE 500, middle market and emerging growth companies, as well as government and nonprofit organizations. We have built strong client loyalty, with 82% of assignments performed during fiscal 2017 having been on behalf of clients for whom we had conducted assignments in the previous three fiscal years. Approximately 61% of our revenues were generated from clients that utilize multiple lines of business. Superior performance comes from having the right conditions for success in two key areas – the organization and its people. Organizational conditions encourage people to put forth their best effort and invest their energy towards achieving the organization’s purpose. We can help a client operationalize its business strategy through our six solution sets: Strategy Execution & Organization Design We establish the conditions for success by clarifying strategy; designing an operating model and organization structure that aligns to it; and defining a high performance culture. We enable strategic change by engaging and motivating people to perform. Talent Strategy and Work Design We map talent strategy to business strategy and help organizations put their plan into action. We make sure they have the right people, in the right roles, engaged and enabled to do the right things. Rewards and Benefits We help organizations align reward with strategy. We help them pay their people fairly for doing the right things – with rewards they value – at a cost the organization can afford. Assessment and Succession We provide actionable, research-backed insights that allow organizations to understand the true capabilities of their people so they can make decisions that ensure the right leaders are ready — when and where they are needed — in the future. Executive Search and Recruitment We integrate scientific research with our practical experience and industry-specific expertise to recruit professionals of all levels and functions at organizations across every industry. Leadership Development We activate purpose, vision, and strategy through leaders at all levels and organizations. We combine expertise, science, and proven techniques with forward thinking and creativity to build leadership experiences that help entry to senior-level leaders grow and deliver superior results. During fiscal 2017, we continued the implementation of our fiscal 2016 restructuring plan in order to rationalize our cost structure by eliminating redundant positions, general and administrative expenses and consolidation of office space that were created due to the acquisition of Legacy Hay in December 2015. In particular, the majority of our efforts in both fiscal 2017 and 2016, were focused on activities associated with integration of our go-to-market activities, our intellectual property and content, our solution sets and service offerings, and our back office systems and business processes. As a result of these efforts, we recorded $34.6 million of restructuring charges with $16.0 million related to severance costs and $18.6 million related to the consolidation of office space during the fiscal 2017 while in fiscal 2016 we recorded $33.0 million of restructuring charges with $32.1 million related to severance costs and $0.9 million related to the consolidation/abandonment of premises. The Company currently operates in three global business segments: Executive Search, Hay Group and Futurestep. See Note 11 –Business Segments, in the Notes to our Consolidated Financial Statements in this Annual Report on Form 10-K, for discussion of the Company’s global business segments. The Company evaluates performance and allocates resources based on the chief operating decision maker’s review of (1) fee revenue and 31


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    Table of Contents (2) adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”). To the extent that such charges occur, Adjusted EBITDA excludes restructuring charges, integration/acquisition costs, certain separation costs and certain non-cash charges (goodwill, intangible asset and other than temporary impairment). For fiscal 2017 and fiscal 2016, Adjusted EBITDA includes a deferred revenue adjustment related to the Legacy Hay acquisition, reflecting revenue that Hay Group would have realized if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue. Adjusted EBITDA and EBITDA are non-GAAP financial measures. They have limitations as analytical tools, should not be viewed as a substitute for financial information determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. In addition, such measures may not necessarily be comparable to non-GAAP performance measures that may be presented by other companies. Management believes the presentation of this non-GAAP financial measure provides meaningful supplemental information regarding Korn Ferry’s performance by excluding certain charges, items of income and other items that may not be indicative of Korn Ferry’s ongoing operating results. The use of this non- GAAP financial measure facilitates comparisons to Korn Ferry’s historical performance and identification of operating trends that may otherwise be distorted by certain charges and other items that may not be indicative of Korn Ferry’s ongoing operating results. Korn Ferry includes this non-GAAP financial measure because management believes it is useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn Ferry’s ongoing operations and financial and operational decision-making. The accounting policies for the reportable segments are the same as those described in the summary of significant accounting policies in the accompanying consolidated financial statements, except that the above noted items are excluded from EBITDA to arrive at Adjusted EBITDA. Management further believes that EBITDA is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures, effective tax rates and tax attributes and capitalized asset values, all of which can vary substantially from company to company. Similarly, adjusted fee revenue is a non-GAAP financial measure. Adjusted fee revenue is not a measure that substitutes an individually tailored revenue recognition or measurement method for those of GAAP. This is an adjustment for a short period of time that will provide better comparability in the current and prior periods. Management believes the presentation of adjusted fee revenue assists management in its evaluation of ongoing operations and provides useful information to investors because it allows investors to make more meaningful period-to-period comparisons of the Company’s operating results, to better identify operating trends that may otherwise be distorted by write-offs required under business combination accounting and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry’s ongoing operations and financial and operational decision-making. The deferred revenue adjustment is no longer included in the result of operation as of Q2 of fiscal 2017 as the impact of purchase accounting no longer has an impact on actual results. Fee revenue increased $273.4 million, or 21% in fiscal 2017 to $1,565.5 million compared to $1,292.1 million in fiscal 2016, with increases in fee revenue in Hay Group and Futurestep segments, offset by a decrease in Executive Search. During fiscal 2017, we recorded operating income of $114.4 million with Executive Search, Hay Group, and Futurestep segments contributing $124.3 million, $47.3 million, and $30.0 million, respectively, offset by Corporate expenses of $87.1 million. Net income attributable to Korn Ferry in fiscal 2017 was $84.2 million, an increase of $53.3 million from net income attributable to Korn Ferry of $30.9 million in fiscal 2016. Adjusted EBITDA was $235.0 million for fiscal 2017 with Executive Search, Hay Group and Futurestep segments contributing $137.4 million, $128.2 million, and $32.8 million, respectively, offset by Corporate expenses net of other income of $63.4 million. Adjusted EBITDA was $235.0 million in fiscal 2017, an increase of $44.8 million from Adjusted EBITDA of $190.2 million during fiscal 2016. Our cash, cash equivalents and marketable securities increased $116.1 million, or 28%, to $530.8 million at April 30, 2017, compared to $414.7 million at April 30, 2016. This increase is mainly due to the drawdown on June 15, 2016 of $275.0 million on our then-new term loan of which $140.0 million of the proceeds were used to pay-off the term loan that was outstanding as of April 30, 2016 and cash provided by operating activities, offset by bonuses earned in fiscal 2016 and paid in the first quarter of 2017, $50.1 million in payments for the purchase of 32


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    Table of Contents fixed assets, $28.8 million in stock repurchases in the open market, and $23.3 million in dividends paid during the fiscal year 2017. As of April 30, 2017, we held marketable securities to settle obligations under our Executive Capital Accumulation Plan (“ECAP”) with a cost value of $113.8 million and a fair value of $119.9 million. Our vested obligations for which these assets were held in trust totaled $99.5 million as of April 30, 2017 and our unvested obligations totaled $37.6 million. Our working capital increased by $197.1 million to $385.1 million in fiscal 2017. We believe that cash on hand and funds from operations and other forms of liquidity will be sufficient to meet our anticipated working capital, capital expenditures, general corporate requirements, repayment of the debt obligations incurred in connection with the Legacy Hay acquisition, the retention pool obligations pursuant to the Legacy Hay acquisition and dividend payments under our dividend policy in the next twelve months. We had $259.5 million outstanding under our Term Facility as of April 30, 2017, of which $20.6 million will be due within a year. We had no outstanding borrowings under our revolving credit facility at April 30, 2017 or 2016. As of April 30, 2017 and 2016, there was $3.0 million and $2.8 million of standby letters of credit issued under our long-term debt arrangements, respectively. We have a total of $8.1 million and $6.4 million of standby letters of credits with other financial institutions as of April 30, 2017 and 2016, respectively. The standby letters of credits were generally issued as a result of entering into office premise leases. Critical Accounting Policies The following discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements. Preparation of our periodic filings requires us to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates and assumptions and changes in the estimates are reported in current operations as new information is learned or upon the amounts becoming fixed and determinable. In preparing our consolidated financial statements and accounting for the underlying transactions and balances, we apply our accounting policies as disclosed in the notes to our consolidated financial statements. We consider the policies discussed below as critical to an understanding of our consolidated financial statements because their application places the most significant demands on management’s judgment and estimates. Specific risks for these critical accounting policies are described in the following paragraphs. Senior management has discussed the development, selection and key assumptions of the critical accounting estimates with the Audit Committee of the Board of Directors. Revenue Recognition. Management is required to establish policies and procedures to ensure that revenue is recorded over the performance period for valid engagements and related costs are matched against such revenue. Substantially all fee revenue is derived from fees for professional services related to executive search performed on a retained basis, recruitment for non-executive professionals, recruitment process outsourcing, people and organizational advisory services and the sale of product services. Fee revenue from executive search activities and recruitment for non-executive professionals is generally one-third of the estimated first year compensation of the placed executive or non-executive professional, as applicable, plus a percentage of the fee to cover indirect engagement related expenses. We generally recognize such revenue on a straight-line basis over a three-month period, commencing upon client acceptance, as this is the period over which the recruitment services are performed. Fees earned in excess of the initial contract amount are recognized upon completion of the engagement, which reflect the difference between the final actual compensation of the placed executive and the estimate used for purposes of the previous billings. Since the initial contract fees are typically not contingent upon placement of a candidate, our assumptions primarily relate to establishing the period over which such service is performed. These assumptions determine the timing of revenue recognition and profitability for the reported period. If these assumptions do not accurately reflect the period over which revenue is earned, revenue and profit could differ. Any revenues associated with services that are provided on a contingent basis are recognized once the contingency is resolved. In addition to recruitment for non-executive professionals, Futurestep provides RPO services and fee revenue is recognized as services are rendered and/or as milestones are achieved. Fee revenue from Hay Group is recognized as services are rendered for consulting engagements and other time based services, measured by total hours incurred to the total estimated hours at completion. It is possible that updated estimates for the consulting engagement may vary from initial estimates with such updates being recognized in the 33


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    Table of Contents period of determination. Depending on the timing of billings and services rendered, we accrue or defer revenue as appropriate. Hay Group revenue is also derived from the sale of product services, which includes revenue from licenses and from the sale of products. Revenue from licenses is recognized using a straight-line method over the term of the contract (generally 12 months). Under the fixed term licenses, we are obligated to provide the licensee with access to any updates to the underlying intellectual property that are made by us during the term of the license. Once the term of the agreement expires, the client’s right to access or use the intellectual property expires and we have no further obligations to the client under the license agreement. Revenue from perpetual licenses is recognized when the license is sold since our only obligation is to provide the client access to the intellectual property but is not obligated to provide maintenance, support, updates or upgrades. Products sold by us mainly consist of books and automated services covering a variety of topics including performance management, team effectiveness, and coaching and development. We recognize revenue for its products when the product has been sold or shipped in the case of books. Furthermore, a provision for doubtful accounts on recognized revenue is established with a charge to general and administrative expenses based on historical loss experience, assessment of the collectability of specific accounts, as well as expectations of future collections based upon trends and the type of work for which services are rendered. Annual Performance Related Bonuses. Each quarter, management makes its best estimate of its annual performance related bonuses, which requires management to, among other things, project annual consultant productivity (as measured by engagement fees billed and collected by executive search consultants and revenue and other performance/profitability metrics for Hay Group and Futurestep consultants), the level of engagements referred by a consultant in one line of business to a different line of business, Company performance including profitability, competitive forces and future economic conditions and their impact on our results. At the end of each fiscal year, annual performance related bonuses take into account final individual consultant productivity (including referred work), Company/line of business results including profitability, the achievement of strategic objectives and the results of individual performance appraisals, and the current economic landscape. Accordingly, each quarter we reevaluate the assumptions used to estimate annual performance related bonus liability and adjusts the carrying amount of the liability recorded on the consolidated balance sheet and reports any changes in the estimate in current operations. Because annual performance-based bonuses are communicated and paid only after we report its full fiscal year results, actual performance-based bonus payments may differ from the prior year’s estimate. Such changes in the bonus estimate historically have been immaterial and are recorded in current operations in the period in which they are determined. Deferred Compensation. Estimating deferred compensation requires assumptions regarding the timing and probability of payments of benefits to participants and the discount rate. Changes in these assumptions could significantly impact the liability and related cost on our consolidated balance sheet and statement of income, respectively. For certain deferred compensation plans, management engages an independent actuary to periodically review these assumptions in order to confirm that they reflect the population and economics of our deferred compensation plans in all material respects and to assist us in estimating our deferred compensation liability and the related cost. The actuarial assumptions we use may differ from actual results due to changing market conditions or changes in the participant population. These differences could have a significant impact on our deferred compensation liability and the related cost. Carrying Values. Valuations are required under GAAP to determine the carrying value of various assets. Our most significant assets for which management is required to prepare valuations are carrying value of receivables, goodwill, intangible assets, fair value of contingent consideration and recoverability of deferred income taxes. Management must identify whether events have occurred that may impact the carrying value of these assets and make assumptions regarding future events, such as cash flows and profitability. Differences between the assumptions used to prepare these valuations and actual results could materially impact the carrying amount of these assets and our operating results. Of the assets mentioned above, goodwill is the largest asset requiring a valuation. Fair value of goodwill for purposes of the goodwill impairment test is determined utilizing 1) a discounted cash flow analysis based on forecast cash flows (including estimated underlying revenue and operating income growth rates) discounted using an estimated weighted-average cost of capital for market participants and 2) a market approach, utilizing observable market data such as comparable companies in similar lines of business that are publicly traded or 34


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    Table of Contents which are part of a public or private transaction (to the extent available). We also reconcile the results of these analyses to its market capitalization. If the carrying amount of a reporting unit exceeds its estimated fair value, goodwill is considered potentially impaired and further tests are performed to measure the amount of impairment loss, if any. We recorded no goodwill impairment in conjunction with our annual goodwill impairment assessment performed as of January 31, 2017. While historical performance and current expectations have resulted in fair values of goodwill in excess of carrying values, if our assumptions are not realized, it is possible that in the future an impairment charge may need to be recorded. However, it is not possible at this time to determine if an impairment charge would result or if such a charge would be material. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill impairment test will prove to be accurate predictions of the future. As of our testing date, the fair value of each reporting unit exceeded its carrying amount and no reporting units were at risk of failing the impairment test. As a result, no impairment charge was recognized. There was also no indication of potential impairment during the fourth quarter of fiscal 2017 that would have required further testing. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of the reporting units may include such items as follows: ◾ A prolonged downturn in the business environment in which the reporting units operate; ◾ An economic climate that significantly differs from our future profitability assumptions in timing or degree; ◾ The deterioration of the labor markets; and ◾ Volatility in equity and debt markets. Results of Operations The following table summarizes the results of our operations as a percentage of fee revenue: Year Ended April 30, 2017 2016 2015 Fee revenue 100.0% 100.0% 100.0% Reimbursed out-of-pocket engagement expenses 3.6 4.2 3.7 Total revenue 103.6 104.2 103.7 Compensation and benefits 68.4 69.4 67.2 General and administrative expenses 14.5 16.5 14.2 Reimbursed expenses 3.6 4.2 3.7 Cost of services 4.6 4.6 3.9 Depreciation and amortization 3.0 2.8 2.7 Restructuring charges, net 2.2 2.6 0.9 Operating income 7.3 4.1 11.1 Net income 5.6% 2.4% 8.6% Net income attributable to Korn/Ferry International 5.4% 2.4% 8.6% 35


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    Table of Contents The following tables summarize the results of our operations by business segment: (Numbers may not total exactly due to rounding) Year Ended April 30, 2017 2016 2015 Dollars % Dollars % Dollars % (dollars in thousands) Fee revenue Executive Search: North America $ 356,625 22.8% $ 371,345 28.7% $ 330,634 32.2% EMEA 146,506 9.4 144,319 11.2 153,465 14.9 Asia Pacific 80,169 5.1 80,506 6.2 84,148 8.2 Latin America 34,376 2.2 26,744 2.1 29,160 2.8 Total Executive Search 617,676 39.5 622,914 48.2 597,407 58.1 Hay Group 724,186 46.3 471,145 36.5 267,018 26.0 Futurestep 223,659 14.3 198,053 15.3 163,727 15.9 Total fee revenue 1,565,521 100.0% 1,292,112 100.0% 1,028,152 100.0% Reimbursed out-of-pocket engagement expense 56,148 54,602 37,914 Total revenue $ 1,621,669 $ 1,346,714 $ 1,066,066 Year Ended April 30, 2017 2016 2015 Dollars Margin(1) Dollars Margin(1) Dollars Margin(1) (dollars in thousands) Operating income (loss) Executive Search: North America $ 81,550 22.9% $ 100,381 27.0% $ 80,818 24.4% EMEA 27,854 19.0 20,607 14.3 18,867 12.3 Asia Pacific 8,580 10.7 12,572 15.6 14,631 17.4 Latin America 6,268 18.2 (1,854) (6.9) 4,704 16.1 Total Executive Search 124,252 20.1 131,706 21.1 119,020 19.9 Hay Group 47,302 6.5 (3,415) (0.7) 28,175 10.6 Futurestep 29,986 13.4 26,702 13.5 19,940 12.2 Corporate (87,100) (102,301) (53,107) Total operating income $ 114,440 7.3% $ 52,692 4.1% $ 114,028 11.1% (1) Margin calculated as a percentage of fee revenue by business segment. 36


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    Table of Contents Year Ended April 30, 2017 Executive Search North Asia Latin America EMEA Pacific America Subtotal Hay Group Futurestep Corporate Consolidated (in thousands) Fee revenue $ 356,625 $ 146,506 $ 80,169 $ 34,376 $ 617,676 $ 724,186 $ 223,659 $ — $ 1,565,521 Deferred revenue adjustment due to acquisition — — — — — 3,535 — — 3,535 Adjusted fee revenue $ 356,625 $ 146,506 $ 80,169 $ 34,376 $ 617,676 $ 727,721 $ 223,659 $ — $ 1,569,056 Total revenue $ 369,803 $ 150,113 $ 81,744 $ 34,533 $ 636,193 $ 741,533 $ 243,943 $ — $ 1,621,669 Net income attributable to Korn/Ferry International $ 84,181 Net income attributable to noncontrolling interest 3,057 Other income, net (11,820) Interest expense, net 10,251 Equity in earnings of unconsolidated subsidiaries, net (333) Income tax provision 29,104 Operating income (loss) $ 81,550 $ 27,854 $ 8,580 $ 6,268 $ 124,252 $ 47,302 $ 29,986 $ (87,100) $ 114,440 Depreciation and amortization 3,812 1,030 1,060 483 6,385 32,262 2,818 5,795 47,260 Other income (loss), net 844 (15) 300 684 1,813 341 (91) 9,757 11,820 Equity in earnings of unconsolidated subsidiaries, net 333 — — — 333 — — — 333 EBITDA 86,539 28,869 9,940 7,435 132,783 79,905 32,713 (71,548) 173,853 Restructuring charges, net 1,719 629 1,495 773 4,616 29,663 101 220 34,600 Integration/acquisition costs — — — — — 14,440 — 7,939 22,379 Deferred revenue adjustment due to acquisition — — — — — 3,535 — — 3,535 Separation costs — — — — — 609 — — 609 Adjusted EBITDA $ 88,258 $ 29,498 $ 11,435 $ 8,208 $ 137,399 $ 128,152 $ 32,814 $ (63,389) $ 234,976 Operating margin 22.9% 19.0% 10.7% 18.2% 20.1% 6.5% 13.4% 7.3% Adjusted EBITDA margin 24.7% 20.1% 14.3% 23.9% 22.2% 17.6% 14.7% 15.0% 37


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    Table of Contents Year Ended April 30, 2016 Executive Search North Asia Latin America EMEA Pacific America Subtotal Hay Group Futurestep Corporate Consolidated (in thousands) Fee revenue $ 371,345 $ 144,319 $ 80,506 $ 26,744 $ 622,914 $ 471,145 $ 198,053 $ — $ 1,292,112 Deferred revenue adjustment due to acquisition — — — — — 10,967 — — 10,967 Adjusted fee revenue $ 371,345 $ 144,319 $ 80,506 $ 26,744 $ 622,914 $ 482,112 $ 198,053 $ — $ 1,303,079 Total revenue $ 386,256 $ 148,285 $ 83,206 $ 26,781 $ 644,528 $ 488,217 $ 213,969 $ — $ 1,346,714 Net income attributable to Korn/Ferry International $ 30,913 Net income attributable to noncontrolling interest 520 Other loss, net 4,167 Interest income, net (237) Equity in earnings of unconsolidated subsidiaries, net (1,631) Income tax provision 18,960 Operating income (loss) $ 100,381 $ 20,607 $ 12,572 $ (1,854) $ 131,706 $ (3,415) $ 26,702 $ (102,301) $ 52,692 Depreciation and amortization 3,267 1,029 941 312 5,549 21,854 2,386 6,431 36,220 Other (loss) income, net (147) 433 21 312 619 (868) 364 (4,282) (4,167) Equity in earnings of unconsolidated subsidiaries, net 437 — — — 437 — — 1,194 1,631 EBITDA 103,938 22,069 13,534 (1,230) 138,311 17,571 29,452 (98,958) 86,376 Restructuring charges, net 499 5,807 577 322 7,205 25,682 49 77 33,013 Integration/acquisition costs — — — — — 17,607 — 27,802 45,409 Venezuelan foreign currency loss — — — 6,635 6,635 7,085 — — 13,720 Deferred revenue adjustment due to acquisition — — — — — 10,967 — — 10,967 Separation costs — — — — — — — 744 744 Adjusted EBITDA $ 104,437 $ 27,876 $ 14,111 $ 5,727 $ 152,151 $ 78,912 $ 29,501 $ (70,335) $ 190,229 Operating margin 27.0% 14.3% 15.6% (6.9)% 21.1% (0.7)% 13.5% 4.1% Adjusted EBITDA margin 28.1% 19.3% 17.5% 21.4% 24.4% 16.4% 14.9% 14.6% Year Ended April 30, 2015 Executive Search North Asia Latin America EMEA Pacific America Subtotal Hay Group Futurestep Corporate Consolidated (in thousands) Fee revenue $ 330,634 $ 153,465 $ 84,148 $ 29,160 $ 597,407 $ 267,018 $ 163,727 $ — $ 1,028,152 Total revenue $ 344,913 $ 158,052 $ 87,142 $ 29,218 $ 619,325 $ 275,220 $ 171,521 $ — $ 1,066,066 Net income attributable to Korn/Ferry International $ 88,357 Net income attributable to noncontrolling interest — Other income, net (7,458) Interest expense, net 1,784 Equity in earnings of unconsolidated subsidiaries, net (2,181) Income tax provision 33,526 Operating income (loss) $ 80,818 $ 18,867 $ 14,631 $ 4,704 $ 119,020 $ 28,175 $ 19,940 $ (53,107) $ 114,028 Depreciation and amortization 3,515 1,764 1,045 350 6,674 13,427 1,882 5,614 27,597 Other income (loss), net 288 83 369 109 849 (22) 54 6,577 7,458 Equity in earnings of unconsolidated subsidiaries, net 426 — — — 426 — — 1,755 2,181 EBITDA 85,047 20,714 16,045 5,163 126,969 41,580 21,876 (39,161) 151,264 Restructuring charges, net 1,151 3,987 17 229 5,384 2,758 1,154 172 9,468 Acquisition costs — — — — — — — 959 959 Adjusted EBITDA $ 86,198 $ 24,701 $ 16,062 $ 5,392 $ 132,353 $ 44,338 $ 23,030 $ (38,030) $ 161,691 Operating margin 24.4% 12.3% 17.4% 16.1% 19.9% 10.6% 12.2% 11.1% Adjusted EBITDA margin 26.1% 16.1% 19.1% 18.5% 22.2% 16.6% 14.1% 15.7% 38


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    Table of Contents Fiscal 2017 Compared to Fiscal 2016 Fee Revenue Fee Revenue. Fee revenue increased $273.4 million, or 21%, to $1,565.5 million in fiscal 2017 compared to $1,292.1 million in fiscal 2016. Exchange rates unfavorably impacted fee revenue by $27.9 million, or 2%, in fiscal 2017. The higher fee revenue was attributable to growth in Hay Group and Futurestep, offset by a decrease in Executive Search. The increase in Hay Group was primarily due to the Legacy Hay acquisition that was completed on December 1, 2015. Executive Search. Executive Search reported fee revenue of $617.7 million, a decrease of $5.2 million, or 1%, in fiscal 2017 compared to $622.9 million in fiscal 2016. As detailed below, Executive Search fee revenue was lower in North America and Asia Pacific regions, offset by higher fee revenue in the Latin America and EMEA regions in fiscal 2017 as compared to fiscal 2016. Exchange rates unfavorably impacted fee revenue by $12.3 million, or 2%, in fiscal 2017. North America reported fee revenue of $356.6 million, a decrease of $14.8 million, or 4%, in fiscal 2017 compared to $371.4 million in fiscal 2016. North America’s decrease in fee revenue is primarily due a 3% decrease in the weighted-average fees billed per engagement (calculated using local currency) and 1% decrease in the number of engagements billed during fiscal 2017 as compared to fiscal 2016. The overall decrease in fee revenue was driven by a decline in the life sciences/healthcare, education/non-profit and financial services sectors as compared to the year-ago period, partially offset by an increase in the industrial sector. Exchange rates did not impact fee revenue in fiscal 2017 when compared to the year-ago period. EMEA reported fee revenue of $146.5 million, an increase of $2.2 million, or 2%, in fiscal 2017 compared to $144.3 million in fiscal 2016. The increase in fee revenue was due to a 6% increase in the number of engagements billed and a 2% increase in the weighted-average fees billed per engagement (calculated using local currency) during fiscal 2017 as compared to fiscal 2016. This was offset by unfavorable exchange rates which impacted fee revenue by $10.0 million, or 7%, in fiscal 2017 compared to fiscal 2016. The performance in existing offices in Germany, United Arab Emirates and Denmark were the primary contributors to the increase in fee revenue in fiscal 2017 compared to fiscal 2016, offset by a decrease in fee revenue in United Kingdom, France and Switzerland. In terms of business sectors, the technology and industrial sectors had the largest increase in fee revenue in fiscal 2017 as compared to fiscal 2016, partially offset by a decrease in fee revenue in the financial services, consumer goods and life sciences/healthcare sectors. Asia Pacific reported fee revenue of $80.2 million in fiscal 2017, essentially flat with the $80.5 million in fiscal 2016. Exchange rates unfavorably impacted fee revenue by $0.5 million in fiscal 2017 when compared to the year-ago period. There were decreases in Hong Kong and Australia which were offset by an increase in fee revenue in China and Taiwan. Fee revenue in the technology, financial services and education/non-profit sectors decreased in fiscal 2017 as compared to fiscal 2016, offset by an increase in fee revenue in the consumer goods and industrial sectors. Latin America reported fee revenue of $34.4 million, an increase of $7.7 million, or 29%, in fiscal 2017 compared to $26.7 million in fiscal 2016. Exchange rates unfavorably impacted fee revenue in Latin America by $1.7 million, or 6%, in fiscal 2017 compared to fiscal 2016. The increase is due to $11.0 million in fee revenue from our Mexico subsidiary that we began consolidating in the fourth quarter of 2016 as a result of obtaining control of the entity. The rest of the change primarily relates to a decrease in fee revenue in Venezuela caused by currency devaluation, offset by higher fee revenues in Brazil in fiscal 2017 compared to fiscal 2016. Industrial, life sciences/healthcare and financial services were the main sectors contributing to the growth in fee revenue in fiscal 2017 compared to fiscal 2016, offset by a decrease in fee revenue in the consumer goods sector. Hay Group. Hay Group reported fee revenue of $724.2 million, an increase of $253.1 million, or 54%, in fiscal 2017 compared to $471.1 million in fiscal 2016. Exchange rates unfavorably impacted fee revenue by $11.0 million, or 2%, in fiscal 2017. The increase in fee revenue was primarily due to the Legacy Hay acquisition that was completed on December 1, 2015. As a result of the Legacy Hay acquisition, consulting fee revenue was higher by $146.5 million in fiscal 2017 compared to fiscal 2016, with the remaining increase of $106.6 million generated by higher fee revenue from our products business. 39


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    Table of Contents Futurestep. Futurestep reported fee revenue of $223.7 million, an increase of $25.6 million, or 13%, in fiscal 2017 compared to $198.1 million in fiscal 2016. Exchange rates unfavorably impacted fee revenue by $4.6 million, or 2%, in fiscal 2017. Higher fee revenues in RPO and professional search of $13.6 million and $12.2 million, respectively, drove the increase in fee revenue. Compensation and Benefits Compensation and benefits expense increased $174.1 million, or 19%, to $1,071.5 million in fiscal 2017 from $897.4 million in fiscal 2016. Exchange rates favorably impacted compensation and benefits expense by $17.2 million, or 2%, during fiscal 2017 compared to fiscal 2016. The Legacy Hay acquisition was the main factor that contributed to the increase in compensation and benefits expense. Given the size of the Legacy Hay acquisition, all components of compensation and benefits expense increased with salaries and related payroll taxes, insurance costs and deferred compensation seeing the largest increases. Executive Search compensation and benefits expense increased $8.1 million, or 2%, to $409.0 million in fiscal 2017 compared to $400.9 million in fiscal 2016. This increase was primarily due to an increase in the fair value of amounts owed under certain deferred compensation plans of $10.3 million and higher salaries and related payroll expense of $10.9 million due to a 7% increase in average consultant headcount reflecting our continued growth-related investments back into the business in fiscal 2017 compared to the year-ago period. The rest of the change was due to an increase of $6.7 million in the amortization of long-term incentive awards, offset by lower performance related bonus expense of $15.6 million during fiscal 2017 compared to fiscal 2016. The decrease in performance related bonus expense was primarily due to lower fee revenue and profitability. Executive Search compensation and benefits expense as a percentage of fee revenue was 66% in fiscal 2017 compared to 64% in fiscal 2016. Hay Group compensation and benefits expense increased $146.9 million, or 47%, to $462.1 million in fiscal 2017 from $315.2 million in fiscal 2016. The increase in compensation and benefits was primarily due to the Legacy Hay acquisition, which increased our average headcount during fiscal 2017 compared to fiscal 2016, resulting in higher salaries and related payroll taxes, performance related bonus expense, insurance costs, retirement plans and recruiting costs of $101.8 million, $15.1 million, $6.7 million, $6.5 million and $4.2 million, respectively. Hay Group compensation and benefits expense, as a percentage of fee revenue, decreased to 64% in fiscal 2017 from 67% in the year-ago period. Futurestep compensation and benefits expense increased $18.7 million, or 14%, to $154.8 million in fiscal 2017 from $136.1 million in fiscal 2016. The increase was due to a 21% increase in the average headcount in fiscal 2017 compared to the year-ago period that resulted in higher salaries and related payroll taxes and insurance costs of $19.8 million and $1.9 million, respectively, partially offset by lower performance related bonus expense. The higher average headcount was primarily driven by the need to service an increase in fee revenue in both professional search and RPO businesses. Futurestep compensation and benefits expense as a percentage of fee revenue was 69% in both fiscal 2017 and 2016. Corporate compensation and benefits expense increased $0.4 million, or 1%, to $45.6 million in fiscal 2017 from $45.2 million in fiscal 2016. This increase was mainly due to $1.6 million in higher outside contractor costs and a change in the fair value of vested amounts owed under certain deferred compensation plans of $1.5 million in fiscal 2017 compared to the year-ago period. Offsetting these increases in compensation and benefit expense was a decline in integration/acquisition costs and certain separation costs of $2.2 million in fiscal 2017 as compared to the year-ago period. General and Administrative Expenses General and administrative expenses increased $13.2 million, or 6%, to $226.2 million in fiscal 2017 compared to $213.0 million in fiscal 2016. Exchange rates favorably impacted general and administrative expenses by $5.2 million, or 2%, during fiscal 2017. The increase in general and administrative expenses was primarily due to the Legacy Hay acquisition that took place in fiscal 2016, partially offset by a decrease of $20.3 million in integration/acquisition costs and $13.7 million of Venezuelan foreign currency loss compared to the year-ago period. The Legacy Hay acquisition was the main factor that contributed to increases of $27.0 million, $8.4 million, 40


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    Table of Contents $5.3 million and $4.4 million, in premise and office expenses, marketing and business development expenses, travel-related expenses, and bad debt expense, respectively. General and administration expenses as a percentage of fee revenue was 14% in fiscal 2017 compared to 16% in fiscal 2016. Executive Search general and administrative expenses decreased $5.6 million, or 7%, to $69.7 million in fiscal 2017 from $75.3 million in fiscal 2016. The decrease was due to the $6.6 million in Venezuelan foreign currency loss incurred in fiscal 2016, offset by higher bad debt expense of $1.5 million in fiscal 2017 compared to the year-ago period. Executive Search general and administrative expenses as a percentage of fee revenue was 11% in fiscal 2017 compared to 12% in fiscal 2016. Hay Group general and administrative expenses increased $31.5 million, or 48%, to $97.1 million in fiscal 2017 from $65.6 million in fiscal 2016. The increase in general and administrative expenses was primarily due to the Legacy Hay acquisition that took place in fiscal 2016, partially offset by a decrease of $1.8 million in integration/acquisition costs and $7.1 million of Venezuelan foreign currency loss compared to the year-ago period. The acquisition of Legacy Hay was the main factor for increases of $24.0 million, $4.7 million, $4.2 million, $2.5 million and $1.6 million in premise and office expenses, marketing and business development expenses, travel-related expenses, bad debt expense and legal and other professional fees, respectively. Hay Group general and administrative expenses as a percentage of fee revenue was 13% in fiscal 2017 compared to 14% in fiscal 2016. Futurestep general and administrative expenses increased $2.5 million, or 12%, to $23.9 million in fiscal 2017 compared to $21.4 million in fiscal 2016. General and administrative expenses increased $1.4 million, $0.4 million and $0.4 million in premise and office expenses, marketing and business development expenses and bad debt expense, respectively, during fiscal 2017 compared to the year-ago period due in large part to an increase in fee revenue. Futurestep general and administrative expenses as a percentage of fee revenue was 11% in both fiscal 2017 and 2016. Corporate general and administrative expenses decreased $15.2 million, or 30%, to $35.5 million in fiscal 2017 compared to $50.7 million in fiscal 2016. General and administrative expenses decreased due to a decline of $18.4 million in integration/acquisition costs, offset by increases of $3.2 million in marketing and business development expenses in fiscal 2017 compared to the year-ago period. Cost of Services Expense Cost of services expense consist primarily of non-billable contractor and product costs related to the delivery of various services and products, primarily in Futurestep and Hay Group. Cost of services expense increased $11.7 million, or 20%, to $71.5 million in fiscal 2017 compared to $59.8 million in fiscal 2016. The increase is mainly due to higher fee revenue in Hay Group due to the Legacy Hay acquisition. Cost of services expense as a percentage of fee revenue was 5% in both fiscal 2017 and 2016. Depreciation and Amortization Expenses Depreciation and amortization expenses were $47.3 million in fiscal 2017, an increase of $11.1 million compared to $36.2 million in fiscal 2016. The increase is mainly due to the Legacy Hay acquisition. The increase relates primarily to technology investments that were made in the current and prior year in software and computer equipment, in addition to increases in leasehold improvements, furniture and fixtures (associated with our office co-location) and intangible assets. Restructuring Charges, Net We continued the implementation of the fiscal 2016 restructuring plan in order to integrate the Hay Group entities that were acquired in the prior year by eliminating redundant positions and operational, general and administrative expenses and consolidation of office space. As a result, we recorded $34.6 million of restructuring charges in fiscal 2017, of which $16.0 million related to severance costs and $18.6 million related to the consolidation of office space. During fiscal 2016, we implemented a restructuring plan in order to rationalize our cost structure in order to eliminate redundant positions and consolidation of office space that were created due to the acquisition of Legacy 41


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    Table of Contents Hay. As a result, we recorded $33.0 million of restructuring charges, with $32.1 million of severance and $0.9 million relating to the consolidation/abandonment of premises during fiscal 2016. Operating Income Operating income increased $61.7 million, or 117%, to $114.4 million in fiscal 2017 compared to $52.7 million in fiscal 2016. This increase in operating income resulted from $273.4 million in higher fee revenue, offset by an increase of $174.1 million in compensation and benefits expense. The rest of the change was due to increases of $13.2 million in general and administrative expenses, $11.7 million in cost of services expense, and $11.1 million of depreciation and amortization expenses during fiscal 2017 compared to fiscal 2016. Operating income as a percentage of fee revenue was 7% in fiscal 2017 compared to 4% in fiscal 2016. Executive Search operating income was $124.3 million, a decrease of $7.4 million, or 6%, in fiscal 2017 compared to $131.7 million in fiscal 2016. The decrease in Executive Search operating income was driven by lower fee revenue of $5.2 million and higher compensation and benefits expense of $8.1 million, offset by a decrease in general and administrative expenses of $5.6 million. Executive Search operating income as a percentage of fee revenue was 20% in fiscal 2017 compared to 21% in fiscal 2016. Hay Group operating income increased by $50.7 million to $47.3 million in fiscal 2017 compared to operating loss of $3.4 million in fiscal 2016. The change was primarily driven by the Legacy Hay acquisition resulting in an increase in fee revenue of $253.1 million, offset by increases in compensation and benefits expense, general and administrative expenses, depreciation and amortization expenses, cost of services expense and restructuring charges, net of $146.9 million, $31.5 million, $10.4 million, $9.5 million and $4.0 million, respectively in fiscal 2017 compared to 2016. Hay Group operating income as a percentage of fee revenue was 7% in fiscal 2017 compared to operating loss as a percentage of fee revenue of 1% in fiscal 2016. Futurestep operating income increased by $3.3 million to $30.0 million in fiscal 2017 from $26.7 million in fiscal 2016. The increase in Futurestep operating income was primarily due to higher fee revenues of $25.6 million, partially offset by increases of $18.7 million in compensation and benefits expense and $2.5 million in general and administrative expenses. Futurestep operating income, as a percentage of fee revenue, was 13% in both fiscal 2017 and 2016. Net Income Attributable to Korn Ferry Net income attributable to Korn Ferry increased $53.3 million, or 172%, to $84.2 million in fiscal 2017 compared to $30.9 million in fiscal 2016. The increase was due primarily to higher total revenue of $275.0 million, offset by higher operating expenses of $213.2 million and an increase in income tax provision of $10.1 million. Net income attributable to Korn Ferry, as a percentage of fee revenue, was 5% during fiscal 2017 as compared to 2% in the year-ago period. Adjusted EBITDA Adjusted EBITDA increased $44.8 million, or 24%, to $235.0 million in fiscal 2017 compared to $190.2 million in fiscal 2016. This increase was driven by higher adjusted fee revenue of $266.0 million, and an increase in other income, net due to the change in fair value of our marketable securities of $16.0 million in fiscal 2017 compared to the year-ago period, offset by increases of $177.0 million, $47.2 million and $11.7 million in compensation and benefits expense, general and administrative expenses and cost of services expense, respectively. Adjusted EBITDA as a percentage of fee revenue was 15% in both fiscal 2017 and 2016. Executive Search Adjusted EBITDA was $137.4 million, a decrease of $14.8 million, or 10%, in fiscal 2017 compared to $152.2 million in fiscal 2016. This decrease was due to lower fee revenue of $5.2 million and higher compensation and benefits expense and general and administrative expenses of $8.1 million and $1.0 million, respectively. Executive Search Adjusted EBITDA as a percentage of fee revenue was 22% in fiscal 2017 as compared to 24% in fiscal 2016. Hay Group Adjusted EBITDA increased by $49.3 million to $128.2 million in fiscal 2017 compared to $78.9 million in fiscal 2016. This increase was due to higher adjusted fee revenue of $245.6 million, offset by an increase in 42


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    Table of Contents compensation and benefit expense, general and administrative expenses and cost of services expense of $147.6 million, $40.5 million and $9.5 million, respectively. The higher compensation and benefit expense was driven mainly by increases in salaries and related payroll taxes due to an increase in average headcount and an increase in performance related bonus expense. Hay Group Adjusted EBITDA as a percentage of fee revenue was 18% in fiscal 2017 compared to 16% in fiscal 2016. Futurestep Adjusted EBITDA increased by $3.3 million to $32.8 million in fiscal 2017 compared to $29.5 million in fiscal 2016. The increase in Futurestep Adjusted EBITDA was primarily due to higher fee revenue of $25.6 million, offset by an increase in compensation and benefits expense and in general and administrative expenses of $18.7 million and $2.5 million, respectively, during fiscal 2017 as compared to fiscal 2016. The increase in compensation and benefits expense was primarily driven by higher salaries and related payroll taxes due to an increase in average headcount. Futurestep Adjusted EBITDA as a percentage of fee revenue was 15% in both fiscal 2017 and 2016. Other Income (Loss), Net Other income, net was $11.8 million in fiscal 2017 as compared to other loss, net of $4.2 million in fiscal 2016. The change in other income (loss), net is primarily due to the increase in the fair value of our marketable securities, held in trust for settlement of our obligations under certain deferred compensation plans, during fiscal 2017 compared to the decrease in the fair value of our marketable securities in the year-ago period. Interest (Expense) Income, Net Interest (expense) income, net primarily relates to our term loan facility that we entered into in the current fiscal year to provide enhanced financial flexibility and in recognition of the accelerated pace of the Legacy Hay integration. It also includes interest on our borrowings under our COLI policies and interest earned on cash and cash equivalent balances. Interest expense, net was $10.3 million in fiscal 2017 compared to interest income, net of $0.3 million in fiscal 2016. Equity in Earnings of Unconsolidated Subsidiaries Equity in earnings of unconsolidated subsidiaries is comprised of our less than 50% interest in IGroup, LLC, which is engaged in organizing, planning and conducting conferences and training programs throughout the world for directors, chief executive officers, other senior level executives and also includes earnings of our Mexico subsidiary for the first nine months in fiscal 2016. In the fourth quarter of fiscal 2016, we obtained control of our Mexico subsidiary and began to consolidate the operations. Equity in earnings was $0.3 million in fiscal 2017 as compared to $1.6 million in fiscal 2016. The decrease is due to the consolidation of our Mexico subsidiary in fiscal 2017, which is now included in operations. Income Tax Provision The provision for income taxes was $29.1 million in fiscal 2017 compared to $19.0 million in fiscal 2016, reflecting a 25% and 39% effective tax rate, respectively. The lower effective tax rate in fiscal 2017 was due primarily to a higher percentage of taxable income arising in jurisdictions outside of the U.S. with lower statutory tax rates. The effective tax rate in fiscal 2016 was higher largely due to the impact of non-deductible expenses incurred in connection with the acquisition of Legacy Hay and non-deductible charges related to the devaluation of the Venezuelan currency. Net Income Attributable to Non-Controlling Interest Net income attributable to non-controlling interest represents the portion of a subsidiary’s net earnings that are attributable to shares of such subsidiary not held by Korn Ferry that are included in the consolidated results of operations. In the fourth quarter of fiscal 2016, we obtained control of our Mexico subsidiary and began to consolidate the operations. Net income attributable to non-controlling interest in fiscal 2017 was $3.1 million compared to $0.5 million in fiscal 2016. 43


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    Table of Contents Fiscal 2016 Compared to Fiscal 2015 Fee Revenue Fee Revenue. Fee revenue increased $263.9 million, or 26%, to $1,292.1 million in fiscal 2016 compared to $1,028.2 million in fiscal 2015. Exchange rates unfavorably impacted fee revenue by $66.8 million, or 6%, in fiscal 2016. Adjusting for the Legacy Hay acquisition, fee revenue increased $77.1 million, or 7%, compared to fiscal 2015. This increase was attributable to higher fee revenue in Futurestep, North America region of Executive Search and Legacy LTC. Executive Search. Executive Search reported fee revenue of $622.9 million, an increase of $25.5 million, or 4%, in fiscal 2016 compared to $597.4 million in fiscal 2015. As detailed below, Executive Search fee revenue was higher in the North America region, partially offset by decreases in fee revenue in EMEA, Asia Pacific and Latin America regions in fiscal 2016 as compared to fiscal 2015. The higher fee revenue was mainly due to a 6% increase in the weighted-average fees billed per engagement, offset by a 1% decrease in engagements billed during fiscal 2016 as compared to fiscal 2015. Exchange rates unfavorably impacted fee revenue by $29.5 million, or 5%, in fiscal 2016. North America reported fee revenue of $371.4 million, an increase of $40.8 million, or 12%, in fiscal 2016 compared to $330.6 million in fiscal 2015. North America’s increase in fee revenue is primarily due to an 8% increase in the number of engagements billed and a 4% increase in the weighted-average fees billed per engagement during fiscal 2016 as compared to fiscal 2015. The overall increase in fee revenue was primarily driven by growth in the financial services, life sciences/healthcare, technology and education/non-profit sectors as compared to fiscal 2015, partially offset by a decrease in the industrial and consumer goods sectors. Exchange rates unfavorably impacted fee revenue by $2.8 million, or 1%, in fiscal 2016. EMEA reported fee revenue of $144.3 million, a decrease of $9.2 million, or 6%, in fiscal 2016 compared to $153.5 million in fiscal 2015. Exchange rates unfavorably impacted fee revenue by $13.8 million, or 9%, in fiscal 2016. The decline in fee revenue was due to a 4% decrease in the number of engagements billed and a 2% decrease in the weighted-average fees billed per engagement during fiscal 2016 as compared to fiscal 2015. The performance in existing offices in the United Kingdom, France, Switzerland and Germany were the primary contributors to the decrease in fee revenue in fiscal 2016 compared to the year-ago period, offset by an increase in fee revenue in United Arab Emirates and Belgium. In terms of business sectors, financial services, industrial and technology experienced the largest decreases in fee revenue in fiscal 2016 as compared to fiscal 2015, partially offset by an increase in the consumer goods sector. Asia Pacific reported fee revenue of $80.5 million, a decrease of $3.6 million, or 4%, in fiscal 2016 compared to $84.1 million in fiscal 2015. Exchange rates unfavorably impacted fee revenue by $6.2 million, or 7%, in fiscal 2016. The decline in fee revenue was due to a 4% decrease in the number of engagements billed in fiscal 2016 compared to fiscal 2015. The performance in Singapore, Hong Kong and Australia were the primary contributors to the decrease in fee revenue in fiscal 2016 compared to fiscal 2015, offset by higher fee revenue in India. Life sciences/healthcare, consumer goods, and industrial were the main sectors contributing to the decrease in fee revenue in fiscal 2016 as compared to fiscal 2015, partially offset by higher fee revenue in the education/non-profit sector. Latin America reported fee revenue of $26.7 million, a decrease of $2.5 million, or 9%, in fiscal 2016 compared to $29.2 million in fiscal 2015. In the fourth quarter of fiscal 2016, we obtained control of our equity investment in our Mexico subsidiary which is included in our consolidated results. The Mexico subsidiary contributed $3.6 million in fee revenue in fiscal 2016. Excluding fee revenue from our Mexico subsidiary, fee revenue in Latin America decreased $6.1 million, or 21%, compared to fiscal 2015. Exchange rates unfavorably impacted fee revenue for Latin America excluding the Mexico subsidiary by $6.1 million, or 21%, in fiscal 2016. The decline in fee revenue was due to a 41% decrease in the number of engagements billed, offset by a 36% increase in weighted-average fees billed per engagement in fiscal 2016 compared to fiscal 2015. The performance in Brazil, Colombia and Chile were the primary contributors to the decline in fee revenue in fiscal 2016 compared to fiscal 2015, partially offset by the growth in Venezuela. Industrial was the main sector contributing to the decrease in fee revenue in fiscal 2016 compared to fiscal 2015, partially offset by an increase in fee revenue in the consumer goods sector during the same period. 44


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    Table of Contents Hay Group. Hay Group reported fee revenue of $471.1 million, an increase of $204.0 million, or 76%, in fiscal 2016 compared to $267.1 million in fiscal 2015. Exchange rates unfavorably impacted fee revenue by $25.3 million, or 9%, in fiscal 2016. Adjusting for the Legacy Hay acquisition, fee revenue increased $17.2 million, or 6%, compared to fiscal 2015. Fee revenue increased due to higher consulting fee revenue of $16.6 million, or 8%, in fiscal 2016 compared to fiscal 2015 with the rest of the increase due to higher fee revenue from products. The acquisition of Pivot Leadership on March 1, 2015 contributed $22.4 million and $3.7 million in consulting fee revenue during fiscal 2016 and fiscal 2015, respectively. Futurestep. Futurestep reported fee revenue of $198.1 million, an increase of $34.4 million, or 21%, in fiscal 2016 compared to $163.7 million in fiscal 2015. Exchange rates unfavorably impacted fee revenue by $12.0 million or 7% in fiscal 2016. The increase in fee revenue was primarily driven by higher fee revenues in professional search and RPO of $18.1 million and $17.4 million, respectively. The increase in fee revenue in professional search was due to a 16% increase in the weighted-average fees billed per engagement in fiscal 2016 compared to fiscal 2015 and 9% increase in the number of engagements billed during the same period. Compensation and Benefits Compensation and benefits expense increased $205.9 million, or 30%, to $897.4 million in fiscal 2016 from $691.5 million in fiscal 2015. Exchange rates favorably impacted compensation and benefits expense by $42.8 million, or 6%, during fiscal 2016. Excluding $128.6 million in compensation and benefits relating to the Legacy Hay acquisition and $22.1 million in integration/acquisition costs and separation charges, compensation and benefits increased $55.2 million, or 8%, compared to fiscal 2015. This increase was due in large part to an increase of $35.9 million, $4.7 million, $3.6 million and $2.9 million in salaries and related payroll taxes, performance related bonus expense, stock-based compensation and outside contractors, respectively. The higher level of salaries and related payroll expense was due to an increase in average headcount of 11% in fiscal 2016 compared to fiscal 2015, and reflects our continued growth-related investments back into the business. The increase in performance related bonus expense was due to an increase in fee revenue and profitability. Also, contributing to the increase in compensation and benefits expense was a change in the cash surrender value (“CSV”) of company owned life insurance (“COLI”). The change in CSV of COLI increased compensation and benefits expense by $6.5 million in fiscal 2016 compared to fiscal 2015 due to a smaller increase in the market value of the underlying investments due to market changes. COLI is held to fund other deferred compensation retirement plans (see Note 6 – Deferred Compensation and Retirement Plans, included in the Notes to our Consolidated Financial Statements). The changes in the fair value of vested amounts owed under certain deferred compensation plans decreased compensation and benefits expense by $1.7 million in fiscal 2016 compared to an increase of $5.9 million in fiscal 2015. Offsetting these changes in compensation and benefits expense was a decrease in the fair value of marketable securities classified as trading (held in trust to satisfy obligations under certain deferred compensation plan liabilities) of $3.3 million in fiscal 2016 compared to an increase of $8.8 million in fiscal 2015, recorded in other (loss) income, net on the consolidated statement of income. Executive Search compensation and benefits expense increased $7.6 million to $400.9 million in fiscal 2016 compared to $393.3 million in fiscal 2015. The change was driven by higher salaries and related payroll taxes of $7.7 million. The higher level of salaries and related payroll expense was due to an increase in average consultant headcount of 6% in fiscal 2016 compared to fiscal 2015, and reflects our continued growth-related investments back into the business. Executive Search compensation and benefits expense as a percentage of fee revenue was 64% in fiscal 2016 compared to 66% in fiscal 2015. Hay Group compensation and benefits expense increased $156.3 million, or 98%, to $315.2 million in fiscal 2016 from $158.9 million in fiscal 2015. Excluding $128.6 million in compensation and benefits relating to the Legacy Hay acquisition and $16.1 million in integration/acquisition costs, compensation and benefits increased $11.6 million, or 7%, compared to fiscal 2015. The increase was driven by an increase in salaries and related payroll taxes of $8.5 million and an increase of $3.8 million in performance related bonus expense. The higher level of salaries and related payroll expense was due to an increase in average consultant headcount of 14% in fiscal 2016 compared to fiscal 2015. Hay Group compensation and benefits expense as a percentage of fee revenue 45


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    Table of Contents increased to 67% in fiscal 2016 from 60% in fiscal 2015. Excluding integration/acquisition costs, compensation and benefits expense as a percentage of fee revenue was 63% in fiscal 2016. Futurestep compensation and benefits expense increased $24.3 million, or 22%, to $136.1 million in fiscal 2016 from $111.8 million in fiscal 2015. The increase was primarily driven by an increase of $19.0 million in salaries and related payroll taxes, $2.9 million in outside contractors and $1.2 million in insurance costs for employees. The increase in salaries and related payroll taxes and insurance costs provided for employees was due to a 27% increase in the average headcount. The higher average headcount and the increase in utilization of outside contractors were primarily driven by the need to service an increase in fee revenue in both our professional search and RPO businesses. Futurestep compensation and benefits expense as a percentage of fee revenue was 69% in fiscal 2016 compared to 68% in fiscal 2015. Corporate compensation and benefits expense increased $17.7 million, or 64%, to $45.2 million in fiscal 2016 from $27.5 million in fiscal 2015. Excluding $6.0 million of integration/acquisition costs and separation charges, compensation and benefits expense increased $11.7 million in fiscal 2016 as compared to fiscal 2015. This increase was mainly due to the change in the CSV of COLI. The change in CSV of COLI reduced compensation and benefits expense by $4.0 million and $10.5 million in fiscal 2016 and 2015, respectively. The decrease in CSV of COLI was due to a decrease in the market value of investments underlying the COLI. COLI is held to fund other deferred compensation retirement plans (see Note 6 – Deferred Compensation and Retirement Plans, included in the Notes to our Consolidated Financial Statements). The rest of the change was due to increases in stock-based compensation of $2.9 million. General and Administrative Expenses General and administrative expenses increased $67.1 million, or 46%, to $213.0 million in fiscal 2016 compared to $145.9 million in fiscal 2015. Exchange rates favorably impacted general and administrative expenses by $10.1 million, or 7%, during fiscal 2016. Excluding $25.5 million in general and administrative expenses relating to the Legacy Hay acquisition, integration/acquisition costs of $23.2 million and $13.7 million foreign currency loss due to the devaluation of the Venezuelan currency, general and administrative expenses increased $4.7 million, or 3%, compared to fiscal 2015. Fiscal 2015 general and administrative expenses benefitted from a one-time insurance reimbursement that reduced legal fees in that year. General and administrative expenses as a percentage of fee revenue was 16% in fiscal 2016 compared to 14% in fiscal 2015. Excluding integration/acquisition costs and the Venezuelan foreign currency loss, general and administrative expenses as a percentage of fee revenue were 14% in fiscal 2016. Executive Search general and administrative expenses increased $3.8 million, or 5%, to $75.3 million in fiscal 2016 from $71.5 million in fiscal 2015. Excluding the Venezuelan foreign currency loss of $6.6 million, general and administrative expenses decreased $2.8 million, or 4%, compared to fiscal 2015. The decrease was due to favorable exchange rates that reduced general and administrative expenses by $1.1 million and lower legal and other professional fees of $0.6 million. Executive Search general and administrative expenses as a percentage of fee revenue were 12% in both fiscal 2016 and 2015. Hay Group general and administrative expenses increased $30.3 million, or 86%, to $65.6 million in fiscal 2016 from $35.3 million in fiscal 2015. Excluding $25.5 million relating to the Legacy Hay acquisition, $1.5 million in integration/acquisition costs and $7.1 million in foreign currency loss due to the devaluation of the Venezuelan currency, general and administrative expenses decreased $3.8 million, or 11%, compared to fiscal 2015. The decrease was due to favorable exchange rates that reduced general and administrative expenses by $1.5 million. The rest of the change was due to lower legal and other professional fees of $1.3 million and a reduction of bad debt expense of $1.1 million due to better collections. Hay Group general and administrative expenses as a percentage of fee revenue was 14% in fiscal 2016 compared to 13% in fiscal 2015. Excluding integration/acquisition costs and the Venezuelan foreign currency loss, general and administrative expenses as a percentage of fee revenue were 12% in fiscal 2016. We do not believe that further weakening of the Venezuelan Bolivar will materially impact our results of operations. Futurestep general and administrative expenses increased $2.1 million, or 11%, to $21.4 million in fiscal 2016 compared to $19.3 million in fiscal 2015. Higher premise and office expenses of $1.5 million contributed to the 46


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    Table of Contents increase in general and administrative expenses. Futurestep general and administrative expenses as a percentage of fee revenue were 11% in fiscal 2016 compared to 12% in fiscal 2015. Corporate general and administrative expenses increased $30.9 million to $50.7 million in fiscal 2016 compared to $19.8 million in fiscal 2015. Excluding $21.7 million in integration/acquisition costs, general and administrative expenses increased $9.2 million, or 46%, compared to fiscal 2015, although fiscal 2015 benefitted from a one-time insurance reimbursement that lowered legal and professional fees by that amount. The rest of the increase was due to unfavorable exchange rates that resulted in an increase in general and administrative expenses of $2.2 million during fiscal 2016 compared to fiscal 2015. Cost of Services Expense Cost of services expense consist primarily of non-billable contractor and product costs related to the delivery of various services and products, primarily in Futurestep and Hay Group. Cost of services expense increased $20.1 million, or 51%, to $59.8 million in fiscal 2016 compared to $39.7 million in fiscal 2015. Adjusting for the Legacy Hay acquisition, the cost of services increased $5.1 million, or 13%, compared to fiscal 2015. The increase is mainly due to higher fee revenue in Legacy LTC and Futurestep. Cost of services expense as a percentage of fee revenue was 5% in fiscal 2016 compared to 4% in fiscal 2015. Depreciation and Amortization Expenses Depreciation and amortization expenses were $36.2 million in fiscal 2016, an increase of $8.6 million compared to $27.6 million in fiscal 2015. Adjusting for the Legacy Hay acquisition, depreciation and amortization expenses increased $0.7 million, or 3%, compared to fiscal 2015. The increase relates primarily to technology investments that were made in the current and prior year and intangible assets. Restructuring Charges, Net During fiscal 2016, we implemented a restructuring plan in order to rationalize our cost structure, eliminate redundant positions and consolidate office space relating to the acquisition of Legacy Hay. As a result, we recorded $33.0 million of restructuring charges with $32.1 million of severance costs to eliminate redundant positions and $0.9 million relating to the consolidation/abandonment of premises, both of which were due to the integration of Legacy Hay during fiscal 2016. During fiscal 2015, we took actions to rationalize our cost structure as a result of efficiencies obtained from prior year technology investments that enabled further integration of our legacy businesses and the previous year’s acquisitions of PDI and Global Novations, LLC, as well as other cost saving initiatives. As a result, we recorded $9.5 million in restructuring charges, net in fiscal 2015, of which $9.2 million related to severance and $0.3 million related to consolidation/abandonment of premises. Operating Income Operating income decreased $61.3 million, or 54%, to $52.7 million in fiscal 2016 as compared to $114.0 million in fiscal 2015. Adjusting for the $32.4 million operating loss of Legacy Hay, operating income decreased $28.9 million, or 25%, compared to the year-ago period. This decrease in operating income resulted from an increase of $65.5 million in compensation and benefits expense (which included $9.4 million in integration/acquisition costs and separation charges), $34.0 million in general and administrative expenses (which included $30.2 million in integration/acquisition costs and Venezuelan foreign currency loss due to the devaluation of their currency) and $5.1 million in cost of services expense. These changes were offset by higher fee revenue of $77.1 million during fiscal 2016 as compared to fiscal 2015. The Legacy Hay operating loss of $32.4 million included integration/acquisition costs of $12.5 million, $6.9 million in foreign currency loss as a result of the devaluation of the Venezuelan Bolivar and restructuring charges of $22.9 million. Operating margin was 4% in fiscal 2016, as compared to 11% in fiscal 2015. Executive Search operating income was $131.7 million and $119.0 million in fiscal 2016 and 2015, respectively. Executive Search operating income increased $12.7 million during fiscal 2016 as compared to fiscal 2015. The increase in Executive Search operating income is primarily attributable to higher fee revenue of $25.5 million, offset by an increase of $7.6 million, $3.8 million and $1.9 million in compensation and benefits expense, general 47


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    Table of Contents and administrative expenses and restructuring charges, net, respectively. The increase in compensation and benefits expense was driven by higher salaries and related payroll expense due to an increase in average consultant headcount. General and administrative expenses increased due to Venezuelan foreign currency loss of $6.6 million offset by favorable exchange rates in other currencies and reductions in premise and office expense and legal and other professional fees during fiscal 2016 compared to fiscal 2015. Executive Search operating income as a percentage of fee revenue was 21% in fiscal 2016 compared to 20% in fiscal 2015. Hay Group operating loss was $3.4 million in fiscal 2016 as compared to operating income of $28.2 million in fiscal 2015. Adjusting for the $32.4 million operating loss of Legacy Hay, operating income increased $0.8 million, or 3%, compared to fiscal 2015. The increase in Legacy LTC operating income was due to $17.2 million in higher fee revenue, which was partially offset by an increase in compensation and benefit expense of $15.9 million. The higher compensation and benefit expense was driven mainly by increases in salaries and related payroll taxes due to an increase in average consultant headcount and performance related bonus expense. Hay Group operating loss as a percentage of fee revenue was 1% in fiscal 2016 compared to operating income as a percentage of fee revenue of 11% in fiscal 2015. Futurestep operating income increased by $6.8 million to $26.7 million in fiscal 2016 from $19.9 million in fiscal 2015. The increase in Futurestep operating income was primarily due to higher fee revenues of $34.4 million. These changes were partially offset by an increase in compensation and benefits expense of $24.3 million and a $2.1 million increase in general and administrative expenses during fiscal 2016 as compared to fiscal 2015. Futurestep operating income as a percentage of fee revenue was 13% in fiscal 2016 as compared to 12% in fiscal 2015. Net Income Attributable to Korn Ferry Net income attributable to Korn Ferry decreased $57.5 million, or 65%, to $30.9 million in fiscal 2016 compared to $88.4 million in fiscal 2015. The decrease was due to an increase in operating expenses of $341.9 million and an $11.7 million decline in other income, offset by an increase in fee revenue of $263.9 million. Adjusted EBITDA Adjusted EBITDA increased $28.5 million, or 18%, to $190.2 million in fiscal 2016 compared to $161.7 million in fiscal 2015. Adjusting for the Legacy Hay acquisition, Adjusted EBITDA was flat compared to year-ago period. Adjusted EBITDA as a percentage of fee revenue was 15% in fiscal 2016 as compared to 16% in fiscal 2015. Executive Search Adjusted EBITDA was $152.2 million and $132.4 million in fiscal 2016 and 2015, respectively. Executive Search Adjusted EBITDA increased $19.8 million during fiscal 2016 as compared to fiscal 2015 due to $25.5 million increase in fee revenue, offset by an increase of $7.6 million in compensation and benefits expense and $3.8 million in general and administrative expenses. Executive Search Adjusted EBITDA as a percentage of fee revenue was 24% in fiscal 2016 as compared to 22% in fiscal 2015. Hay Group Adjusted EBITDA increased by $34.5 million to $78.9 million in fiscal 2016 as compared to $44.4 million in fiscal 2015. Adjusting for the Legacy Hay acquisition, Adjusted EBITDA increased $6.0 million, or 14%, compared to fiscal 2015. This increase was due to higher fee revenue of $17.2 million offset by an increase in compensation and benefit expense of $11.6 million. The higher compensation and benefit expense was driven mainly by increases in salaries and related payroll taxes due to an increase in average headcount and an increase in performance related bonus expense. Hay Group Adjusted EBITDA as a percentage of fee revenue was 16% in fiscal 2016 compared to 17% in fiscal 2015. Adjusting for the Legacy Hay acquisition, Adjusted EBITDA as of percentage of fee revenue was 18% in fiscal 2016. Futurestep Adjusted EBITDA increased by $6.5 million to $29.5 million in fiscal 2016 as compared to $23.0 million in fiscal 2015. The increase in Futurestep Adjusted EBITDA was primarily due to higher fee revenue of $34.4 million, offset by an increase of $24.3 million in compensation and benefits expense and $2.1 million in general and administrative expenses during fiscal 2016 as compared to fiscal 2015. Futurestep Adjusted EBITDA as a percentage of fee revenue was 15% in fiscal 2016 as compared to 14% in fiscal 2015. 48

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