KORN/FERRY INTERNATIONAL The search and beyond Annual Report 2006 #1 in market share global and u.s. leader $523 million global fee revenue in fy06 16% increase global fee revenue from fy05 47% increase eps from fy05 72 offices worldwide 9,608 searches in fy06 4.6 million candidates in database All figures above include Futurestep 53 53 53 7 7 7 13 13 13 27 27 27 23 23 21 21 21 23 18 18 18 6 6 6 6 6 11 6 15 11 15 11 15 revenue by region global fee revenue in fy06 revenue by industry global fee revenue in fy06 53% North America 27% EMEA 13% Asia Pacific 7% South America* *Includes unconsolidated Mexican subsidiaries 23% Industrial 21% Financial Services 18% Consumer 15% Technology 11% Life Sciences 6% Healthcare Provider 6% Education/Not-for-Profit Excludes Futurestep 56 56 56 2 8 2 9 8 2 8 9 9 16 9 9 16 9 16 engagements by function global assignments in fy06 56% C-Level/Senior Management/ Board 16% Marketing 9% Human Resources 9% Manufacturing/Research & Development/Technology 8% Finance 2% Information Systems Excludes Futurestep Delivering leadership By every conceivable measure, Korn/Ferry delivered leadership in Fiscal Year 2006. During the past 12 months, we led the industry by taking market share and maintaining our stature as the largest and most profitable firm. We also continued to make steady progress toward our vision of being the premier global provider of human capital solutions—a position that distinguishes us from the competition and allows us to develop more profound, multifaceted and valuable client relationships. We have moved beyond the traditional parameters of an executive search firm to identify, deploy, develop, retain and reward the best leadership talent possible for our clients. Leaders who make the difference between keeping up with the pack and guiding it. Our experience, global readiness and, most importantly, our 1,800 professionals enable Korn/Ferry to deliver what others cannot: the power of leadership. dear shareholder: dear shareholder: It gives me great pleasure to report that Fiscal Year 2006 was the most profi table in Korn/Ferry’s 37-year It gives me great pleasure to report that Fiscal Year 2006 was the most profi table in Korn/Ferry’s 37-year history. Our revenue for the year was $522.9 million, up 16% from FY05, and we recorded $76.2 million in history. Our revenue for the year was $522.9 million, up 16% from FY05, and we recorded $76.2 million in operating earnings. With EPS of $1.09 (excluding one-time benefi ts), we achieved a 21% improvement in operating earnings. With EPS of $1.09 (excluding one-time benefi ts), we achieved a 21% improvement in profi tability over last year, and attained the highest level of net profi t since Korn/Ferry’s inception. profi tability over last year, and attained the highest level of net profi t since Korn/Ferry’s inception. These results were generated by a steady adherence to a consistent and long-term vision. These results were generated by a steady adherence to a consistent and long-term vision. This vision is to deliver an array of solutions that help clients identify, deploy, develop, retain This vision is to deliver an array of solutions that help clients identify, deploy, develop, retain and reward their pool of executive talent. At Korn/Ferry, we are fortunate to have one of the and reward their pool of executive talent. At Korn/Ferry, we are fortunate to have one of the most recognized and admired brands in the executive search business. In addition, we have most recognized and admired brands in the executive search business. In addition, we have developed a suite of complementary human resources consulting services that enable us to developed a suite of complementary human resources consulting services that enable us to provide even greater value to our clients. Our market strategy calls for us to leverage our role provide even greater value to our clients. Our market strategy calls for us to leverage our role as trusted advisors in the industry and help clients grapple with today’s increasingly diffi cult as trusted advisors in the industry and help clients grapple with today’s increasingly diffi cult talent management challenges. talent management challenges. Last year we experienced growth in all of our product lines, and in every global region. In Last year we experienced growth in all of our product lines, and in every global region. In executive search, our fee revenue increased 14% from the previous year, and our operating executive search, our fee revenue increased 14% from the previous year, and our operating margin improved to 22%. With heavy demand for talent in manufacturing, energy and margin improved to 22%. With heavy demand for talent in manufacturing, energy and defense, our Industrial Market showed the strongest industry sector growth with an increase defense, our Industrial Market showed the strongest industry sector growth with an increase of 29% over FY05. Financial Services was also strong, up 23% over the prior year, and fueled of 29% over FY05. Financial Services was also strong, up 23% over the prior year, and fueled primarily by demand for senior executives in commercial and investment banking, asset and primarily by demand for senior executives in commercial and investment banking, asset and wealth management, and insurance and risk management. wealth management, and insurance and risk management. Globally, we conducted more than 6,200 executive search assignments last year, and experi- Globally, we conducted more than 6,200 executive search assignments last year, and experi- enced growth across every major region. North America was up 15%, Asia Pacifi c increased enced growth across every major region. North America was up 15%, Asia Pacifi c increased 13%, Europe, Middle East & Africa grew 9%, and South America posted an amazing 45% 13%, Europe, Middle East & Africa grew 9%, and South America posted an amazing 45% year-over-year improvement. year-over-year improvement. Futurestep, which offers outsourced recruiting solutions for the mid-management market, Futurestep, which offers outsourced recruiting solutions for the mid-management market, continued its rapid growth by generating fee revenue of $70.2 million, an increase of 30% continued its rapid growth by generating fee revenue of $70.2 million, an increase of 30% over FY05. Futurestep’s operating margin fell this past year, due primarily to our continued over FY05. Futurestep’s operating margin fell this past year, due primarily to our continued investment in the business to keep up with rapid growth. In FY06 we rolled out a new, investment in the business to keep up with rapid growth. In FY06 we rolled out a new, high-performance technology platform called FutureSearch, and we hired more than 125 high-performance technology platform called FutureSearch, and we hired more than 125 new Futurestep employees. new Futurestep employees. We also invested heavily last year in our Leadership Development Solutions business, which We also invested heavily last year in our Leadership Development Solutions business, which helps organizations maximize their leadership talent and enables Korn/Ferry to develop richer, helps organizations maximize their leadership talent and enables Korn/Ferry to develop richer, more consultative relationships with our clients. In FY06, we hired 13 new consultants with more consultative relationships with our clients. In FY06, we hired 13 new consultants with highly specialized backgrounds in organizational development, executive compensation and highly specialized backgrounds in organizational development, executive compensation and HR consulting. HR consulting. 02 korn/ferry 2006 As we look ahead, we are decidedly optimistic about our prospects for the future. In December, we received approval from our board of directors on our three-year strategic plan, which we call K/F One. This plan centers on the following four strategic pillars: n #1 Market Share — driving revenue growth n Client Excellence — delivering quality service n Solutions-Driven Growth — offering multiple products to clients n Partnership — instilling a culture of teaming At Korn/Ferry we have stayed true to our founders’ vision and created a corporate culture that attracts the best and the brightest people in the industry. Our goal is to maintain an environment of collaboration, personal freedom and entrepreneurial spirit that allows our consultants to approach every client assignment with the best possible team and the greatest chance for success. As I write this letter, the U.S. economy has just closed its 33rd straight month of job growth, with unemployment down to 4.6%. China and India are maintaining GDP growth of 10% and 8% respectively, and the demand for executive talent in these markets is unprecedented. In the EU, as the workforce ages in France, Germany and the United Kingdom, the ranks of available managerial talent are shrinking, which correspondingly creates a rising demand for our services. Our vision is to deliver an array of solutions that help clients identify, deploy, develop, retain and reward their pool of executive talent. These market conditions give us confidence to invest in our brand and our people. We closed FY06 with $278.2 million in cash on our balance sheet, and we plan to deploy this capital strategically and with an eye toward long-term growth and market dominance. We have worked hard to create the right strategy, in the right industry at the right time. Driven by demographics, technological innovation and globalization, the war for executive talent should stay robust for the next several decades. In our conversations with CEOs around the globe, the one issue that recurs again and again as a major concern is the acquisition, development and retention of talent. Stated quite simply, no other company is better posi- tioned to deliver leadership from a global perspective. As always, I want to take this opportunity to thank my colleagues around the globe for their tireless focus on clients and candidates, our clients for their partnership and loyalty, and our board of directors for their continued stewardship and governance. It has been a rewarding and successful year, and I am proud to be part of the Korn/Ferry team. Sincerely, Paul C. Reilly Chairman and Chief Executive Officer korn/ferry 2006 03 Integrating leadership possibilities Integrating leadership possibilities Integrating leadership possibilities 04 korn/ferry 2006 Integrating leadership possibilities the search and beyond We know that today, clients seek trusted advisors who can manage multiple business needs on a global scale. Executive search will always be a central focus of our business —but not the only focus. Our comprehensive suite of services exemplifi es our commitment to staying ahead of the market’s talent management demands. executive search Since 1969, Korn/Ferry has worked with candidates and clients to fi ll more than 100,000 executive-level positions, such as board director, chief executive offi cer, chief fi nancial offi cer, chief operating offi cer, chief information offi cer and other senior executive offi cers. Today, our consultants operate in a highly specialized global network of more than 30 market sectors and functional areas of expertise. Their industry experience, local knowledge and unparalleled professional contacts ensure the highest levels of service—and most effective solutions—for Korn/Ferry clients worldwide. Organizations that retain Korn/Ferry’s executive search services experience the benefi ts of our proprietary, cutting-edge technology assets such as Search Assessment,SM an online assessment methodology that measures a candidate’s fi t to a specifi c position and culture, and Searcher,SM our best-in-class database of candidate, company and engagement information. leadership development solutions Our comprehensive blend of leadership services assists clients with the ongoing assessment and development of their leadership teams. Talent Management Platform Allows clients to integrate aspects of talent management through a Web-based system, Executive Center,SM which includes appraisals, succession planning, employee background and preference data, developmental opportunities and compensation management Strategic Management Assessment Assesses the skills, behaviors, values and emotional competencies of individual managers and management teams Executive Development and Coaching Develops future leaders through individual and team-based executive coaching Executive Compensation and Benefi ts Serves as a strategic advisor about pay philosophy, programs and governance issues futurestep Futurestep, our outsourced recruiting subsidiary, offers a suite of customizable, highly- scalable recruitment solutions that analyze and address clients’ unique middle market needs — regardless of the number of positions, geographic requirements or industry specialization. Recruitment Process Outsourcing (RPO) A fully integrated, measurable, single-source solution, often including on-site Futurestep consultants managing part or all of the client’s recruitment function Project Recruitment Delivers multiple hires with built-in timeline and metrics Interim Solutions Solves the need for temporary, fl exible mid-management professionals Mid-Level Search Addresses an organization’s need for key mid-level talent by leveraging multiple sourcing channels and a global database of more than one million pre-screened professionals to provide a diverse set of candidates korn/ferry 2006 05 korn/ferry 2006 05 Executing the strategy A steady adherence to our long-term strategy of building broader and deeper relationships with clients fueled our outstanding fi nancial results in Fiscal Year 2006. $522.9 $452.2 $328.3 $1.32 $0.90 $0.13 $76.2 $65.8 $15.8 04 05 06 04 05 06 04 05 06 total fee revenue in millions, fiscal year earnings per share in dollars, fiscal year operating income in millions, fiscal year $70.2 $53.9 $34.2 $278.2 $206.9 $108.1 04 05 06 04 05 06 futurestep fee revenue in millions, fiscal year ending cash balance in millions, fiscal year 06 korn/ferry 2006 board of directors senior management corporate data Transfer Agent Mellon Investor Services Shareholder Services PO Box 3315 South Hackensack, NJ 07606 Domestic: +1 877 889 7584 International: +1 201 329 8660 www.melloninvestor.com Annual Meeting September 19, 2006, 10:00 a.m. Park Hyatt Los Angeles 2151 Avenue of the Stars Los Angeles, California 90067 Legal Counsel Gibson, Dunn & Crutcher LLP Investor Relations Gary D. Burnison +1 310 552 1834 Media Relations Michael Distefano +1 310 843 4199 Gary D. Burnison Executive Vice President, Chief Operating Officer and Chief Financial Officer Robert A. Damon President, North America Dan A. Demeter Chief Information Officer Peter L. Dunn General Counsel Gary C. Hourihan Executive Vice President and President, Global Leadership Development Robert McNabb Chief Executive Officer, Futurestep and Executive Vice President, Korn/Ferry International Chris van Someren President, Europe, Middle East & Africa Don Spetner Chief Marketing Officer Charles Tseng President, Asia Pacific Paul C. Reilly Chairman and Chief Executive Officer Korn/Ferry International James E. Barlett Vice Chairman TeleTech Frank V. Cahouet Retired Chairman, President and Chief Executive Officer Mellon Financial Corporation Sakie T. Fukushima Senior Client Partner and Director Korn/Ferry International Patti S. Hart Former Chairman and Chief Executive Officer Pinnacle Systems, Inc. David L. Lowe Vice Chairman Friedman Fleischer & Lowe Edward D. Miller Former President and Chief Executive Officer AXA Financial, Inc. Ihno Schneevoigt Former Management Board Member and Human Resources Director Allianz Versicherungs AG and Allianz Lebensversicherung AG Gerhard Schulmeyer Managing Director Gerhard, LLC Ken Whipple Chairman CMS Energy Corporation Harry You Chief Executive Officer BearingPoint Inc. our offices worldwide Miami Minneapolis Monterrey* Montreal New York Northern Virginia Philadelphia Princeton Quito* Rio de Janeiro San Francisco Santiago São Paulo Seattle Silicon Valley Stamford Toronto Vancouver Washington DC Asia Pacific Auckland Bangkok Beijing Hong Kong Jakarta Kuala Lumpur Melbourne Mumbai New Delhi Seoul Shanghai Singapore Sydney Tokyo Wellington Europe, Middle East & Africa Amsterdam Athens Milan Moscow** Oslo Paris Prague Rome Stockholm Strasbourg Vienna Warsaw Zurich Barcelona Brussels Bucharest** Budapest Dubai Frankfurt Geneva Helsinki Istanbul** Johannesburg** London Luxembourg Lyon Madrid The Americas Atlanta Bogota Boston Buenos Aires Calgary Caracas Chicago Dallas Houston Irvine Lima Los Angeles Mexico City* * Satellite Office ** Alliance Partner 1900 Avenue of the Stars, Suite 2600 Los Angeles, California 90067 Tel: +1 310 552 1834 Fax: +1 310 553 6452 www.kornferry.com