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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-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 whether the registrant is a large accelerated filer, an accelerated filer, anon-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 Rule12b-2 of the Exchange Act.

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 inRule 12b-2 of the Exchange Act). Yes ☐ No ☑

The number of shares outstanding of our common stock as of ~~December~~September 4, ~~2017~~2018 was ~~56,512,902~~56,940,561 shares.

Item #

	Description				Page
~~Item #~~			~~Description~~
		~~Page~~

		Part I. Financial Information

Item 1.		Consolidated Financial Statements

		Consolidated Balance Sheets as of ~~October~~July 31, ~~2017~~2018 (unaudited) and April 30, ~~2017~~2018		1

		Consolidated Statements of ~~Income~~Operations (unaudited) for the three ~~and six~~ months ended ~~October~~July 31, ~~2017~~2018 and ~~2016~~2017		2

		Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three ~~and six~~ months ended ~~October~~July 31, ~~2017~~2018 and ~~2016~~2017	3
		Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended July 31, 2018 and 2017		3	4

		Consolidated Statements of Cash Flows (unaudited) for the ~~six~~three months ended ~~October~~July 31, ~~2017~~2018 and ~~2016~~2017		4	5

		Notes to Consolidated Unaudited Financial Statements		5	6

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		24	22

Item 3.		Quantitative and Qualitative Disclosures About Market Risk		40	33

Item 4.		Controls and Procedures		41	34

		Part II. Other Information

Item 1.		Legal Proceedings		42	35

Item 1A.		Risk Factors		42	35

Item 2.		Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities		42	35

Item 6.		Exhibits		43	36

		Signatures		44	37

Item 1. Consolidated Financial Statements

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	October 31, 2017			April 30, 2017			July 31, 2018			April 30, 2018
	(unaudited)						(unaudited)
	(in thousands, except per share data)						(in thousands, except per share data)
ASSETS
Cash and cash equivalents	$	282,625		$	410,882		$	365,729		$	520,848
Marketable securities		13,671			4,363			10,952			14,293
Receivables due from clients, net of allowance for doubtful accounts of $15,930 and $15,455 at October 31, 2017 and April 30, 2017, respectively		397,374			345,314
Receivables due from clients, net of allowance for doubtful accounts of $19,201 and $17,845 at July 31, 2018 and April 30, 2018, respectively								397,559			384,996
Income taxes and other receivables		40,312			31,573			36,999			29,089
Unearned compensation								40,713			37,333
Prepaid expenses and other assets		66,809			51,542			32,056			27,700

Total current assets		800,791			843,674			884,008			1,014,259
Marketable securities,non-current		117,566			115,574			123,124			122,792
Property and equipment, net		115,090			109,567			123,318			119,901
Cash surrender value of company owned life insurance policies, net of loans		115,627			113,067			121,828			120,087
Deferred income taxes, net		22,167			20,175
Deferred income taxes								39,512			25,520
Goodwill		581,780			576,865			581,858			584,222
Intangible assets, net		210,016			217,319			93,050			203,216
Unearned compensation, non-current								92,378			78,295
Investments and other assets		99,064			66,657			20,394			19,622

Total assets	$	2,062,101		$	2,062,898		$	2,079,470		$	2,287,914

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	34,645		$	37,481		$	35,325		$	35,196
Income taxes payable		14,687			4,526			25,790			23,034
Compensation and benefits payable		191,512			248,354			175,477			304,980
Term loan		21,473			19,754			26,629			24,911
Other accrued liabilities		150,855			148,464			150,534			170,339

Total current liabilities		413,172			458,579			413,755			558,460

Deferred compensation and other retirement plans		222,755			219,905			234,468			227,729
Term loan,non-current		224,626			236,222			204,654			211,311
Deferred tax liabilities		16,807			7,014			1,609			9,105
Other liabilities		50,018			54,130			60,364			61,694

Total liabilities		927,378			975,850			914,850			1,068,299


Stockholders’ equity:
Common stock: $0.01 par value, 150,000 shares authorized, 71,529 and 70,811 shares issued at October 31, 2017 and April 30, 2017, respectively and 56,511 and 56,938 shares outstanding at October 31, 2017 and April 30, 2017, respectively		674,105			692,527
Stockholders' equity
Common stock: $0.01 par value, 150,000 shares authorized, 72,171 and 71,631 shares issued at July 31, 2018 and April 30, 2018, respectively, and 56,938 and 56,517 shares outstanding at July 31, 2018 and April 30, 2018, respectively								681,060			683,942
Retained earnings		515,811			461,976			537,015			572,800
Accumulated other comprehensive loss, net		(57,902	)		(71,064	)		(56,488	)		(40,135	)

Total Korn/Ferry International stockholders’ equity		1,132,014			1,083,439
Total Korn/Ferry International stockholders' equity								1,161,587			1,216,607
Noncontrolling interest		2,709			3,609			3,033			3,008

Total stockholders’ equity		1,134,723			1,087,048

Total liabilities and stockholders’ equity	$	2,062,101		$	2,062,898

Total stockholders' equity								1,164,620			1,219,615
Total liabilities and stockholders' equity							$	2,079,470		$	2,287,914

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

~~KORN/FERRY INTERNATIONAL AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF INCOME~~

~~(unaudited)~~

   Three Months Ended
October 31, Six Months Ended
October 31,
   2017 2016 2017 2016
   (in thousands, except per share data)
Fee revenue
   $           443,018 $           401,917 $           844,272 $           777,538
Reimbursedout-of-pocket engagement expenses
   12,450 13,037 26,113 30,349


Total revenue
   455,468 414,954 870,385 807,887


Compensation and benefits
   301,043 270,609 574,997 533,576
General and administrative expenses
   58,603 54,134 116,864 109,476
Reimbursed expenses
   12,450 13,037 26,113 30,349
Cost of services
   19,883 18,874 35,696 35,706
Depreciation and amortization
   12,447 11,752 24,656 23,196
Restructuring (recoveries) charges, net
   (202 ) — 78 24,520


Total operating expenses
   404,224 368,406 778,404 756,823


Operating income
   51,244 46,548 91,981 51,064
Other income (loss), net
   3,626 (879 ) 7,158 3,380
Interest expense, net
   (2,579 ) (2,736 ) (5,239 ) (5,797 )


Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries
   52,291 42,933 93,900 48,647
Equity in earnings of unconsolidated subsidiaries, net
   60 29 90 108
Income tax provision
   15,619 11,906 27,829 13,631


Net income
   36,732 31,056 66,161 35,124
Net income attributable to noncontrolling interest
   (401 ) (904 ) (789 ) (1,764 )


Net income attributable to Korn/Ferry International
   $ 36,331 $ 30,152 $ 65,372 $ 33,360


Earnings per common share:

Basic
   $ 0.65 $ 0.53 $ 1.16 $ 0.59


Diluted
   $ 0.64 $ 0.52 $ 1.15 $ 0.58


Weighted-average common shares outstanding:

Basic
   55,390 56,614 55,592 56,401


Diluted
   55,978 56,983 56,252 56,863


Cash dividends declared per share:
   $ 0.10 $ 0.10 $ 0.20 $ 0.20

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

~~KORN/FERRY INTERNATIONAL AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~(unaudited)~~

   Three Months Ended
October 31, Six Months Ended
October 31,
   2017 2016 2017 2016
   (in thousands)
Net income
   $ 36,732 $ 31,056 $ 66,161 $ 35,124
Other comprehensive income:

Foreign currency translation adjustments
   (4,255 ) (5,159 ) 11,934 (18,433 )
Deferred compensation and pension plan adjustments, net of tax
   352 465 704 927
Unrealized gain on interest rate swap, net of tax
   456 — 393 —


Comprehensive income
   33,285 26,362 79,192 17,618
Less: comprehensive income attributable to noncontrolling interest
   (165 ) (876 ) (658 ) (1,590 )


Comprehensive income attributable to Korn/Ferry International
   $ 33,120 $ 25,486 $ 78,534 $ 16,028

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

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~OPERATIONS

(unaudited)

   Six Months Ended
October 31,
   2017 2016
   (in thousands)
Cash flows from operating activities:

Net income
   $ 66,161 $ 35,124
Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization
   24,656 23,196
Stock-based compensation expense
   10,283 9,520
Provision for doubtful accounts
   6,960 5,151
Gain on cash surrender value of life insurance policies
   (4,227 ) (3,172 )
Gain on marketable securities
   (6,797 ) (3,226 )
Deferred income taxes
   7,802 5,833
Change in other assets and liabilities:

Deferred compensation
   12,560 (6,804 )
Receivables due from clients
   (59,020 ) (49,964 )
Income tax and other receivables
   (7,207 ) (2,876 )
Prepaid expenses and other assets
   (15,267 ) (8,184 )
Investment in unconsolidated subsidiaries
   (90 ) (108 )
Income taxes payable
   9,459 (5,947 )
Accounts payable and accrued liabilities
   (66,089 ) (85,133 )
Other
   (35,344 ) (2,009 )


Net cash used in operating activities
   (56,160 ) (88,599 )


Cash flows from investing activities:

Purchase of property and equipment
   (20,813 ) (32,322 )
Cash paid for acquisition, net of cash acquired
   — (2,880 )
Purchase of marketable securities
   (6,738 ) (9,526 )
Proceeds from sales/maturities of marketable securities
   2,273 14,139
Premium on company-owned life insurance policies
   (422 ) (420 )
Proceeds from life insurance policies
   971 —
Dividends received from unconsolidated subsidiaries
   60 230


Net cash used in investing activities
   (24,669 ) (30,779 )


Cash flows from financing activities:

Proceeds from term loan facility
   — 275,000
Principal payment on term loan facility
   (10,313 ) (145,156 )
Payment of contingent consideration from acquisition
   (485 ) (1,070 )
Repurchases of common stock
   (29,261 ) (6,940 )
Payments of tax withholdings on restricted stock
   (3,461 ) (4,177 )
Proceeds from issuance of common stock upon exercise of employee stock options and
in connection with an employee stock purchase plan
   3,984 2,614
Dividends – noncontrolling interest
   (1,558 ) —
Dividends paid to shareholders
   (11,537 ) (11,750 )
Payments on life insurance policy loans
   (414 ) —


Net cash (used in) provided by financing activities
   (53,045 ) 108,521


Effect of exchange rate changes on cash and cash equivalents
   5,617 (12,362 )


Net decrease in cash and cash equivalents
   (128,257 ) (23,219 )
Cash and cash equivalents at beginning of period
   410,882 273,252


Cash and cash equivalents at end of period
   $ 282,625 $ 250,033

	Three Months Ended July 31,
	2018			2017
	(in thousands, except per share data)
Fee revenue	$	465,568		$	401,254
Reimbursed out-of-pocket engagement expenses		12,794			13,663
Total revenue		478,362			414,917

Compensation and benefits		321,905			272,756
General and administrative expenses		168,724			58,261
Reimbursed expenses		12,794			13,663
Cost of services		18,327			15,813
Depreciation and amortization		11,731			12,209
Restructuring charges, net		—			280
Total operating expenses		533,481			372,982

Operating (loss) income		(55,119	)		41,935
Other income, net		4,491			3,354
Interest expense, net		(4,103	)		(3,680	)
(Loss) income before (benefit) provision for income taxes and equity in earnings of unconsolidated subsidiaries		(54,731	)		41,609
Equity in earnings of unconsolidated subsidiaries		29			30
Income tax (benefit) provision		(16,110	)		12,210
Net (loss) income		(38,592	)		29,429
Net income attributable to noncontrolling interest		(19	)		(388	)
Net (loss) income attributable to Korn/Ferry International	$	(38,611	)	$	29,041

(Loss) earnings per common share attributable to Korn/Ferry International:
Basic	$	(0.70	)	$	0.52
Diluted	$	(0.70	)	$	0.51

Weighted-average common shares outstanding:
Basic		55,378			55,795
Diluted		55,378			56,403

Cash dividends declared per share:	$	0.10		$	0.10

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

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(unaudited)

	Three Months Ended July 31,
	2018			2017
	(in thousands)
Net (loss) income	$	(38,592	)	$	29,429

Other comprehensive (loss) income:
Foreign currency translation adjustments		(14,556	)		16,189
Deferred compensation and pension plan adjustments, net of tax		273			352
Net unrealized gain (loss) on interest rate swap, net of tax		133			(63	)
Comprehensive (loss) income		(52,742	)		45,907
Less: comprehensive income attributable to noncontrolling interest		(25	)		(493	)
Comprehensive (loss) income attributable to Korn/Ferry International	$	(52,767	)	$	45,414

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

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

										Accumulated			Total
										Other			Korn/Ferry
										Comprehensive			International					Total
	Common Stock						Retained			(Loss) Income,			Stockholders'			Noncontrolling		Stockholder's
	Shares			Amount			Earnings			Net			Equity			Interest		Equity
	(in thousands)
Balance as of April 30, 2018		56,517		$	683,942		$	572,800		$	(40,135	)	$	1,216,607		$	3,008	$	1,219,615
Net loss		—			—			(38,611	)		—			(38,611	)		19		(38,592	)
Other Comprehensive (loss) income		—			—			—			(14,156	)		(14,156	)		6		(14,150	)
Effect of adopting new accounting standards		—			—			8,853			(2,197	)		6,656			—		6,656
Dividends paid to shareholders		—			—			(6,027	)		—			(6,027	)		—		(6,027	)
Purchase of stock		(200	)		(13,055	)		—			—			(13,055	)		—		(13,055	)
Issuance of stock		621			4,804			—			—			4,804			—		4,804
Stock-based compensation		—			5,369			—			—			5,369			—		5,369
Balance as of July 31, 2018		56,938		$	681,060		$	537,015		$	(56,488	)	$	1,161,587		$	3,033	$	1,164,620

										Accumulated			Total
										Other			Korn/Ferry
										Comprehensive			International					Total
	Common Stock						Retained			(Loss) Income,			Stockholders'			Noncontrolling		Stockholder's
	Shares			Amount			Earnings			Net			Equity			Interest		Equity
	(in thousands)
Balance as of April 30, 2017		56,938		$	692,527		$	461,976		$	(71,064	)	$	1,083,439		$	3,609	$	1,087,048
Net income		—			—			29,041			—			29,041			388		29,429
Other Comprehensive income		—			—			—			16,373			16,373			105		16,478
Dividends paid to shareholders		—			—			(5,823	)		—			(5,823	)		—		(5,823	)
Purchase of stock		(217	)		(7,372	)		—			—			(7,372	)		—		(7,372	)
Issuance of stock		525			4,586			—			—			4,586			—		4,586
Stock-based compensation		—			4,405			—			—			4,405			—		4,405
Balance as of July 31, 2017		57,246		$	694,146		$	485,194		$	(54,691	)	$	1,124,649		$	4,102	$	1,128,751

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

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Three Months Ended July 31,
	2018			2017
	(in thousands)
Cash flows from operating activities:
Net (loss) income	$	(38,592	)	$	29,429
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		11,731			12,209
Stock-based compensation expense		5,714			4,696
Tradename write-offs		106,555			—
Provision for doubtful accounts		3,707			3,070
Gain on cash surrender value of life insurance policies		(1,347	)		(2,485	)
Gain on marketable securities		(4,001	)		(3,429	)
Deferred income taxes		(22,564	)		8,562
Change in other assets and liabilities:
Deferred compensation		3,021			8,288
Receivables due from clients		(16,270	)		(23,413	)
Income taxes and other receivables		(7,811	)		(10,930	)
Prepaid expenses and other assets		(4,356	)		(4,780	)
Unearned compensation		(17,463	)		(29,115	)
Investment in unconsolidated subsidiaries		(29	)		(30	)
Income taxes payable		1,434			6,463
Accounts payable and accrued liabilities		(135,405	)		(109,034	)
Other		(1,816	)		926
Net cash used in operating activities		(117,492	)		(109,573	)
Cash flows from investing activities:
Purchase of property and equipment		(13,163	)		(9,529	)
Purchase of marketable securities		(1,396	)		(4,600	)
Proceeds from sales/maturities of marketable securities		8,240			1,734
Premium on company-owned life insurance policies		(398	)		(403	)
Proceeds from life insurance policies		85			971
Dividends received from unconsolidated subsidiaries		—			60
Net cash used in investing activities		(6,632	)		(11,767	)
Cash flows from financing activities:
Principal payments on term loan facility		(5,156	)		(5,156	)
Payment of contingent consideration from acquisitions		(455	)		(485	)
Repurchases of common stock		—			(4,026	)
Payments of tax withholdings on restricted stock		(13,054	)		(3,346	)
Proceeds from issuance of common stock upon exercise of employee stock options and in connection with an employee stock purchase plan		4,105			3,984
Dividends paid to shareholders		(6,027	)		(5,823	)
Payments on life insurance policy loans		—			(414	)
Net cash used in financing activities		(20,587	)		(15,266	)
Effect of exchange rate changes on cash and cash equivalents		(10,408	)		7,743
Net decrease in cash and cash equivalents		(155,119	)		(128,863	)
Cash and cash equivalents at beginning of period		520,848			410,882
Cash and cash equivalents at end of the period	$	365,729		$	282,019

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

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

~~October~~July 31, ~~2017~~2018

1. Organization and Summary of Significant Accounting Policies

Nature of Business

Korn/Ferry International, a Delaware corporation (the “Company”), and its subsidiaries are engaged in the business of providing ~~talent management solutions, including~~ executive ~~search~~searches on a retained basis, advisory solutions and products, recruitment fornon-executive professionals and recruitment process outsourcing (“RPO”). On June 12, 2018, the Company’s Board of Directors approved a plan (the “Plan”) to go to market under a single, master brand architecture and ~~leadership~~to simplify the Company’s organizational structure by eliminating and/or consolidating certain legal entities and implementing a rebranding of the Company to offer the Company’s current products and services using the “Korn Ferry” name, branding and trademarks. In connection with the Plan, the Company intends to sunset all sub-brands, including Futurestep, Hay Group and Lominger, among others. The Company is harmonizing under one brand to help accelerate the firm’s positioning as the preeminent organizational consultancy and bring more client awareness to its broad range of talent management solutions. While the rebranding will not impact the Company’s segment financial reporting, the Company renamed its Hay Group segment as “Advisory” and its Futurestep segment as “RPO & ~~talent consulting services.~~Professional Search.” The Company’s Executive Search segment remains unchanged.

Basis of Consolidation and Presentation

The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form10-K for the year ended April 30, ~~2017~~2018 for the Company and its wholly and majority owned/controlled domestic and international subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The preparation of the consolidated financial statements conform with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and prevailing practice within the industry. The consolidated financial statements include all adjustments, consisting of normal recurring accruals and any other adjustments that management considers necessary for a fair presentation of the results for these periods. The results of operations for the interim period are not necessarily indicative of the results for the entire fiscal year.

Investments in affiliated companies, which are 50% or less owned and where the Company exercises significant influence over operations, are accounted for using the equity method.

The Company has control of a Mexico subsidiary and consolidates the operations of this subsidiary. Noncontrolling interest, which represents the Company’s 51% noncontrolling interest in the Mexico subsidiary, is reflected on the Company’s consolidated financial statements.

The Company considers events or transactions that occur after the balance sheet date but before the consolidated financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosures.

Use of Estimates and Uncertainties

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates, and changes in estimates are reported in current operations as new information is learned or upon the amounts becoming fixed and determinable. The most significant areas that require management judgment are revenue recognition, ~~restructuring,~~ deferred compensation, annual performance related bonuses, evaluation of the carrying value of receivables, goodwill and other intangible assets, ~~fair value of contingent consideration,~~ share-based payments and the recoverability of deferred income taxes.

Revenue Recognition

Substantially all fee revenue is derived from fees for professional services related to executive ~~search~~and professional recruitment performed on a retained basis, recruitment ~~fornon-executive~~ ~~professionals, recruitment~~ process outsourcing, ~~people~~talent and organizational advisory services and the sale of ~~product~~products, stand alone or as part of a solution.

Revenue is recognized when control of the goods and services are transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods and services. Revenue contracts with customers are evaluated based on the five-step model outlined in Accounting Standard Codification 606 (“ASC 606”): 1) identify the contract with a customer; 2) identify the performance obligation(s) in the contract; 3) determine the transaction price; 4) allocate the transaction price to the separate performance obligation(s); and 5) recognize revenue when (or as) each performance obligation is satisfied.

Fee revenue from executive and non-executive professional search activities ~~and recruitment fornon-executive~~ ~~professionals~~ is generallyone-third of the estimated first year compensation of the placed ~~executive ornon-executive~~ ~~professional, as applicable,~~candidate plus a percentage of the fee to cover indirect engagement related expenses. In addition to the search retainer, an uptick fee is billed when the actual compensation awarded by the client for a placement is higher

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

July 31, 2018 (continued)

than the estimated compensation. In the aggregate upticks are a relatively consistent percentage of the original estimated fee therefore the Company estimates upticks using the expected value method based on historical data on a portfolio basis. In a standard search engagement, there is one performance obligation which is the promise to undertake a search. The Company generally recognizes such revenue onover the course of a ~~straight-line basis over a three-month period, commencing upon client acceptance,~~search and when it is legally entitled to payment as ~~this is~~outlined in the ~~period over which the recruitment services are performed. Fees earned in excess~~billing terms 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.contract. Any revenues associated with services that are provided on a contingent basis are recognized once the contingency is ~~resolved. In addition~~resolved as this is when control is transferred to ~~recruitment~~the customer. These assumptions determine the timing of revenue recognition for~~non-executive~~ ~~professionals, Futurestep provides recruitment process outsourcing (“RPO”) services and~~ the reported period.

RPO fee revenue is generated through two distinct phases 1) the implementation phase and 2) the post-implementation recruitment phase. The fees associated with the implementation phase are recognized over the period that the related implementation services are provided. The post-implementation recruitment phase represents end-to-end recruiting services to clients for which there are both fixed and variable fees, which are recognized over the period that the related recruiting services are performed.

Consulting fee revenue, primarily generated from Advisory, is recognized as services are rendered, and/or as milestones are achieved. Fee revenue from 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) 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~~engagements may vary from initial estimates with such updates being recognized in the period of determination.

~~KORN/FERRY INTERNATIONAL AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS~~
~~October 31, 2017 (continued)~~

Depending on the timing of billings and services rendered, the Company accrues or defers revenue as appropriate. ~~Hay Group~~

Product revenue is ~~also derived~~generated from a range of online tools designed to support human resource processes for pay, talent and engagement, assessments, as well as licenses to proprietary intellectual property (“IP”) and tangible/digital products. IP subscriptions grant access to proprietary compensation and job evaluation databases. IP subscriptions are considered symbolic IP due to the ~~sale~~dynamic nature of ~~product services, which includes~~the content and, as a result, 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 fixed term~~contract. Functional IP licenses grant customers the Company is obligated to provide the licensee with access to any updates to the underlying intellectual property that are made by the Company during the term of the license. Once the term of the agreement expires, the client’s right to ~~access or~~ use IP content via delivery of a flat file. Because the ~~intellectual property expires~~IP content license has significant standalone functionality, revenue is recognized upon delivery and when an enforceable right to payment exists.Online assessments are delivered in the form of online questionnaires.A bundle of assessments represents one performance obligation, and revenue is recognized as assessment services are delivered and the Company has ~~no further obligations~~a legally enforceable right to the client under the license agreement. Revenue from perpetual licenses is recognized when the license is sold since the Company’s only obligation is to provide the client access to the intellectual property but is not obligated to provide maintenance, support, updates or upgrades. Productspayment. Tangible/Digital products sold by the Company mainly consist of books and ~~automated services~~digital files covering a variety of topics including performance management, team effectiveness, and coaching and development. The Company recognizes revenue for its products when ~~the product has been~~ sold or shipped, inas is the case offor books. ~~As of October 31, 2017 and April 30, 2017, the Company included deferred revenue of $100.2 million and $95.8 million, respectively, in other accrued liabilities.~~

Reimbursements

The Company incurs certainout-of-pocket expenses that are reimbursed by its clients, which are accounted for as revenue in its consolidated statements of ~~income.~~operations.

Allowance for Doubtful Accounts

An allowance is established for doubtful accounts by taking a charge to general and administrative expenses. The amount of the allowance is 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. After the Company exhausts all collection efforts, the amount of the allowance is reduced for balances identified as uncollectible.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. As of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, the Company’s investments in cash equivalents consist of money market funds for which market prices are readily available.

Marketable Securities

The Company currently has investments in mutual funds that are classified as trading securities based upon management’s intent and ability to hold, sell or trade such securities. The classification of the investments in mutual funds is assessed upon purchase and reassessed at each reporting period. The investments in mutual funds (for which market prices are readily available) are held in trust to satisfy obligations under the Company’s deferred compensation plans. Such investments are based upon the employees’ investment elections in their deemed accounts in the Executive Capital Accumulation Plan and similar plans in Asia Pacific and Canada (“ECAP”) from apre-determined set of securities and the Company invests in marketable securities to mirror these elections. These investments are recorded at fair value and are classified as marketable securities in the accompanying consolidated balance sheets. The investments that the Company may sell within the next twelve months are carried as current assets. Realized gains (losses) on marketable securities are determined by specific identification. Interest is recognized on an accrual basis; dividends are recorded as earned on theex-dividend date. Interest, dividend income and the changes in fair value in trading securities are recorded in the accompanying consolidated statements of ~~income~~operations in other income, ~~(loss),~~ net.

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

July 31, 2018 (continued)

Fair Value of Financial Instruments

Fair value is the price the Company would receive to sell an asset or transfer a liability (exit price) in an orderly transaction between market participants. For those assets and liabilities recorded or disclosed at fair value, the Company determines the fair value based upon the quoted market price, if available. If a quoted market price is not available for identical assets, the fair value is based upon the quoted market price of similar assets. The fair values are assigned a level within the fair value hierarchy as defined below:

◾ ▪	*Level* 1: Observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

◾

▪

Level 2:Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

◾ ▪	*Level* 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

As of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, the Company held certain assets that are required to be measured at fair value on a recurring basis. These included cash, cash equivalents, accounts receivable, marketable securities, foreign currency forward contracts and an interest rate swap. The carrying amount of cash, cash equivalents and accounts receivable approximates fair value due to the short maturity of these instruments. The fair values of marketable securities classified as trading are obtained from

~~KORN/FERRY INTERNATIONAL AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS~~
~~October 31, 2017 (continued)~~

quoted market prices, and the fair values of foreign currency forward contracts orand the interest rate swap are obtained from a third party, which are based on quoted prices or market prices for similar assets and financial instruments.

Derivative Financial Instruments

The Company is exposed to interest rate risk due to the outstanding senior secured credit agreement entered on June 15, 2016. The Company has entered into an interest rate swap agreement to effectively convert its variable debt to a fixed-rate basis. The principal objective of these contracts is to eliminate or reduce the variability of the cash flows in interest payments associated with the Company’s long-term debt, thus reducing the impact of interest rate changes on future interest payment cash flows. The Company has determined that the interest rate swap qualifies as a cash flow hedge in accordance with Accounting Standards Codification 815,Derivatives and Hedging. Changes in the fair value of an interest rate swap agreement designated as a cash flow hedge are recorded as a component of accumulated other comprehensive (loss) income ~~(loss), net~~ within stockholders’ equity and are amortized to interest expense over the term of the related debt.

Foreign Currency Forward Contracts Not Designated as Hedges

The Company has established a program that primarily utilizes foreign currency forward contracts to offset the risks associated with the effects of certain foreign currency ~~exposures.~~exposures primarily originating from intercompany balances due to cross border work performed in the ordinary course of business. These foreign currency forward contracts are neither used for trading purposes nor are they designated as hedging instruments pursuant to Accounting Standards Codification 815,Derivatives and Hedging. Accordingly, the fair value of these contracts is recorded as of the end of the reporting period in the accompanying consolidated balance sheets, while the change in fair value is recorded to the accompanying consolidated statements of ~~income.~~operations.

Business Acquisitions

Business acquisitions are accounted for under the acquisition method. The acquisition method requires the reporting entity to identify the acquirer, determine the acquisition date, recognize and measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity, and recognize and measure goodwill or a gain from the purchase. The acquiree’s results are included in the Company’s consolidated financial statements from the date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill, or if the fair value of the assets acquired exceeds the purchase price consideration, a bargain purchase gain is recorded. Adjustments to fair value assessments are generally recorded to goodwill over the measurement period (not longer than twelve months). The acquisition method also requires that acquisition-related transaction and post-acquisition restructuring costs be charged to expense as committed and requires the Company to recognize and measure certain assets and liabilities including those arising from contingencies and contingent consideration in a business combination.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of assets acquired. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit would be considered impaired. To measure the amount of the impairment loss, the implied fair value of a reporting unit’s goodwill is compared to the carrying amount of that goodwill. The

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

July 31, 2018 (continued)

implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. For each of these tests, the fair value of each of the Company’s reporting units is determined using a combination of valuation techniques, including a discounted cash flow methodology. To corroborate the discounted cash flow analysis performed at each reporting unit, a market approach is utilized using observable market data such as comparable companies in similar lines of business that are publicly traded or which are part of a public or private transaction (to the extent available). Results of the annual impairment test performed as of January 31, ~~2017,~~2018, indicated that 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 as of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017~~2018 that would have required further testing.

Intangible assets primarily consist of customer lists,non-compete agreements, proprietary databases, intellectual property and trademarks and are recorded at their estimated fair value at the date of acquisition and are amortized in a pattern in which the asset is consumed if that pattern can be reliably determined, or using the straight-line method over their estimated useful lives which range from one to 24 years. For intangible assets subject to amortization, an impairment loss is recognized if the carrying amount of the intangible assets is not recoverable and exceeds fair value. The carrying amount of the intangible assets is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from use of the asset. Intangible assets with indefinite lives are not amortized, but are reviewed annually for impairment or more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than its carrying amount. As of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, there were no further indicators of impairment with respect to the Company’s intangible ~~assets.~~assets, with the exception of the intangible asset impairment charge discussed below.

~~KORN/FERRY INTERNATIONAL AND SUBSIDIARIES~~On June 12, 2018, the Company’s Board of Directors voted to approve a rebranding plan with the Company going to market under a single, master brand architecture, solely as Korn Ferry and sunsetting of all the Company’s sub-brands, including Futurestep, Hay Group and Lominger, among others. This integrated go-to-market approach was a key driver in our fee revenue growth in FY’18, which led to the decision to further integrate our go-to-market activities under one master brand – Korn Ferry. As a result, the Company discontinued the use of all sub-brands. Two of the Company’s sub-brands, Hay Group and Lominger came to Korn Ferry through acquisitions. In connection with the accounting for these acquisitions, $106.6 million of the purchase price was allocated to indefinite lived tradename intangible assets. As a result of the decision to discontinue their use, the Company took a non-cash intangible asset impairment charge of $106.6 million, during the three months ended of July 31, 2018 recorded in general and administrative expenses.
~~NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS~~
~~October 31, 2017 (continued)~~

Compensation and Benefits Expense

Compensation and benefits expense in the accompanying consolidated statements of ~~income~~operations consist of compensation and benefits paid to consultants (employees who originate business), executive officers and administrative and support personnel. The most significant portions of this expense are salaries and the amounts paid under the annual performance related bonus plan to employees. The portion of the expense applicable to salaries is comprised of amounts earned by employees during a reporting period. The portion of the expenses applicable to annual performance related bonuses refers to the Company’s annual employee performance related bonus with respect to a fiscal year, the amount of which is communicated and paid to each eligible employee following the completion of the fiscal year.

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~~Advisory and ~~Futurestep~~RPO and Professional Search 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 the Company’s 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 the Company reevaluates 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 the Company reports 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. The performance related bonus expense was ~~$98.5~~$61.0 million and ~~$95.1~~$41.6 million during the ~~six~~three months ended ~~October~~July 31, ~~2017~~2018 and ~~2016,~~2017, respectively, included in compensation and benefits expense in the consolidated statements of ~~income. During the three months ended October 31, 2017 and 2016, the performance related bonus expense was $56.9 million and $52.7 million, respectively.~~operations.

Other expenses included in compensation and benefits expense are due to changes in deferred compensation and pension plan liabilities, changes in cash surrender value (“CSV”) of company owned life insurance (“COLI”) contracts, amortization of

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

July 31, 2018 (continued)

stock compensation awards, payroll taxes and employee insurance benefits. ~~Investments and other assets include~~Unearned compensation on the consolidated balance sheets includes long-term retention awards that are generally amortized over four to five years.

Restructuring Charges, Net

The Company accounts for its restructuring charges as a liability when the obligations are incurred and records such charges at fair value. Such charges includedone-time employee termination benefits and the cost to terminate an office lease including remaining lease payments. Changes in the estimates of the restructuring charges are recorded in the period the change is determined.

Stock-Based Compensation

The Company has employee compensation plans under which various types of stock-based instruments are granted. These instruments principally include restricted stock units, restricted stock ~~stock options~~ and an Employee Stock Purchase Plan (“ESPP”). The Company recognizes compensation expense related to restricted stock units, restricted stock and the estimated fair value of stock ~~options and stock~~ purchases under the ESPP on a straight-line basis over the service period for the entire award.

Reclassifications

Certain reclassifications have been made to the amounts in prior periods in order to conform to the current period’s presentation.

Recently Adopted Accounting Standards

In March 2016,the Financial Accounting Standards Board (the “FASB”) issued guidance on accounting for certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled. Furthermore, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows. The guidance also allows companies to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting, clarifying that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity in the consolidated statements of cash flows and provides an accounting policy election to account for forfeitures as they occur. The provisions of the guidance are effective for fiscal years beginning after December 15, 2016 and were adopted by the Company effective May 1, 2017. The primary impact of the adoption was the recognition of excess tax benefits in our provision for income taxes in the current year compared to recording it previously as a component of equity. Additional amendments to the accounting for income taxes and minimum statutory withholding tax requirements had no impact to retained earnings, where the cumulative effect of these changes are required to be recorded. The Company elected to apply the presentation for cash flows related to excess tax benefits retrospectively for all periods presented which resulted in minimal impact to cash used in operations and cash provided

~~KORN/FERRY INTERNATIONAL AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS~~
~~October 31, 2017 (continued)~~

by financing activities for the six months ended October 31, 2016. The presentation requirements for cash flows related to employee taxes paid for withheld shares had no impact on any of the periods presented on our consolidated cash flows statements since such cash flows have historically been presented as a financing activity. The Company elected to account for forfeitures as they occur, rather than estimating the expected forfeitures over the vesting period. This election did not have an impact on the Company’s financial statements.

~~Recently Proposed Accounting Standards~~

In May 2014, the FASB issued ASU2014-09 (“ASC 606”), which superseded revenue recognition requirements regarding contracts with customers to transfer goods or services or for the transfer of nonfinancial assets. Under this ~~new~~ guidance, entities are required to recognize revenue that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The transfer is considered to occur when the customer obtains control of the goods or services delivered. The guidance provides a five-step analysis to be performed on transactions to determine when and how revenue is recognized. ~~In addition, the guidance permits companies to choose between the following two transition methods of adopting ASU2014-09:~~ (1) the full retrospective method, in which case the standard would be applied to all reporting periods presented and (2) the modified retrospective method, with a cumulative-effect adjustment as of the date of adoption.

The new guidance is effective for fiscal years and interim periods within those annual years beginning after December 15, 2017. The Company ~~will adopt this guidance~~adopted ASC 606 in its fiscal year beginning May 1, 2018 ~~and expects to apply~~using the modified retrospective transition method ~~in adopting ASU2014-09.~~ ~~The Company organized a team~~applied to those contracts still outstanding and developed a project plan to guide the implementation. The project plan includes working sessions to review, evaluate and document the arrangements with customers under our various reporting units to identify potential differences that would result from applying the requirementsnot completed as of ~~the new standard. The Company is currently in the process of developing an updated accounting policy utilizing abottoms-up~~ approach by reviewing our current contracts with customers by various revenue streams, evaluating new disclosure requirements and identifying and implementing appropriate changes to business processes, systems and controls to support revenue recognition and disclosure under the new standard.May 1, 2018.

The Company ~~has completed its initial evaluation~~recognized the cumulative effect of initially applying the new guidance as an adjustment to the opening balance of retained earnings. The comparative periods have not been restated and continue to be reported under the revenue accounting standards in effect for those periods. As a result of the adoption, the Company recorded an increase to retained earnings of $6.7 million, net of tax as of May 1, 2018 due to the cumulative impact of ~~ASU2014-09~~ ~~on executive search activities~~adopting ASC 606. The change in total assets was recorded to unbilled receivables which is included in receivables due from clients; the changes in total liabilities was recorded to income taxes payable, deferred tax liabilities and ~~recruitment fornon-executive~~deferred revenue, which is included in other accrued liabilities. ~~professionals. We currently expect~~

The following table summarizes the ~~implementation~~effect of ~~ASU2014-09~~changes made to ~~result in timing differences in the recognition of~~our consolidated balance sheet at May 1, 2018:

			Adjustments
	April 30, 2018		due to ASC 606			May 1, 2018
	(in thousands)
Total assets	$	2,287,914	$	3,496		$	2,291,410
Total liabilities	$	1,068,299	$	(3,160	)	$	1,065,139
Total stockholders’ equity	$	1,219,615	$	6,656		$	1,226,271

The adjustments primarily relate to uptick revenue (uptick revenue occurs when a placement’s actual compensation is higher than the original estimated compensation)~~. Currently~~ and certain Korn Ferry products that are now considered Functional IP. Under the new standard, uptick revenue is considered variable consideration and estimated at contract inception using the expected value method and recognized over the service period. Previously, the Company ~~recognizes~~recognized uptick revenue as the amount ~~becomes~~became fixed ~~and~~or determinable. Under ~~ASU2014-09,~~ ~~however, upticks~~the new standard, certain products are now considered ~~variable consideration~~Functional IP as delivery of intellectual property content fulfills the performance obligation, and ~~the Company will be required~~revenue is recognized upon delivery and when an enforceable right to ~~estimate upticks at contract inception~~payment exists. Previously these products were considered term licenses and ~~recognize the~~ revenue was recognized ratably over the ~~service period. The Company expects to finalize its evaluation of the impact of ASUNo. 2014-09~~contract term. ~~on its other revenue streams in the upcoming quarters and will provide updates on our progress in future filings.~~

In February 2016, the FASB issued guidance on accounting for leases that generally requires all leases to be recognized on the consolidated balance sheet. The provisions of the guidance are effective for fiscal years beginning after December 15, 2018 and early adoption is permitted. The Company plans to adopt this guidance in fiscal year beginning May 1, 2019. The provisions of the guidance are to be applied using a modified retrospective approach. The Company is still evaluating the effect this guidance will have on the consolidated financial statements. Based on our initial assessment, the Company expects that upon adoption it will report an increase in assets and liabilities on our consolidated balance sheet as a result of recognizing~~right-of-use~~ ~~assets and lease liabilities related to lease agreements.~~

In August 2016, the FASB issued guidance on the classification of certain cash receipts and cash payments in the statement of cash flows. The new guidance provides clarification on specific cash flow issues regarding presentation and classification in the statement of cash flows with the objective of reducing the existing diversity in practice. The amendments in this update are effective for reporting periods beginning after December 15, 2017 ~~with early adoption permitted. The~~and were adopted by the Company ~~plans to adopt this guidance in its fiscal year beginning~~effective May 1, 2018. ~~The provisions of the guidance are to be applied using a retrospective transition method.~~ The adoption of this guidance isdid not ~~anticipated to~~ have ~~a material~~an impact on the Company’s consolidated financial statements.

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

July 31, 2018 (continued)

In January 2017, the FASB issued guidance that clarifies the definition of a business. The new guidance assists a company when evaluating whether transactions should be accounted for as acquisitions (disposals) of assets or businesses. The provisions of the guidance require that if the fair value of the gross assets acquired (or disposed of) is substantially concentrated in a single identifiable asset or a group of similar identifiable assets, then it is not a business. The provisions of the guidance are to be applied prospectively. The provisions of the guidance are effective for annual years beginning after December 15, 2017 ~~including interim periods, with early adoption permitted. The~~and were adopted by the Company ~~plans to adopt this guidance in its fiscal year beginning~~effective May 1, 2018. ~~The provisions of the guidance are to be applied prospectively.~~ The adoption of this guidance isdid not ~~anticipated to~~ have ~~a material~~an impact on the Company’s consolidated financial statements.

~~KORN/FERRY INTERNATIONAL AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS~~
~~October 31, 2017 (continued)~~

reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments of this standard are effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted for goodwill impairment tests performed after January 1, 2017. The Company is evaluating the adoption timeline and the effects that the standard will have on the consolidated financial statements.

In March 2017, the FASB issued guidance that changes the presentation of net periodic pension cost and net periodic postretirement benefit cost. The new guidance will change the presentation of net periodic benefit cost related to employer sponsored defined benefit plans and other postretirement benefits. Service cost will be included within the same income statement line item as other compensation costs arising from services rendered during the period, while other components of net periodic benefit pension cost will be presented separately outside of operating income. Additionally, only service costs may be capitalized in assets. ~~The amendments of this standard are~~This pronouncement is effective for ~~fiscal years~~annual reporting periods beginning after December 15, 2017 ~~including interim periods within those years. The~~and was adopted by the Company ~~will adopt this guidance in its fiscal year beginning~~effective May 1, 2018. The ~~adoption~~change to the consolidated statements of ~~this standard is not anticipated to have~~operations has been reflected on a ~~material impact~~retrospective basis and had no effect on ~~the consolidated financial statements.~~net (loss) income. Prior period amounts were revised, which resulted in a decrease in compensation expense and other income of $1.2 million and $0.2 million, respectively, and an increase in interest expense of $1.0 million (see Note 6—Deferred Compensation and Retirement Plans).

In May 2017, the FASB issued guidance clarifying the scope of modification accounting for stock compensation. The new standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This pronouncement is effective for annual reporting periods beginning after December 15, 2017 and was adopted by the Company effective May 1, 2018. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements. Any future impact of this guidance will be dependent on future modification including the number of awards modified

In February 2018, the FASB issued guidance that provides companies the option to reclassify stranded tax effects from accumulated other comprehensive (loss) income to retained earnings. The new guidance requires companies to disclose whether they decided to reclassify the income tax effects of the Tax Act from accumulated other comprehensive income (loss) to retained earnings. The guidance is effective for annual reporting periods beginning after December 15, 2018, but early adoption is permitted. The Company ~~will~~early adopted effective May 1, 2018 and elected not to reclassify prior periods but instead record it in the period of adoption. The adoption of this guidance resulted in an increase of $2.2 million to retained earnings due to the reclassification from accumulated other comprehensive (loss) income to retained earnings.

Recently Proposed Accounting Standards – Not Yet Adopted

In February 2016, the FASB issued guidance on accounting for leases that generally requires all leases to be recognized on the consolidated balance sheet. The provisions of the guidance are effective for fiscal years beginning after December 15, 2018 and early adoption is permitted. The Company plans to adopt this guidance in ~~its~~ fiscal year beginning May 1, ~~2018.~~2019. The provisions of the guidance are to be applied using a modified retrospective approach. On July 30, 2018, the FASB issued an amendment that allows entities to apply the provisions at the effective date without adjusting comparative periods. The Company is ~~currently~~still evaluating the ~~impact~~effect this guidance will have on the consolidated financial statements. Based on our initial assessment, the Company expects that upon adoption it will report an increase in assets and liabilities on our consolidated balance sheet as a result of ~~adopting~~recognizing right-of-use assets and lease liabilities related to lease agreements.

In January 2017, the FASB issued guidance simplifying the test for goodwill impairment. The new guidance simplifies the test for goodwill impairment by removing Step 2 from the goodwill impairment test. Companies will now perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value not to exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments of this ~~guidance.~~standard are effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted for goodwill impairment tests performed after January 1, 2017. The Company is evaluating the adoption timeline and the effects that the standard will have on the consolidated financial statements.

In August 2017, the FASB issued guidance amending and simplifying accounting for hedging activities. The new guidance will refine and expand strategies that qualify for hedge accounting and simplify the application of hedge accounting in certain ~~situation.~~situations. The amendments of this standard are effective for fiscal years beginning after December 15, 2018. The Company will adopt this guidance in its fiscal year beginning May 1, 2019. The Company is currently evaluating the impact of adopting this guidance.

2. Basic and Diluted (Loss) Earnings Per Share

Accounting Standards Codification 260,Earnings Per Share, requires companies to treat unvested share-based payment

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

July 31, 2018 (continued)

awards that havenon-forfeitable rights to dividends prior to vesting as a separate class of securities in calculating earnings per share. We have granted and expect to continue to grant to certain employees under our restricted stock agreements, grants that containnon-forfeitable rights to dividends. Such grants are considered participating securities. Therefore, we are required to apply thetwo-class method in calculating earnings per share. Thetwo-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. The dilutive effect of participating securities is calculated using the more dilutive of the treasury method or thetwo-class method.

Basic (loss) earnings per common share was computed using thetwo-class method by dividing basic net (loss) earnings attributable to common stockholders by the weighted-average number of common shares outstanding. Diluted (loss) earnings per common share was computed using thetwo-class method by dividing diluted net (loss) earnings attributable to common stockholders by the weighted-average number of common shares outstanding plus dilutive common equivalent shares. Dilutive common equivalent shares include allin-the-money outstanding options or other contracts to issue common stock as if they were exercised or converted. Financial instruments that are not in the form of common stock, but when converted into common stock increase earnings per share are anti-dilutive and are not included in the computation of diluted earnings per share. Because the Company is in a net loss position, diluted net loss per share excludes the effects of common stock equivalents consisting of restricted stock awards, which are all antidilutive.

During the three ~~and six~~ months ended ~~October~~July 31, ~~2017~~2018 and ~~2016,~~2017, restricted stock awards of 1.8 million and 0.6 million were outstanding, respectively, but not included in the computation of diluted (loss) earnings per share because they were anti-dilutive.

~~KORN/FERRY INTERNATIONAL AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS~~
~~October 31, 2017 (continued)~~

The following table summarizes basic and diluted earnings per common share attributable to common stockholders:

   Three Months Ended
October 31,    Six Months Ended
October 31,
   2017    2016    2017    2016
   (in the thousands, except per share data)
Net income attributable to Korn/Ferry International
   $ 36,331    $ 30,152    $ 65,372    $ 33,360
Less: distributed and undistributed earnings to nonvested restricted stockholders
   402    270    686    283








Basic net earnings attributable to common stockholders
   35,929    29,882    64,686    33,077
Add: undistributed earnings to nonvested restricted stockholders
   340    220    568    188
Less: reallocation of undistributed earnings to nonvested restricted stockholders
   336    218    561    186








Diluted net earnings attributable to common stockholders
   $ 35,933    $ 29,884    $ 64,693    $ 33,079








Weighted-average common shares outstanding:

Basic weighted-average number of common shares outstanding
   55,390    56,614    55,592    56,401
Effect of dilutive securities:

Restricted stock
   585    335    645    409
Stock options
   2    18    8    26
ESPP
   1    16    7    27








Diluted weighted-average number of common shares outstanding
   55,978    56,983    56,252    56,863








Net earnings per common share:

Basic earnings per share
   $ 0.65    $ 0.53    $ 1.16    $ 0.59








Diluted earnings per share
   $ 0.64    $ 0.52    $ 1.15    $ 0.58

~~3. Stockholders’ Equity~~

~~The following table summarizes the changes in stockholders’ equity for the three months ended October 31, 2017:~~

   Total Korn/Ferry
International
Stockholders’
Equity Noncontrolling
Interest Total
Stockholders’
Equity
   (in thousands)
Balance as of July 31, 2017
   $ 1,124,649 $ 4,102 $ 1,128,751
Comprehensive income (loss):

Net income
   36,331 401 36,732
Foreign currency translation adjustments
   (4,019 ) (236 ) (4,255 )
Deferred compensation and pension plan adjustments, net of tax
   352 — 352
Unrealized gain on interest rate swap, net of tax
   456 — 456
Dividends paid to shareholders
   (5,714 ) — (5,714 )
Dividends paid to noncontrolling interest
   — (1,558 ) (1,558 )
Purchase of stock
   (25,350 ) — (25,350 )
Issuance of stock
   — — —
Stock-based compensation
   5,309 — 5,309


Balance as of October 31, 2017
   $ 1,132,014 $ 2,709 $ 1,134,723

~~KORN/FERRY INTERNATIONAL AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS~~
~~October 31, 2017 (continued)~~

	Three Months Ended July 31,
	2018			2017
	(in thousands, except per share data)
Net (loss) income attributable to Korn/Ferry International	$	(38,611	)	$	29,041
Less: distributed and undistributed earnings to nonvested restricted stockholders		59			288
Basic net (loss) earnings attributable to common stockholders		(38,670	)		28,753
Add: undistributed earnings to nonvested restricted stockholders		—			232
Less: reallocation of undistributed earnings to nonvested restricted stockholders		—			230
Diluted net (loss) earnings attributable to common stockholders	$	(38,670	)	$	28,755

Weighted-average common shares outstanding:
Basic weighted-average number of common shares outstanding		55,378			55,795
Effect of dilutive securities:
Restricted stock		—			588
Stock options		—			12
ESPP		—			8
Diluted weighted-average number of common shares outstanding		55,378			56,403

Net (loss) earnings per common share:
Basic (loss) earnings per share	$	(0.70	)	$	0.52
Diluted (loss) earnings per share	$	(0.70	)	$	0.51

~~The following table summarizes the changes in stockholders’ equity for the six months ended October 31, 2017:~~

   Total Korn/Ferry
International
Stockholders’
Equity Noncontrolling
Interest Total
  Stockholders’
Equity
     (in thousands)
Balance as of April 30, 2017
   $ 1,083,439 $ 3,609 $ 1,087,048
Comprehensive income (loss):

Net income
   65,372 789 66,161
Foreign currency translation adjustments
   12,065 (131 ) 11,934
Deferred compensation and pension plan adjustments, net of tax
   704 — 704
Unrealized gain on interest rate swap, net of tax
   393 — 393
Dividends paid to shareholders
   (11,537 ) — (11,537 )
Dividends paid to noncontrolling interest
   — (1,558 ) (1,558 )
Purchase of stock
   (32,722 ) — (32,722 )
Issuance of stock
   4,586 — 4,586
Stock-based compensation
   9,714 — 9,714


Balance as of October 31, 2017
   $ 1,132,014 $ 2,709 $     1,134,723


The following table summarizes the changes in stockholders’ equity for the three months ended October 31, 2016:

   Total Korn/Ferry
International
Stockholders’
Equity Noncontrolling
Interest Total
  Stockholders’
Equity
   (in thousands)
Balance as of July 31, 2016
   $ 1,033,627 $ 2,715 $ 1,036,342
Comprehensive income (loss):

Net income
   30,152 904 31,056
Foreign currency translation adjustments
   (5,131 ) (28 ) (5,159 )
Deferred compensation and pension plan adjustments, net of tax
   465 — 465
Dividends paid to shareholders
   (5,841 ) — (5,841 )
Purchase of stock
   (6,956 ) — (6,956 )
Issuance of stock
   184 — 184
Stock-based compensation
   4,352 — 4,352
Tax deficit from exercise of stock options and vesting of restricted stock
   (299 ) — (299 )


Balance as of October 31, 2016
   $ 1,050,553 $ 3,591 $     1,054,144


The following table summarizes the changes in stockholders’ equity for the six months ended October 31, 2016:

   Total Korn/Ferry
International
Stockholders’
Equity Noncontrolling
Interest Total
  Stockholders’
Equity
   (in thousands)
Balance as of April 30, 2016
   $ 1,045,300 $ 2,001 $ 1,047,301
Comprehensive income (loss):

Net income
   33,360 1,764 35,124
Foreign currency translation adjustments
   (18,259 ) (174 ) (18,433 )
Deferred compensation and pension plan adjustments, net of tax
   927 — 927
Dividends paid to shareholders
   (11,750 ) — (11,750 )
Purchase of stock
   (11,117 ) — (11,117 )
Issuance of stock
   2,968 — 2,968
Stock-based compensation
   9,091 — 9,091
Tax benefit from exercise of stock options and vesting of restricted stock
   33 — 33


Balance as of October 31, 2016
   $ 1,050,553 $ 3,591 $     1,054,144

~~KORN/FERRY INTERNATIONAL AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS~~
~~October 31, 2017 (continued)~~

4.3. Comprehensive (Loss) Income

Comprehensive (loss) income is comprised of net (loss) income and all changes to stockholders’ equity, except those changes resulting from investments by stockholders (changes in paid in capital) and distributions to stockholders (dividends) and is reported in the accompanying consolidated statements of comprehensive (loss) income. Accumulated other comprehensive (loss) income, ~~(loss),~~ net of taxes, is recorded as a component of stockholders’ equity.

The components of accumulated other comprehensive (loss) income ~~(loss), net~~ were as follows:

	July 31, 2018			April 30, 2018
	(in thousands)
Foreign currency translation adjustments	$	(46,961	)	$	(32,399	)
Deferred compensation and pension plan adjustments, net of tax		(11,196	)		(9,073	)
Interest rate swap unrealized gain, net of taxes		1,669			1,337
Accumulated other comprehensive loss, net	$	(56,488	)	$	(40,135	)

   October 31,
2017 April 30,
2017
   (in thousands)
Foreign currency translation adjustments
   $ (43,294 ) $ (55,359 )
Deferred compensation and pension plan adjustments, net of tax
   (14,423 ) (15,127 )
Interest rate swap unrealized loss, net of taxes
   (185 ) (578 )


Accumulated other comprehensive loss, net
   $ (57,902 ) $ (71,064 )

~~The following table summarizes the changes in each component of accumulated other comprehensive income (loss), net for the three months ended October 31, 2017:~~

   Foreign
Currency
Translation Deferred
Compensation
and Pension
Plan (1) Unrealized
(Losses) Gains
on Interest Rate
Swap (2) Accumulated
Other
Comprehensive
Income (Loss)
   (in thousands)
Balance as of July 31, 2017
   $ (39,275 ) $ (14,775 ) $ (641 ) $ (54,691 )
Unrealized (losses) gains arising during the period
   (4,019 ) — 322 (3,697 )
Reclassification of realized net losses to net income
   — 352 134 486


Balance as of October 31, 2017
   $ (43,294 ) $ (14,423 ) $ (185 ) $ (57,902 )


The following table summarizes the changes in each component of accumulated other comprehensive income (loss), net for the six months ended October 31, 2017:

   Foreign
Currency
Translation Deferred
Compensation
and Pension
Plan (1) Unrealized
(Losses) Gains
on Interest Rate
Swap (2) Accumulated
Other
Comprehensive
Income (Loss)
   (in thousands)
Balance as of April 30, 2017
   $ (55,359 ) $ (15,127 ) $ (578 ) $ (71,064 )
Unrealized gains arising during the period
   12,065 — 88 12,153
Reclassification of realized net losses to net income
   — 704 305 1,009


Balance as of October 31, 2017
   $ (43,294 ) $ (14,423 ) $ (185 ) $ (57,902 )

~~(1)~~

~~The tax effect on the reclassifications of realized net losses was $0.2 million and $0.5 million for the three and six months ended October 31, 2017, respectively.~~

~~(2)~~

The tax effect on unrealized gains was $0.2 million and $0.1 million for the three and six months ended October 31, 2017, respectively. The tax effect on the reclassification of realized net losses to net income was $0.1 million and $0.2 million for the three and six months ended October 31, 2017, respectively.

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
~~October~~July 31, ~~2017~~2018 (continued)

The following table summarizes the changes in each component of accumulated other comprehensive (loss) income ~~(loss), net~~ for the three months ended ~~October~~July 31, ~~2016:~~2018.

   Foreign
Currency
  Translation   Deferred
Compensation
and Pension
Plan (1) Accumulated
Other
Comprehensive
Income (Loss)
   (in thousands)
Balance as of July 31, 2016
   $ (49,467 ) $ (21,110 ) $ (70,577 )
Unrealized losses arising during the period
   (5,131 ) — (5,131 )
Reclassification of realized net losses to net income
   — 465 465


Balance as of October 31, 2016
   $ (54,598 ) $ (20,645 ) $ (75,243 )

	Foreign Currency Translation			Deferred Compensation and Pension Plan (1)			Unrealized gains on interest rate swap (2)			Accumulated Other Comprehensive Income (Loss)
	(in thousands)
Balance as of April 30, 2018	$	(32,399	)	$	(9,073	)	$	1,337		$	(40,135	)
Unrealized (losses) gains arising during the period		(14,562	)		—			149			(14,413	)
Reclassification of realized net losses (gains) to net (loss) income		—			273			(16	)		257
Effect of adoption of accounting standard		—			(2,396	)		199			(2,197	)
Balance as of July 31, 2018	$	(46,961	)	$	(11,196	)	$	1,669		$	(56,488	)

The following table summarizes the changes in each component of accumulated other comprehensive (loss) income ~~(loss), net~~ for the ~~six~~three months ended ~~October~~July 31, ~~2016:~~2017:

   Foreign
Currency
  Translation   Deferred
Compensation
and Pension
Plan (1) Accumulated
Other
Comprehensive
Income (Loss)
   (in thousands)
Balance as of April 30, 2016
   $ (36,339 ) $ (21,572 ) $ (57,911 )
Unrealized losses arising during the period
   (18,259 ) — (18,259 )
Reclassification of realized net losses to net income
   — 927 927


Balance as of October 31, 2016
   $ (54,598 ) $ (20,645 ) $ (75,243 )

	Foreign Currency Translation			Deferred Compensation and Pension Plan (1)			Unrealized (losses) on interest rate swap (2)			Accumulated Other Comprehensive Income (Loss)
	(in thousands)
Balance as of April 30, 2017	$	(55,359	)	$	(15,127	)	$	(578	)	$	(71,064	)
Unrealized gains (losses) arising during the period		16,084			—			(234	)		15,850
Reclassification of realized net losses to net income		—			352			171			523
Balance as of July 31, 2017	$	(39,275	)	$	(14,775	)	$	(641	)	$	(54,691	)

(1)	The tax effect on the reclassifications of realized net losses was ~~$0.3~~$0.1 million and ~~$0.6~~$0.2 million for the three ~~and six~~ months ended ~~October~~July 31, ~~2016,~~2018 and 2017, respectively.

(2)	The tax effect on unrealized gains (losses) was $0.1 million and $(0.1) million for the three months ended July 31, 2018 and 2017, respectively. The tax effect on the reclassification of realized net losses to net (loss) income was $0.1 million for the three months ended July 31, 2017.

5.4. Employee Stock Plans

Stock-Based Compensation

The following table summarizes the components of stock-based compensation expense recognized in the Company’s consolidated statements of ~~income~~operations for the periods indicated:


	Three Months Ended October 31,						Six Months Ended October 31,						Three Months Ended July 31,
	2017			2016			2017			2016			2018			2017
	(in thousands)												(in thousands)
Restricted stock	$	5,309		$	4,352		$	9,714		$	9,091		$	5,369		$	4,405
ESPP		278			253			569			429			345			291

Total stock-based compensation expense,pre-tax		5,587			4,605			10,283			9,520			5,714			4,696
Tax benefit from stock-based compensation expense		(1,670	)		(1,184	)		(3,048	)		(2,668	)		(1,682	)		(1,378	)

Total stock-based compensation expense, net of tax	$	3,917		$	3,421		$	7,235		$	6,852		$	4,032		$	3,318

Stock Incentive Plans

At the Company’s 2016 Annual Meeting of Stockholders, held on October 6, 2016, the Company’s stockholders approved an amendment and restatement to the Korn/Ferry International Amended and Restated 2008 Stock Incentive Plan (the 2016 amendment and restatement being “The Third A&R 2008 Plan”), which among other things, increased the number of shares under the plan by 5,500,000 shares, increasing the current maximum number of shares that may be issued under the plan to 11,200,000 shares, subject to certain changes in the Company’s capital structure and other extraordinary events. The Third A&R 2008 Plan provides for the grant of awards to eligible participants, designated as either nonqualified or incentive stock options, restricted stock and restricted stock units, any of which may be performance-based or market-based, and incentive bonuses, which may be paid in cash or stock or a combination thereof. Under the Third A&R 2008 Plan, the ability to issue full-value awards is limited by requiring full-value stock awards to count 2.3 times as much as stock options.

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

~~October~~July 31, ~~2017~~2018 (continued)

Restricted Stock

The Company grants time-based restricted stock awards to executive officers and other senior employees generally vesting over a four-year period. In addition, certain key management members typically receive time-based restricted stock awards upon commencement of employment and may receive them annually in conjunction with the Company’s performance review. Time-based restricted stock awards are granted at a price equal to fair value, which is determined based on the closing price of the Company’s common stock on the grant date. The Company recognizes compensation expense for time-based restricted stock awards on a straight-line basis over the vesting period.

The Company also grants market-based and performance-based restricted stock units to executive officers and other senior employees. The market-based units vest after three years depending upon the Company’s total stockholder return over the three-year performance period relative to other companies in its selected peer group. The fair value of these market-based restricted stock units isare determined by using extensive market data that is based on historical Company and peer group information. The Company recognizes compensation expense for market-based restricted stock units on a straight-line basis over the vesting period.

Performance-based restricted stock units vest after three years depending upon the Company meeting certain objectives that are set at the time the restricted stock unit is issued. Performance-based restricted stock units are granted at a price equal to the fair value, which is determined based on the closing price of the Company’s common stock on the grant date. At the end of each reporting period, the Company estimates the number of restricted stock units expected to vest, based on the probability that certain performance objectives will be met, exceeded, or fall below target levels, and the Company takes into account these estimates when calculating the expense for the period.

Restricted stock activity during the ~~six~~three months ended ~~October~~July 31, ~~2017~~2018 is summarized below:

	Shares			Weighted- Average Grant Date Fair Value
	(in thousands, except per share data)
Non-vested, April 30, 2018		1,730		$	33.45
Granted		478		$	48.55
Vested		(539	)	$	34.05
Forfeited/expired		(20	)	$	26.86
Non-vested, July 31, 2018		1,649		$	40.66

        Shares

Weighted-
Average Grant
Date Fair Value

   (in thousands, except per share data)
Non-vested, April 30, 2017
   1,581     $ 29.74
Granted
   623     $ 37.46
Vested
   (409 )     $ 25.91
Forfeited/expired
   (62 )     $ 33.19


Non-vested, October 31, 2017
           1,733     $ 33.30

As of ~~October~~July 31, ~~2017,~~2018, there were ~~0.7~~0.6 million shares and 0.2 million shares outstanding relating to market-based and performance-based restricted stock units, respectively, with total unrecognized compensation totaling ~~$11.4~~$14.5 million and ~~$5.6~~$1.7 million, respectively.

As of ~~October~~July 31, ~~2017,~~2018, there was ~~$40.5~~$48.1 million of total unrecognized compensation cost related to allnon-vested awards of restricted stock, which is expected to be recognized over a weighted-average period of ~~2.5~~2.8 years. During the three ~~and six~~ months ended ~~October~~July 31, 2018 and 2017, ~~2,888~~199,795 shares and ~~100,371~~97,483 shares of restricted stock totaling ~~$0.1~~$13.1 million and ~~$3.4~~$3.3 million, respectively, were repurchased by the Company, at the option of ~~employees, to pay for taxes related to vesting of restricted stock. During~~ the ~~six months ended October 31, 2016, 186,517 shares of restricted stock totaling $4.2 million, were repurchased by the Company, at the option of employees,~~employee, to pay for taxes related to vesting of restricted stock.

Employee Stock Purchase Plan

The Company has an ESPP that, in accordance with Section 423 of the Internal Revenue Code, allows eligible employees to authorize payroll deductions of up to 15% of their salary to purchase shares of the Company’s common stock at 85% of the fair market price of the common stock on the last day of the enrollment period. Employees may not purchase more than $25,000 in stock during any calendar year. The maximum number of shares that may be issued under the ESPP is 3.0 million shares. During the three months ended ~~October~~July 31, ~~2017~~2018 and ~~2016, no shares were purchased under the ESPP. During the six months ended October 31,~~ 2017, ~~and 2016,~~ employees purchased 75,106 shares at $52.64 per share and 116,285 shares at $29.35 per share, ~~and 114,011 shares at $17.60 per share,~~ respectively. As of ~~October~~July 31, ~~2017,~~2018, the ESPP had approximately ~~1.2~~1.0 million shares remaining available for future issuance.

Common Stock

During the ~~six~~three months ended ~~October~~July 31, 2018 and 2017, the Company issued 41,075 shares common stock, as a result of the exercise of stock options, with cash proceeds from the exercise of $0.6 million. No stock options were exercised during the three months ended October 31, 2017. During the three and six months ended October 31, 2016, the Company issued 11,6206,720 shares and ~~44,090~~41,075 shares of common stock, respectively, as a result of the exercise of stock options, with cash proceeds from the exercise of $0.2 million and $0.6 million, respectively.

~~KORN/FERRY INTERNATIONAL AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS~~
~~October 31, 2017 (continued)~~

During the three ~~and six~~ months ended ~~October~~July 31, 2018, no shares were repurchased by the Company (on the open market). During the three months ended July 31, 2017, the Company repurchased (on the open market) ~~773,923 shares and 893,279 shares~~119,356 of the Company’s common stock for $25.3 million and $29.3 million, respectively. During the three and six months ended October 31, 2016, the Company repurchased (on the open market) 335,500 shares of the Company’s common stock for $6.9$4.0 million.

6.14

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

July 31, 2018 (continued)

5. Financial Instruments

The following tables show the Company’s financial instruments and balance sheet classification as of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017:~~2018:

	July 31, 2018
	Fair Value Measurement										Balance Sheet Classification
	Cost		Unrealized Gains		Unrealized Losses			Fair Value			Cash and Cash Equivalents		Marketable Securities, Current		Marketable Securities, Non- current		Income Taxes & Other Receivables		Other Accrued Liabilities
	(in thousands)
Level 1:
Cash	$	344,684	$	—	$	—		$	344,684		$	344,684	$	—	$	—	$	—	$	—
Money market funds		21,045		—		—			21,045			21,045		—		—		—		—
Mutual funds (1)		124,589		10,395		(908	)		134,076			—		10,952		123,124		—		—
Total	$	490,318	$	10,395	$	(908	)	$	499,805		$	365,729	$	10,952	$	123,124	$	—	$	—

Level 2:
Foreign currency forward contracts	$	—	$	603	$	(621	)	$	(18	)	$	—	$	—	$	—	$	—	$	(18	)
Interest rate swap	$	—	$	2,256	$	—		$	2,256		$	—	$	—	$	—	$	2,256	$	—


	October 31, 2017																					April 30, 2018
	Fair Value Measurement										Balance Sheet Classification											Fair Value Measurement									Balance Sheet Classification
	Cost		Unrealized Gains		Unrealized Losses			Fair Value			Cash and Cash Equivalents		Marketable Securities, Current		Marketable Securities, Non-current		Other Accrued Liabilities			Income Taxes & Other Receivables		Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cash and Cash Equivalents		Marketable Securities, Current		Marketable Securities, Non- current		Income Taxes & Other Receivables		Other Accrued Liabilities
	(in thousands)																					(in thousands)
Level 1:
Cash	$	281,605	$	—	$	—		$	281,605		$	281,605	$	—	$	—	$	—		$	—	$	519,818	$	—	$	—		$	519,818	$	519,818	$	—	$	—	$	—	$	—
Money market funds		1,020		—		—			1,020			1,020		—		—		—			—		1,030		—		—			1,030		1,030		—		—		—		—
Mutual funds (1)		119,619		12,089		(471	)		131,237			��		13,671		117,566		—			—		127,077		11,040		(1,032	)		137,085		—		14,293		122,792		—		—

Total	$	402,244	$	12,089	$	(471	)	$	413,862		$	282,625	$	13,671	$	117,566	$	—		$	—	$	647,925	$	11,040	$	(1,032	)	$	657,933	$	520,848	$	14,293	$	122,792	$	—	$	—

Level 2:
Foreign currency forward contracts	$	—	$	1,528	$	(1,075	)	$	453		$	—	$	—	$	—	$	(601	)	$	1,054	$	—	$	1,778	$	(1,025	)	$	753	$	—	$	—	$	—	$	753	$	—
Interest rate swap	$	—	$	—	$	(303	)	$	(303	)	$	—	$	—	$	—	$	(303	)	$	—	$	—	$	2,076	$	—		$	2,076	$	—	$	—	$	—	$	2,076	$	—

   April 30, 2017
   Fair Value Measurement Balance Sheet Classification
   Cost    Unrealized
      Gains            Unrealized
Losses Fair Value Cash and
Cash
Equivalents    Marketable
Securities,
Current    Marketable
Securities,
Non-current    Other
Accrued
Liabilities Income
Taxes &
Other
Receivables
   (in thousands)
Level 1:

Cash
   $      409,824    $ —    $ — $ 409,824 $ 409,824    $ —    $ —    $ — $ —
Money market funds
   1,058    —    — 1,058 1,058    —    —    — —
Mutual funds (1)
   113,818    6,697    (578 ) 119,937 —    4,363    115,574    — —












Total
   $      524,700    $ 6,697    $ (578 ) $    530,819 $    410,882    $ 4,363    $ 115,574    $ — $ —












Level 2:

Foreign currency forward contracts
   $ —    $ 129    $ (846 ) $ (717 ) $ —    $ —    $ —    $ (717 ) $ —
Interest rate swap
   $ —    $ —    $ (947 ) $ (947 ) $ —    $ —    $ —    $ (947 ) $ —

(1)

These investments are held in trust for settlement of the Company’s vested obligations of ~~$115.7~~$125.4 million and ~~$99.5~~$118.2 million as of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, respectively, under the ECAP (see Note 76 — Deferred Compensation and Retirement Plans). During the three ~~and six~~ months ended ~~October~~July 31, 2018 and 2017, the fair value of the investments increased; therefore, the Company recognized income of ~~$3.4~~$4.0 million and ~~$6.8~~$3.4 million, respectively, which was recorded in other income, ~~(loss),~~ net. During the three months ended October 31, 2016, the fair value of the investments decreased; therefore, the Company recognized a loss of $0.7 million, which was recorded in other income (loss), net. During the six months ended October 31, 2016, the fair value of the investments increased; therefore, the Company recognized income of $3.2 million, which was recorded in other income (loss), net.

Investments in marketable securities classified as trading are based upon investment selections the employee elects from apre-determined set of securities in the ECAP and the Company invests in marketable securities to mirror these elections. As of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, the Company’s investments in marketable securities classified as trading consist of mutual funds for which market prices are readily available.

Designated Derivatives - Interest Rate Swap Agreement

In March 2017, the Company entered into an interest rate swap contract with a notional amount of $129.8 million, to hedge the variability to changes in cash flows attributable to interest rate risks caused by changes in interest rates related to its variable rate

~~KORN/FERRY INTERNATIONAL AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS~~
~~October 31, 2017 (continued)~~

debt. The Company has designated the swap as a cash flow hedge. The notional amount will be amortized so that the amount is always half of the principal balance of the debt outstanding. As of ~~October~~July 31, ~~2017,~~2018, the notional amount was ~~$124.6~~$116.9 million. The interest rate swap agreement matures on June 15, 2021, and locks the interest rates on half the debt outstanding at 1.919%, exclusive of the credit spread on the debt.

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

July 31, 2018 (continued)

The fair value of the derivative designated as a cash flow hedge instrument is as follows:

					July 31, 2018		April 30, 2018
	October 31, 2017		April 30, 2017		(in thousands)
	(in thousands)
Derivative liability:
Derivative asset:
Interest rate swap contract	$	303	$	947	$	2,256	$	2,076

During the three ~~and six~~ months ended ~~October~~July 31, ~~2017,~~2018, the Company recognized the following gains and losses on the interest rate swap:

     Three Months
Ended          Six Months
Ended
   October 31, 2017
   (in thousands)
Gains recognized in other comprehensive income (net of tax effects of $205 and $56, respectively)
   $ 322    $ 88
Losses reclassified from accumulated other comprehensive income into interest expense, net
   $ 220    $ 500

	Three Months Ended July 31,
	2018		2017
	(in thousands)
Gains (Losses) recognized in other comprehensive income (net of tax effects of $53 and ($149), respectively)	$	149	$	(234	)
Gains (Losses) reclassified from accumulated other comprehensive income into interest expense, net	$	22	$	(280	)

As the critical terms of the hedging instrument and the hedged forecasted transaction are the same, the Company has concluded that the changes in the fair value or cash flows attributable to the risk being hedged are expected to completely offset at inception and on an ongoing basis.

We estimate that ~~$0.5~~$0.6 million of derivative ~~losses~~gains included in accumulated other comprehensive income as of ~~October~~July 31, ~~2017~~2018 will be reclassified into ~~other~~interest expense, net within the following 12 months. The cash flows related to the interest rate swap contract are included in net cash provided by operating activities.

~~Non-Designated~~ ~~Derivatives –~~ Foreign Currency Forward Contracts Not Designated as Hedges

The fair value of derivatives not designated as hedge instruments are as follows:

	July 31, 2018		April 30, 2018
	(in thousands)
Derivative assets:
Foreign currency forward contracts	$	603	$	1,778
Derivative liabilities:
Foreign currency forward contracts	$	621	$	1,025

     October 31,
2017         April 30,
2017
   (in thousands)
Derivative assets:

Total gross amount of foreign currency forward contracts
   $ 1,528 $ —
Gross derivatives offset on the balance sheet (1)
   (474 ) —


Net amounts presented on the balance sheet
   $ 1,054 $ —


Derivative liabilities:

Total gross amount of foreign currency forward contracts
   $ 1,075 $ 846
Gross derivatives offset on the balance sheet (1)
   (474 ) (129 )


Net amounts presented on the balance sheet
   $ 601 $ 717

~~(1)~~

These amounts represent the impact of netting derivative assets and derivative liabilities when a legally enforceable master netting agreement exists and fair value of adjustments related to our counterparty credit risk.

As of ~~October~~July 31, ~~2017,~~2018, the total notional amounts of the forward contracts purchased and sold were ~~$22.4~~$44.9 million and ~~$63.2~~$42.3 million, respectively. As of April 30, ~~2017,~~2018, the total notional amounts of the forward contracts purchased and sold were ~~$19.4~~$80.8 million and ~~$70.0~~$78.5 million, respectively. The Company recognizes forward contracts as a net asset or net liability on the consolidated balance sheets as such contracts are covered by a master netting agreement. During the three months ended ~~October~~July 31, ~~2017,~~2018, the Company incurred gains of ~~$0.3~~$0.1 million related to forward contracts which is recorded in general and administrative expenses in the accompanying consolidated statements of ~~income.~~operations. These gains offset foreign currency losses that result from transactions denominated in a currency other than the Company’s functional currency. During the ~~six~~three months ended ~~October~~July 31, 2017, the Company incurred losses of ~~$2.3~~$2.6 million related to forward contracts which is recorded in general and administrative expenses in the accompanying consolidated statements of ~~income.~~operations. These losses offset foreign currency gains that result from transactions denominated in a currency other than the Company’s functional currency. ~~During the three and six months ended October 31, 2016, the Company incurred gains of $0.2~~

~~KORN/FERRY INTERNATIONAL AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS~~
~~October 31, 2017 (continued)~~

~~million for both periods related to forward contracts.~~ The cash flows related to foreign currency forward contracts are included in net cash used in operating activities.

7.16

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

July 31, 2018 (continued)

6. Deferred Compensation and Retirement Plans

The Company has several deferred compensation and retirement plans for eligible consultants and vice presidents that provide defined benefits to participants based on the deferral of current compensation or contributions made by the Company subject to vesting and retirement or termination provisions. Among these plans is a defined benefit pension plan for certain ~~Hay Group~~ employees in the United States. The assets of this plan are held separately from the assets of the sponsors in self-administered funds. ~~The plan is funded consistent with local statutory requirements and the Company expects to contribute $0.2 million to this plan during fiscal 2018.~~ All other defined benefit obligations from other plans are unfunded.

The components of net periodic benefit costs are as follows:

	Three Months Ended July 31,
	2018			2017
	(in thousands)
Service cost	$	3,646		$	2,065
Interest cost		1,296			1,020
Amortization of actuarial loss		446			577
Expected return on plan assets (1)		(392	)		(399	)
Net periodic service credit amortization		(77	)		—
Net periodic benefit costs (2)	$	4,919		$	3,263

           Three Months Ended
October 31,         Six Months Ended
October 31,
   2017 2016 2017 2016
   (in thousands)
Service cost
   $ 3,165 $ 1,579 $ 5,291 $ 2,188
Interest cost
   959 1,061 1,918 2,123
Amortization of actuarial loss
   577 763 1,154 1,526
Expected return on plan assets (1)
   (398 ) (390 ) (797 ) (780 )


Net periodic benefit costs
   $ 4,303 $ 3,013 $ 7,566 $ 5,057

(1)	The expected long-term rate of return on plan assets is 6.25% and 6.50% for ~~October~~July 31, 2018 and 2017, ~~and 2016.~~respectively.

(2)	The service cost, interest cost and the other components of net periodic benefit costs are included in compensation and benefits expense, interest expense, net and other income, net, respectively, on the consolidated statements of operations.

The Company purchased COLI contracts insuring the lives of certain employees eligible to participate in the deferred compensation and pension plans as a means of funding benefits under such plans. The gross CSV of these contracts of ~~$182.5~~$188.5 million and ~~$180.3~~$186.8 million as of July 31, 2018 and April 30, 2018, respectively, is offset by outstanding policy loans of ~~$66.8~~$66.7 million ~~and $67.2 million~~ in both the accompanying consolidated balance sheets as of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017, respectively.~~2018. The CSV value of the underlying COLI investments increased by ~~$1.7~~$1.3 million and ~~$4.2~~$2.5 million during the three ~~and six~~ months ended ~~October~~July 31, 2018 and 2017, respectively, and is recorded as a decrease in compensation and benefits expense in the accompanying consolidated statements of income. The CSV value of the underlying COLI investments increased by $0.7 million and $3.2 million during the three and six months ended October 31, 2016, respectively, and is recorded as a decrease in compensation and benefits expense in the accompanying consolidated statements of income.operations.

The Company’s ECAP is intended to provide certain employees an opportunity to defer salary and/or bonus on apre-tax basis. In addition, the Company, as part of its compensation philosophy, makes discretionary contributions into the ECAP and such contributions may be granted to key employees annually based on the employee’s performance. Certain key management may also receive Company ECAP contributions upon commencement of employment. The Company amortizes these contributions on a straight-line basis over the service period, generally a four- to five-year period. Participants have the ability to allocate their deferrals among a number of investment options and may receive their benefits at termination, retirement or “in service” either in a lump sum or in quarterly installments over one to 15 years. The ECAP amounts that are expected to be paid to employees over the next 12 months are classified as a current liability included in compensation and benefits payable on the accompanying balance sheet.

The ECAP is accounted for whereby the changes in the fair value of the vested amounts owed to the participants are adjusted with a corresponding charge (or credit) to compensation and benefits costs. During the three ~~and six~~ months ended ~~October~~July 31, 2018 and 2017, deferred compensation liability increased; therefore, the Company recognized an increase in compensation expense of ~~$3.5~~$4.2 million and ~~$7.2~~$3.7 million, respectively. Offsetting the increase in compensation and benefits expense was an increase in the fair value of marketable securities classified as trading (held in trust to satisfy obligations under the ECAP) of ~~$3.4~~$4.0 million and ~~$6.8~~$3.4 million during the three ~~and six~~ months ended ~~October~~July 31, 2018 and 2017, respectively, recorded in other income, ~~(loss),~~ net on the consolidated statements of ~~income. During~~operations (see Note 5—Financial Instruments).

7. Fee Revenue

Substantially all fee revenue is derived from fees for professional services related to executive and professional recruitment performed on a retained basis, recruitment process outsourcing, talent and organizational advisory services and the sale of products, standalone or as part of a solution. The Company adopted ASC 606 in its fiscal year beginning May 1, 2018 using the modified retrospective transition method applied to those contracts still outstanding and not completed as of May 1, 2018.

Effect of the Adoption of ASC 606

For the three months ended ~~October~~July 31, ~~2016, deferred compensation liability decreased; therefore,~~2018, the Company recognized a decrease in compensation expense of $0.6 million. Offsetting the decrease 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 liabilities) of $0.7 million during the three months ended October 31, 2016, recorded ~~in other income (loss), net on the consolidated statements of income. During the six months ended October 31, 2016, deferred compensation liability increased; therefore, the Company recognized $2.6~~$0.2 million in ~~compensation expense. Offsetting~~additional revenue related to adoption of ASC 606. The impact of adoption to the ~~increase in compensation and benefits expense~~balance sheet was ~~an increase in the fair value of marketable securities classified as trading (held in trust to satisfy obligations under certain deferred compensation liabilities) of $3.2 million during the~~immaterial.

Contract Balances

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

~~October~~July 31, ~~2017~~2018 (continued)

~~six months ended October 31, 2016,~~A contract asset (unbilled receivables) is recorded ~~in other income (loss), net on the consolidated statements of income (see Note 6 —~~~~Financial Instruments~~).

~~8. Restructuring (Recoveries) Charges, Net~~

~~During fiscal 2016,~~when the Company ~~implemented a restructuring plan~~transfers control of products or services before there is an unconditional right to payment. A contract liability (deferred revenue) is recorded when cash is received in ~~order to rationalize its cost structure by eliminating redundant positions and consolidating office space due to the acquisition~~advance of ~~Legacy Hay on December 1, 2015. The Company continued the implementation~~performance of the ~~fiscal 2016 restructuring plan~~obligation. Deferred revenue represents the future performance obligations to transfer control of products or services for which we have already received consideration. Deferred revenue is presented in ~~fiscal 2018 in order to integrate the Hay Group entities that were acquired in fiscal 2016 by consolidating premises.~~

~~Changes in the restructuring liability during the three months ended October 31, 2017 are as follows:~~

   Severance Facilities Total
   (in thousands)
Liability as of July 31, 2017
   $ 2,904 $ 7,414 $ 10,318
Restructuring (recoveries) charges, net
   — (202 ) (202 )
Reductions for cash payments
   (1,345 ) (2,801 ) (4,146 )
Exchange rate fluctuations
   (18 ) 305 287


Liability as of October 31, 2017
   $ 1,541 $ 4,716 $ 6,257


Changes in the restructuring liability during the six months ended October 31, 2017 are as follows:

   Severance Facilities Total
   (in thousands)
Liability as of April 30, 2017
   $ 5,341 $ 8,354 $ 13,695
Restructuring charges, net
   — 78 78
Reductions for cash payments
   (3,947 ) (4,265 ) (8,212 )
Exchange rate fluctuations
   147 549 696


Liability as of October 31, 2017
   $ 1,541 $ 4,716 $ 6,257

~~As of October 31, 2017 and April 30, 2017, the restructuring liability is included in the current portion of~~ other accrued liabilities on the consolidated balance ~~sheets, except for $2.4~~sheet.

The following table outlines our contract asset and liability balances as of July 31, 2018 and May 1, 2018:

	July 31, 2018		May 1, 2018
	(in thousands)
Contract assets (unbilled receivables)	$	68,570	$	65,164
Contract liabilities (deferred revenue)	$	104,581	$	114,695

During the three months ended July 31, 2018, we recognized revenue of $66.5 million ~~and $4.6 million, respectively, of facilities costs which primarily relate to commitments under operating leases, net of sublease income, which are~~that was included in ~~other long-term liabilities.~~the contract liabilities balance at the beginning of the period.

Performance Obligations

The ~~restructuring liability~~Company has elected to apply the practical expedient to exclude the value of unsatisfied performance obligations for contracts with a duration of one year or less, which applies to all executive search and professional search fee revenue. As of July 31, 2018, the aggregate transaction price allocated to the performance obligations that are unsatisfied for contracts with an expected duration of greater than one year at inception was $486.7 million. Of the $486.7 million of remaining performance obligations, we expect to recognize approximately $225.6 million as fee revenue in fiscal 2019, $137.3 million in fiscal 2020, $72.4 million in fiscal 2021 and the remaining $51.4 million in fiscal 2022 and thereafter. However, this amount should not be considered an indication of the Company’s future revenue as contracts with an initial term of one year or less are not included. Further, our contract terms and conditions allow for clients to increase or decrease the scope of services and such changes do not become a performance obligation until the company has an enforceable right to payment.

Disaggregation of revenue

The Company disaggregates revenue by ~~segment~~line of business and further by region for Executive Search. This information is ~~summarized below:~~presented in Note 9—Business Segments.

The following table provides further disaggregation of fee revenue by industry:

	Three Months Ended July 31,
	2018					2017
	Dollars		%			Dollars		%
	(dollars in thousands)
Industrial	$	135,764		29.2	%	$	121,447		30.3	%
Financial Services		80,193	17.2				67,260	16.8
Life Sciences/Healthcare		79,169		17.0			66,580	16.6
Consumer Goods		71,794	15.4				61,831	15.4
Technology		61,849	13.3				51,772	12.9
Education		32,936	7.1				28,677	7.1
General		3,863	0.8				3,687	0.9
Fee Revenue	$	465,568		100.0	%	$	401,254		100.0	%

   October 31, 2017
   Severance    Facilities    Total
   (in thousands)
Executive Search

North America
   $ —    $ 260    $ 260
Asia Pacific
   —    7    7
Latin America
   —    23    23






Total Executive Search
   —    290    290
Hay Group
   1,541    4,315    5,856
Futurestep
   —    111    111






Liability as of October 31, 2017
   $ 1,541    $ 4,716    $ 6,257







   April 30, 2017
   Severance    Facilities    Total
   (in thousands)
Executive Search

North America
   $ 134    $ 250    $ 384
Europe, Middle East and Africa (“EMEA”)
   393    —    393
Asia Pacific
   —    6    6
Latin America
   —    87    87






Total Executive Search
   527    343    870
Hay Group
   4,814    7,879    12,693
Futurestep
   —    132    132






Liability as of April 30, 2017
   $ 5,341    $ 8,354    $ 13,695

8. Income Taxes

The provision for income tax was a benefit of $16.1 million in the three months ended July 31, 2018 compared to an expense of $12.2 million in the three months ended July 31, 2017. This reflects a 29.4% (benefit) and 29.3% (provision) tax rate for the three months ended July 31, 2018 and 2017 respectively. The Company’s effective tax rate was 29.4% (benefit) for the three months ended July 31, 2018 compared to the U.S. federal statutory rate of 21.0%. This difference is primarily due to the trademark impairment charge and the excess tax benefit on vested stock-based awards, both of which were recorded as discrete to the current quarter. The excess tax benefit is the amount by which the Company’s tax deduction for these awards, based on the fair market value of the awards on the date of vesting, exceeds the expense recorded in the Company’s financial statements over the awards’ vesting period. The Company’s effective tax rate for the three months ended July 31, 2017 was lower than the then U.S. federal statutory rate of 35.0% due principally to the Company’s earnings outside the United States which were generally taxed at rates lower than the then applicable U.S. federal rate.

In accordance with Staff Accounting Bulletin No. 118 (“SAB 118”), we did not record any adjustment in the quarter to the provisional tax expense on accumulated foreign earnings (the “Transition Tax”) recorded during the fiscal year ended April 30,

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

~~October~~July 31, ~~2017~~2018 (continued)

2018 after the enactment of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). This provisional expense may be adjusted in subsequent periods based on additional guidance that may be issued by the U.S. Treasury Department, the Internal Revenue Service (“IRS”) and other standard-setting bodies The Company will continue to appropriately analyze and, if necessary, adjust this amount within the measurement period provided under SAB 118, with the analysis to be completed no later than December 22, 2018.

The Company also continues to evaluate the impact of the Global Intangible Low-Taxed Income (“GILTI”), Foreign Derived Intangible Income (“FDII”), Base Erosion and Anti-Abuse Tax (“BEAT”), the change to the IRC Section 162(m) limitation (the “Executive Compensation Limitation”) and IRC Section 163 (j) interest limitation (the “Interest Limitation) provisions of the Tax Act which is complex and subject to continuing regulatory interpretation. In accordance with SAB 118, we recorded a provisional estimate in our effective tax rate for the three months ended July 31, 2018 for GILTI, FDII and the Executive Compensation Limitation. For BEAT and the Interest Limitation computations, we did not record a provisional estimate in our effective tax rate for the three months ended July 31, 2018 because we currently estimate that these provisions will not affect our tax expense in the current fiscal year. We will continue to refine our provisional estimates for the GILTI, FDII, BEAT, Executive Compensation Limitation and Interest Limitation computations as we gather additional information and receive additional guidance from standard-setting bodies. The Company is required to make an accounting policy election of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred (the “period cost method”) or (2) factoring such amounts in the Company’s measurement of its deferred taxes (the “deferred method”). The Company’s accounting policy election with respect to the new GILTI rules will depend, in part, on analyzing its global income to determine whether it can reasonably estimate the tax impact. In accordance with SAB 118, the Company is continuing with its analysis and has not yet determined which method to elect.

9. Business Segments

The Company currently operates in three global businesses: Executive Search, ~~Hay Group~~Advisory and ~~Futurestep.~~RPO & Professional Search. The Executive Search segment focuses on recruiting Board of Director andC-level positions, in addition to research-based interviewing and onboarding solutions, for clients predominantly in the consumer, financial services, industrial, life sciences/healthcare and technology industries. ~~Hay Group~~Advisory assists clients ~~with ongoing assessment, compensation~~synchronize strategy and ~~development of their senior executives and management teams, and addresses~~talent by addressing four fundamental needs: ~~Talent~~Organizational Strategy, Assessment and Succession, ~~Management,~~ Leadership Development, and Rewards ~~Motivation~~ and ~~Engagement,~~Benefits, all underpinned by a comprehensive array of world-leading intellectual property, products and tools. ~~Futurestep~~RPO & Professional Search is a global industry leader in high-impact talent acquisition solutions. Its portfolio of services includes global and regional RPO, project recruitment, individual professional search and consulting. The Executive Search business segment is managed by geographic regional leaders and ~~Hay Group~~Advisory and ~~Futurestep~~RPO & Professional Search worldwide operations are managed by their Chief Executive Officers. The Executive Search geographic regional leaders and the Chief Executive Officers of ~~Hay Group~~Advisory and ~~Futurestep~~RPO & Professional Search report directly to the Chief Executive Officer of the Company. The Company also operates a Corporate segment to record global expenses of the Company.

The Company evaluates performance and allocates resources based on the Company’s chief operating decision maker’s review of (1) fee revenue and (2) adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”). To the extent that such charges occur, Adjusted EBITDA excludes restructuring charges, ~~(recoveries), net,~~ integration/acquisition costs, certain separation costs and certainnon-cash charges (goodwill, intangible asset and other than temporary impairment). The accounting policies for the reportable segments are the same as those described in the summary of significant accounting policies, except the items described above are excluded from EBITDA to arrive at Adjusted EBITDA. For the six months ended October 31, 2016, Adjusted EBITDA includes deferred revenue adjustment related to the Legacy Hay acquisition, reflecting revenue that the 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.~~

Financial highlights by business segment are as follows:

   Three Months Ended October 31, 2017
   Executive Search
   North
America    EMEA    Asia Pacific    Latin
America    Subtotal    Hay
Group Futurestep    Corporate Consolidated
   (in thousands)
Fee revenue
   $ 101,544    $ 41,346    $ 25,912    $ 7,964    $ 176,766    $ 199,953 $ 66,299    $ — $ 443,018
Total revenue
   $ 104,329    $ 42,073    $ 26,187    $ 7,994    $ 180,583    $ 203,836 $ 71,049    $ — $ 455,468
Net income attributable to Korn/Ferry International
                     $ 36,331
Net income attributable to noncontrolling interest
                     401
Other income, net
                     (3,626 )
Interest expense, net
                     2,579
Equity in earnings of unconsolidated subsidiaries, net
                     (60 )
Income tax provision
                     15,619


Operating income (loss)
   $ 22,945    $ 6,345    $ 4,381    $ 1,527    $ 35,198    $ 26,370 $ 9,409    $ (19,733 ) 51,244
Depreciation and amortization
   984    459    371    111    1,925    8,143 784    1,595 12,447
Other income, net
   290    43    94    39    466    57 —    3,103 3,626
Equity in earnings of unconsolidated subsidiaries, net
   60    —    —    —    60    — —    — 60














EBITDA
   24,279    6,847    4,846    1,677    37,649    34,570 10,193    (15,035 ) 67,377
Restructuring charges (recoveries), net
   —    —    273    —    273    (481 ) 6    — (202 )
Integration/acquisition costs
   —    —    —    —    —    2,313 —    80 2,393














Adjusted EBITDA
   $ 24,279    $ 6,847    $ 5,119    $ 1,677    $ 37,922    $ 36,402 $ 10,199    $ (14,955 ) $ 69,568

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

~~October~~July 31, ~~2017~~2018 (continued)

   Three Months Ended October 31, 2016
   Executive Search
   North
America EMEA Asia Pacific    Latin
America    Subtotal Hay Group Futurestep    Corporate Consolidated
   (in thousands)
Fee revenue
   $ 92,732 $ 34,779 $ 19,470    $ 9,247    $ 156,228 $ 188,842 $ 56,847    $ — $ 401,917
Total revenue
   $ 95,902 $ 35,507 $ 19,929    $ 9,296    $ 160,634 $ 192,352 $ 61,968    $ — $ 414,954
Net income attributable to Korn/Ferry International
            $ 30,152
Net income attributable to noncontrolling interest
            904
Other loss, net
            879
Interest expense, net
            2,736
Equity in earnings of unconsolidated subsidiaries, net
            (29 )
Income tax provision
            11,906


Operating income (loss)
   $ 26,272 $ 6,847 $ 2,028    $ 2,284    $ 37,431 $ 22,943 $ 7,787    $ (21,613 ) 46,548
Depreciation and amortization
   990 229 264    174    1,657 8,025 669    1,401 11,752
Other (loss) income, net
   (92 ) (80 ) 24    24    (124 ) (11 ) —    (744 ) (879 )
Equity in earnings of unconsolidated subsidiaries, net
   29 — —    —    29 — —    — 29








EBITDA
   27,199 6,996 2,316    2,482    38,993 30,957 8,456    (20,956 ) 57,450
Integration/acquisition costs
   — — —    —    — 4,365 —    1,455 5,820








Adjusted EBITDA
   $ 27,199 $ 6,996 $ 2,316    $ 2,482    $ 38,993 $ 35,322 $ 8,456    $ (19,501 ) $ 63,270









   Six Months Ended October 31, 2017
   Executive Search
   North
America EMEA Asia Pacific    Latin
America    Subtotal Hay
Group Futurestep    Corporate Consolidated
   (in thousands)
Fee revenue
   $ 193,377 $ 81,467 $ 47,490    $ 15,623    $ 337,957 $ 379,406 $ 126,909    $ — $ 844,272
Total revenue
   $ 199,534 $ 83,131 $ 48,067    $ 15,658    $ 346,390 $ 387,132 $ 136,863    $ — $ 870,385
Net income attributable to Korn/Ferry International
            $ 65,372
Net income attributable to noncontrolling interest
            789
Other income, net
            (7,158 )
Interest expense, net
            5,239
Equity in earnings of unconsolidated subsidiaries, net
            (90 )
Income tax provision
            27,829


Operating income (loss)
   $ 44,940 $ 13,020 $ 7,522    $ 2,553    $ 68,035 $ 45,453 $ 17,646    $ (39,153 ) 91,981
Depreciation and amortization
   1,933 887 691    218    3,729 16,228 1,580    3,119 24,656
Other income, net
   572 99 199    59    929 89 8    6,132 7,158
Equity in earnings of unconsolidated subsidiaries, net
   90 — —    —    90 — —    — 90








EBITDA
   47,535 14,006 8,412    2,830    72,783 61,770 19,234    (29,902 ) 123,885
Restructuring charges (recoveries), net
   — — 313    —    313 (241 ) 6    — 78
Integration/acquisition costs
   — — —    —    — 4,862 —    119 4,981








Adjusted EBITDA
   $ 47,535 $ 14,006 $ 8,725    $ 2,830    $ 73,096 $ 66,391 $ 19,240    $ (29,783 ) $ 128,944

~~KORN/FERRY INTERNATIONAL AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS~~
~~October 31, 2017 (continued)~~

	Three Months Ended July 31, 2018
	Executive Search
	North America		EMEA		Asia Pacific		Latin America		Subtotal		Advisory			RPO & Professional Search		Corporate			Consolidated
	(in thousands)
Fee revenue	$	112,097	$	46,654	$	26,295	$	7,878	$	192,924	$	195,375		$	77,269	$	—		$	465,568
Total revenue	$	115,757	$	47,749	$	26,625	$	7,903	$	198,034	$	200,147		$	80,181	$	—		$	478,362

Net loss attributable to Korn/Ferry International																			$	(38,611	)
Net income attributable to noncontrolling interest																				19
Other income, net																				(4,491	)
Interest expense, net																				4,103
Equity in earnings of unconsolidated subsidiaries, net																				(29	)
Income tax benefit																				(16,110	)
Operating income (loss)	$	26,514	$	6,969	$	6,641	$	754	$	40,878	$	(83,079	)	$	11,645	$	(24,563	)		(55,119	)
Depreciation and amortization		979		370		370		107		1,826		7,431			761		1,713			11,731
Other income (loss), net		3,472		340		175		37		4,024		570			105		(208	)		4,491
Equity in earnings of unconsolidated subsidiaries, net		29		—		—		—		29		—			—		—			29
EBITDA		30,994		7,679		7,186		898		46,757		(75,078	)		12,511		(23,058	)		(38,868	)
Integration/acquisition costs		—		—		—		—		—		3,027			—		80			3,107
Tradename write-offs		—		—		—		—		—		106,555			—		—			106,555
Adjusted EBITDA	$	30,994	$	7,679	$	7,186	$	898	$	46,757	$	34,504		$	12,511	$	(22,978	)	$	70,794


	Six Months Ended October 31, 2016																						Three Months Ended July 31, 2017
	Executive Search																						Executive Search
	North America		EMEA			Asia Pacific		Latin America		Subtotal		Hay Group		Futurestep			Corporate			Consolidated			North America		EMEA		Asia Pacific		Latin America		Subtotal		Advisory		RPO & Professional Search		Corporate			Consolidated
	(in thousands)																						(in thousands)
Fee revenue	$	174,534	$	70,149		$	39,096	$	18,810	$	302,589	$	363,424	$	111,525		$	—		$	777,538		$	91,833	$	40,121	$	21,578	$	7,659	$	161,191	$	179,453	$	60,610	$	—		$	401,254
Deferred revenue adjustment due to acquisition		—		—			—		—		—		3,535		—			—			3,535

Adjusted fee revenue	$	174,534	$	70,149		$	39,096	$	18,810	$	302,589	$	366,959	$	111,525		$	—		$	781,073

Total revenue	$	181,327	$	71,756		$	40,109	$	18,910	$	312,102	$	373,860	$	121,925		$	—		$	807,887		$	95,205	$	41,058	$	21,880	$	7,664	$	165,807	$	183,296	$	65,814	$	—		$	414,917

Net income attributable to Korn/Ferry International																				$	33,360																			$	29,041
Net income attributable to noncontrolling interest																					1,764																				388
Other income, net																					(3,380	)																			(3,354	)
Interest expense, net																					5,797																				3,680
Equity in earnings of unconsolidated subsidiaries, net																					(108	)																			(30	)
Income tax provision																					13,631																				12,210

Operating income (loss)	$	42,740	$	12,874		$	4,130	$	4,614	$	64,358	$	15,200	$	15,300		$	(43,794	)		51,064		$	22,070	$	6,675	$	3,141	$	1,026	$	32,912	$	19,055	$	8,245	$	(18,277	)		41,935
Depreciation and amortization		1,820		440			489		288		3,037		16,041		1,292			2,826			23,196			949		428		320		107		1,804		8,085		796		1,524			12,209
Other income (loss), net		196		(56	)		111		97		348		224		(2	)		2,810			3,380
Other income, net																								282		56		105		20		463		431		8		2,452			3,354
Equity in earnings of unconsolidated subsidiaries, net		108		—			—		—		108		—		—			—			108			30		—		—		—		30		—		—		—			30

EBITDA		44,864		13,258			4,730		4,999		67,851		31,465		16,590			(38,158	)		77,748			23,331		7,159		3,566		1,153		35,209		27,571		9,049		(14,301	)		57,528
Restructuring charges, net		1,706		128			622		360		2,816		21,488		—			216			24,520			—		—		40		—		40		240		—		—			280
Integration/acquisition costs		—		—			—		—		—		8,629		—			5,218			13,847			—		—		—		—		—		2,549		—		39			2,588
Deferred revenue adjustment due to acquisition		—		—			—		—		—		3,535		—			—			3,535

Adjusted EBITDA	$	46,570	$	13,386		$	5,352	$	5,359	$	70,667	$	65,117	$	16,590		$	(32,724	)	$	119,650		$	23,331	$	7,159	$	3,606	$	1,153	$	35,249	$	30,360	$	9,049	$	(14,262	)	$	60,396

10. Long-Term Debt

On June 15, 2016, the Company entered into a senior secured ~~$400~~$400.0 million Credit Agreement (the “Credit Agreement”) with a syndicate of banks and Wells Fargo Bank, National Association as administrative ~~agent (to provide for enhanced financial flexibility and~~agent. On June 8, 2018, in ~~recognition~~anticipation of the ~~accelerated pace~~approval by the Board of Directors of the ~~Hay Group integration).~~Company of a rebranding and restructuring plan (which plan was approved on June 12, 2018), the Company entered into an amendment to its Credit Agreement. The Amendment permits a holding company reorganization (the “KF Merger”), after which a new public holding company, Korn Ferry, will own all of the stock of the Company, and will become effective when certain conditions set forth therein, including consummation of the KF Merger,

KORN/FERRY INTERNATIONAL AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

July 31, 2018 (continued)

are satisfied. The Company previously considered pursuing the KF Merger as part of the Plan. While the Company continues to pursue the Plan, it is further evaluating various other structuring alternatives to effectuate the Plan but may not do so via the KF Merger structure previously disclosed. The Credit Agreement provides for, among other things: (a) a senior secured term loan facility in an aggregate principal amount of ~~$275~~$275.0 million (the “Term Facility”), (b) a senior secured revolving credit facility (the “Revolver” and together with the Term Facility, the “Credit Facilities”) in an aggregate principal amount of ~~$125~~$125.0 million, (c) annual term loan amortization of 7.5%, 7.5%, 10.0%, 10.0%, and 10.0%, with the remaining principal due at maturity, (d) certain customary affirmative and negative covenants, including a maximum consolidated total leverage ratio (as defined below) and a minimum interest coverage ratio and (e) an expanded definition of permittedadd-backs to Adjusted EBITDA in recognition of the accelerated integration actions. The Company’s credit agreement permits payment of dividends to stockholders and ~~make~~ share repurchases so long as the pro forma leverage ratio is no greater than 2.50 to 1.00, and the pro forma domestic liquidity is at least $50.0 million. The Company drew down ~~$275~~$275.0 million on the new term loan and used ~~$140~~$140.0 million of the proceeds topay-off the term loan that was outstanding as of April 30, 2016.

At the Company’s option, loans issued under the Credit Agreement will bear interest at either LIBOR or an alternate base rate, in each case plus the applicable interest rate margin. The interest rate applicable to loans outstanding under the Credit Facilities may fluctuate between LIBOR plus 1.25% per annum to LIBOR plus 2.00% per annum, in the case of LIBOR borrowings (or between the alternate base rate plus 0.25% per annum and the alternate base rate plus 1.00% per annum, in the alternative), based upon the Company’s total funded debt to ~~adjusted~~Adjusted EBITDA ratio (as set forth in the Credit Agreement, the “consolidated leverage ratio”) at such time. In addition, the Company will be required to pay to the lenders a quarterly fee ranging from 0.20% to 0.35% per annum on the average daily unused amount of the Term Facility, based upon the Company’s consolidated leverage ratio at such time, and fees relating to the issuance of letters of credit. During the three ~~and six~~ months ended ~~October~~July 31, 2018 and 2017, the average rate on the Term Facility was ~~2.49%~~3.24% and ~~2.41%, respectively. During the three and six months ended October 31, 2016, the average rate on the Term Facility was 2.44% and 2.43%~~2.34%, respectively.

Both the Revolver and the Term Facility mature on June 15, 2021 and may be prepaid and terminated early by the Company at any time without premium or penalty (subject to customary LIBOR breakage fees). The Term Facility is payable in quarterly installments with principal payments ~~totalling $10.3~~totaling $5.2 million made during the ~~six~~three months ended ~~October~~July 31, ~~2017.~~2018. As of ~~October~~July 31, ~~2017, $249.2~~2018, $233.7 million was outstanding under the Term Facility compared to ~~$259.5~~$238.9 million as of April 30, ~~2017.~~2018. The current and

~~KORN/FERRY INTERNATIONAL AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS~~
~~October 31, 2017 (continued)~~

long-term portion of unamortized debt issuance costs associated with the long-term debt, was ~~$3.1~~$2.4 million and ~~$3.5~~$2.7 million as of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, respectively. The fair value of the Company’s Term Facility is based on borrowing rates currently required of loans with similar terms, maturity and credit risk. The carrying amount of the Term Facility approximates fair value because the base interest rate charged varies with market conditions and the credit spread is commensurate with current market spreads for issuers of similar risk. The fair value of the Term Facility is classified as a Level 2 liability in the fair value hierarchy. As of ~~October~~July 31, ~~2017,~~2018, the Company was in compliance with its debt covenants.

As of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, the Company had no borrowings under the Revolver. The Company had ~~$3.0~~a total of $122.1 million available under the Revolver after $2.9 million of standby letters of ~~credits~~credit were issued ~~under its long-term debt arrangements~~ as of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, respectively. The Company had a total of ~~$8.2~~$7.9 million and ~~$8.1~~$7.4 million of standby letters ~~of credits~~ with other financial institutions as of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, respectively. The standby letters of credits were generally issued as a result of entering into office premise leases.

11. Subsequent Events

Quarterly Dividend Declaration

On ~~December 6, 2017,~~September 5, 2018, the Board of Directors of the Company declared a cash dividend of $0.10 per share with a payment date of ~~January 12,~~October 15, 2018 to holders of the Company’s common stock of record at the close of business on ~~December 20, 2017.~~September 28, 2018. 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, 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.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

This Quarterly Report onForm 10-Q 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 (the “Exchange Act”). 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, changes in demand for our services as a result of automation, dependence on attracting and retaining qualified and experienced consultants, maintaining our relationships with customers and suppliers and retaining key employees, maintaining our brand name and professional reputation, the expected timing and manner of the Plan (as defined below), the impact of the rebranding on the Company’s products and services, the costs of the Plan, 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 byoff-limits agreements, competition, consolidation in industries, reliance on information processing systems, cyber security vulnerabilities, changes to data security, data privacy, and data protection laws, limited protection of our intellectual property (“IP”), 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, the effects of the Tax Cuts and Jobs Act (the “Tax Act”) on our business and our company, 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, ~~changes in U.S. tax laws,~~ 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 of the Company’s Annual Report on Form10-K for the fiscal year ended April 30, ~~2017~~2018 (“Form10-K”) ~~and Item 1A of this Quarterly Report on Form10-Q.~~. Readers are urged to consider these factors carefully in evaluating the forward-looking statements. The forward-looking statements included in this Quarterly Report on Form10-Q are made only as of the date of this Quarterly Report on Form10-Q 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 Quarterly Report onForm 10-Q. We also make available on the Investor Relations portion of our website at www.kornferry.com earnings slides and other important information, which we encourage you to review.

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~~ a global ~~people and~~ organizational ~~advisory firm.~~consulting firm. Our services include Executive Search, advisory solutions and products through ~~Hay Group (formerly known as Leadership & Talent Consulting~~Korn Ferry Advisory (“~~Legacy LTC”~~Advisory”) ~~which was combined with HG (Luxembourg) S.à.r.l (“Legacy Hay”) in December 2015)~~ and recruitment fornon-executive professionals and recruitment process outsourcing (“RPO”) through ~~Futurestep.~~Korn Ferry RPO and Professional Search (“RPO & Professional Search). The Company also operates a Corporate segment to record global expenses of the Company. Approximately ~~71%~~69% of the executive searches we performed in fiscal ~~2017~~2018 were for board level, chief executive and other senior executive and general management positions. Our ~~3,589 executive~~3,773 search engagement clients in fiscal ~~2017~~2018 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.~~companies. We have built strong client loyalty, with ~~82%~~88% of assignments performed ~~(without giving effect to Legacy Hay assignments)~~ during fiscal ~~2017~~2018 having been on behalf of clients for whom we had conducted assignments in the previous three fiscal years. Approximately ~~61%~~62% 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 –~~ 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 operationalize a client’s complete strategy or address any combination of ~~six~~five broad categories:

Organizational Strategy
~~Strategy Execution and 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 by designing operating models and ~~help~~organizational structures that align to them, helping organizations put their ~~plan~~plans 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 —~~ ready—when and where they are ~~needed —~~ needed—in the future.
Talent Acquisition
~~Executive Search and Recruitment~~		We From executive search to recruitment process outsourcing, 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.~~for client organizations.

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~~entry- to senior-level leaders grow and deliver superior results.
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.

On June 12, 2018, the Company’s Board of Directors voted to approve the One Korn Ferry rebranding plan for the Company (the “Plan”). This Plan includes going to market under a single, master brand architecture, solely as Korn Ferry and sunsetting of all the Company’s sub-brands, including Futurestep, Hay Group and Lominger, among others. This integrated go-to-market approach was a key driver in our fee revenue growth in FY’18, which led to the decision to further integrate our go-to-market activities under one master brand – Korn Ferry. As a result, the Company discontinued the use of all sub-brands. Two of the Company’s sub-brands, Hay Group and Lominger came to Korn Ferry through acquisitions. In connection with the accounting for these acquisitions, $106.6 million of the purchase price was allocated to indefinite lived tradename intangible assets. As a result of the decision to discontinue their use, the Company took a one-time, non-cash write-off of tradenames of $106.6 million, during the three months ended of July 31, 2018. As part of the Plan, the Company previously considered pursuing a holding company reorganization (the “KF Merger”). While the Company continues to pursue the Plan, it is further evaluating various other structuring alternatives to effectuate the Plan but may not do so via the KF Merger structure previously disclosed.

The Company currently operates in three global business segments: Executive Search, ~~Hay Group~~Advisory and ~~Futurestep.~~RPO & Professional Search. See Note 9 —Business Segments, in the Notes to Consolidated Unaudited Financial Statements 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 (2) adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”). To the extent that such charges occur, Adjusted EBITDA excludes restructuring charges, ~~(recoveries), net,~~ integration/acquisition costs and certain separation costs and certainnon-cash charges (goodwill, intangible asset and other than temporary impairment). For the six months ended October 31, 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. During the three and six months ended October 31, 2017 and~~In the three months ended ~~October~~July 31, ~~2016, management no longer has adjusted fee revenue.~~

2018, Adjusted EBITDA excludes $106.6 million of write-off of tradenames related to the Plan.

EBITDA and Adjusted EBITDA arenon-GAAP financial measures. They have limitations as analytical tools, should not be viewed as a substitute for financial information determined in accordance with United States (“U.S.”) generally accepted accounting principles (“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, they may not necessarily be comparable tonon-GAAP performance measures that may be presented by other companies.

Management believes the presentation of thesenon-GAAP financial measures 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 thesenon-GAAP financial measures 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 thesenon-GAAP financial measures 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 anon-GAAP~~ financial measure. Adjusted fee revenue is not a measure that substitutes an individually tailored revenue recognition or measurement method for those of GAAP; rather, it is an adjustment for a short period of time that will provide better comparability in the current and future 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.

Fee revenue was ~~$443.0~~$465.6 million during the three months ended ~~October~~July 31, ~~2017,~~2018, an increase of ~~$41.1~~$64.3 million, or ~~10%~~16%, compared to ~~$401.9~~$401.3 million in the three months ended ~~October~~July 31, ~~2016,~~2017, with increases in fee revenue in all business segments. During the three months ended ~~October~~July 31, ~~2017,~~2018, we recorded an operating loss of $55.1 million, a decrease of $97.0 million, as compared to operating income of ~~$51.2~~$41.9 million in the three months ended July 31, 2017, with the Advisory segment contributing $83.1 million in operating losses, solely due to the write-off of tradenames, and Corporate segment incurred expenses net of other income of $24.6 million. Offsetting the results in these two segments was operating income from Executive Search ~~Hay Group~~ and ~~Futurestep~~RPO

& Professional Search segments ~~contributing $35.2 million, $26.4~~of $40.9 million and ~~$9.4~~$11.6 million, ~~respectively, offset by Corporate expenses~~respectively. Net loss attributable to Korn Ferry in the three months ended July 31, 2018 was $38.6 million, a decrease of ~~$19.7 million. Net~~$67.6 million as compared to net income attributable to Korn Ferry ~~increased $6.1~~of $29.0 million ~~during~~in the ~~three months~~

~~ended October 31, 2017 to $36.3 million from $30.2 million for the~~year-ago quarter. During the three months ended ~~October~~July 31, ~~2017,~~2018, Adjusted EBITDA was ~~$69.6~~$70.8 million, an increase of $10.4 million during the three months ended July 31, 2018, from Adjusted EBITDA of $60.4 million in the year-ago quarter, with Executive Search, ~~Hay Group~~Advisory and ~~Futurestep~~RPO & Professional Search segments contributing ~~$37.9~~$46.8 million, ~~$36.4~~$34.5 million and ~~$10.2~~$12.5 million, respectively, offset by Corporate expenses net of other income of ~~$15.0~~$23.0 million. ~~Adjusted EBITDA increased $6.3 million during the three months ended October 31, 2017, from Adjusted EBITDA of $63.3 million in theyear-ago~~ ~~quarter.~~

Our cash, cash equivalents and marketable securities decreased ~~$116.9~~$158.1 million ~~or 22%,~~ to ~~$413.9~~$499.8 million at ~~October~~July 31, ~~2017,~~2018, compared to ~~$530.8~~$657.9 million at April 30, ~~2017.~~2018. This decrease is mainly due to annual bonuses earned in fiscal ~~2017~~2018 and paid during the first quarter of fiscal ~~2018,~~2019, sign-on and retention payments, ~~stock repurchases~~$13.2 million in ~~the open market,~~ payments for the purchase of property and equipment, $13.1 million paid in tax withholding on restricted stock vesting, $6.0 million in dividends paid during first quarter of fiscal ~~2018~~2019 and $5.2 million in principal payments on our term loan, partially offset by cash provided by operating activities. As of ~~October~~July 31, ~~2017,~~2018, we held marketable securities to settle obligations under our Executive Capital Accumulation Plan (“ECAP”) with a cost value of ~~$119.6~~$124.6 million and a fair value of ~~$131.2~~$134.1 million. Our vested obligations for which these assets were held in trust totaled ~~$115.7~~$125.4 million as of ~~October~~July 31, ~~2017~~2018 and our unvested obligations totaled ~~$28.8~~$19.1 million.

Our working capital increased from April 30, ~~2017~~2018 to ~~October~~July 31, ~~2017~~2018 by ~~$2.5~~$14.5 million to ~~$387.6~~$470.3 million as of ~~October~~July 31, ~~2017.~~2018. 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~~previous acquisition, the retention pool obligations pursuant to the ~~Legacy Hay~~previous acquisition and dividend payments under our dividend policy in the next twelve months. We had no outstanding borrowings under our revolving credit facility at ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017.~~2018. As of ~~October~~July 31, ~~2017~~2018, and April 30, ~~2017,~~2018, there was ~~$3.0~~$2.9 million of standby letters of credit issued under our long-term debt arrangements. We had a total of ~~$8.2~~$7.9 million and ~~$8.1~~$7.4 million of standby letters of credits with other financial institutions as of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, respectively.

Results of Operations

The following table summarizes the results of our operations as a percentage of fee revenue:

(Numbers may not total exactly due to rounding)


	Three Months Ended October 31,						Six Months Ended October 31,						Three Months Ended July 31,
	2017			2016			2017			2016			2018			2017
Fee revenue		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Reimbursedout-of-pocket engagement expenses		2.8			3.2			3.1			3.9			2.7			3.4

Total revenue		102.8			103.2			103.1			103.9			102.7			103.4
Compensation and benefits		68.0			67.3			68.1			68.6			69.1			68.0
General and administrative expenses		13.2			13.5			13.8			14.1			36.2			14.5
Reimbursed expenses		2.8			3.2			3.1			3.9			2.7			3.4
Cost of services		4.5			4.7			4.2			4.6			3.9			3.9
Depreciation and amortization		2.8			2.9			2.9			3.0			2.5			3.0
Restructuring charges, net		—			—			—			3.2			—			0.1

Operating income		11.6			11.6			10.9			6.6

Net income		8.3	%		7.7	%		7.8	%		4.5	%

Net income attributable to Korn/Ferry International		8.2	%		7.5	%		7.7	%		4.3	%

Operating (loss) income														(11.8	)		10.5
Net (loss) income														(8.3	%)		7.3	%
Net (loss) income attributable to Korn/Ferry International														(8.3	%)		7.2	%

The following tables summarize the results of our operations by business segment:

(Numbers may not total exactly due to rounding)

																									Three Months Ended July 31,
	Three Months Ended October 31,												Six Months Ended October 31,												2018					2017
	2017						2016						2017						2016						Dollars		%			Dollars		%
	Dollars			%			Dollars			%			Dollars			%			Dollars			%			(dollars in thousands)
Fee revenue	(in thousands)
Executive Search:
North America	$	101,544			22.9	%	$	92,732			23.1	%	$	193,377			22.9	%	$	174,534			22.4	%	$	112,097		24.1	%	$	91,833		22.9	%
EMEA		41,346			9.3			34,779			8.7			81,467			9.7			70,149			9.0			46,654		10.0			40,121		10.0
Asia Pacific		25,912			5.9			19,470			4.8			47,490			5.6			39,096			5.0			26,295		5.6			21,578		5.4
Latin America.		7,964			1.8			9,247			2.3			15,623			1.9			18,810			2.4

Latin America																										7,878		1.7			7,659		1.9
Total Executive Search		176,766			39.9			156,228			38.9			337,957			40.1			302,589			38.9			192,924		41.4			161,191		40.2
Hay Group		199,953			45.1			188,842			47.0			379,406			44.9			363,424			46.7
Futurestep		66,299			15.0			56,847			14.1			126,909			15.0			111,525			14.3

Advisory																										195,375		42.0			179,453		44.7
RPO & Professional Search																										77,269		16.6			60,610		15.1
Total fee revenue		443,018			100.0	%		401,917			100.0	%		844,272			100.0	%		777,538			100.0	%		465,568		100.0	%		401,254		100.0	%

Reimbursedout-of-pocket engagement expenses		12,450						13,037						26,113						30,349

Reimbursed out-of-pocket engagement expense																										12,794					13,663
Total revenue	$	�� 455,468					$	414,954					$	870,385					$	807,887					$	478,362				$	414,917



	Three Months Ended October 31,												Six Months Ended October 31,
	2017						2016						2017						2016
	Dollars			Margin (1)			Dollars			Margin (1)			Dollars			Margin (1)			Dollars			Margin (1)
Operating Income	(in thousands)
Executive Search:
North America	$	22,945			22.6	%	$	26,272			28.3	%	$	44,940			23.2	%	$	42,740			24.5	%
EMEA		6,345			15.3			6,847			19.7			13,020			16.0			12,874			18.4
Asia Pacific		4,381			16.9			2,028			10.4			7,522			15.8			4,130			10.6
Latin America.		1,527			19.2			2,284			24.7			2,553			16.3			4,614			24.5

Total Executive Search		35,198			19.9			37,431			24.0			68,035			20.1			64,358			21.3
Hay Group		26,370			13.2			22,943			12.1			45,453			12.0			15,200			4.2
Futurestep		9,409			14.2			7,787			13.7			17,646			13.9			15,300			13.7
Corporate		(19,733	)					(21,613	)					(39,153	)					(43,794	)

Total operating income	$	51,244			11.6	%	$	46,548			11.6	%	$	91,981			10.9	%	$	51,064			6.6	%

	Three Months Ended July 31,
	2018						2017
	Dollars			Margin(1)			Dollars			Margin(1)
	(dollars in thousands)
Operating (loss) income
Executive Search:
North America	$	26,514			23.7	%	$	22,070			24.0	%
EMEA		6,969			14.9			6,675			16.6
Asia Pacific		6,641			25.3			3,141			14.6
Latin America		754			9.6			1,026			13.4
Total Executive Search		40,878			21.2			32,912			20.4
Advisory		(83,079	)		(42.5	)		19,055			10.6
RPO & Professional Search		11,645			15.1			8,245			13.6
Corporate		(24,563	)					(18,277	)
Total operating (loss) income	$	(55,119	)		(11.8	%)	$	41,935			10.5	%

(1)	Margin calculated as a percentage of fee revenue by business segment.

	Three Months Ended July 31, 2018
	Executive Search
	North America			EMEA			Asia Pacific			Latin America			Subtotal			Advisory			RPO & Professional Search			Corporate			Consolidated
	(in thousands)
Fee revenue	$	112,097		$	46,654		$	26,295		$	7,878		$	192,924		$	195,375		$	77,269		$	—		$	465,568
Total revenue	$	115,757		$	47,749		$	26,625		$	7,903		$	198,034		$	200,147		$	80,181		$	—		$	478,362

Net loss attributable to Korn/Ferry International																									$	(38,611	)
Net income attributable to noncontrolling interest																										19
Other income, net																										(4,491	)
Interest expense, net																										4,103
Equity in earnings of unconsolidated subsidiaries, net																										(29	)
Income tax benefit																										(16,110	)
Operating income (loss)	$	26,514		$	6,969		$	6,641		$	754		$	40,878		$	(83,079	)	$	11,645		$	(24,563	)		(55,119	)
Depreciation and amortization		979			370			370			107			1,826			7,431			761			1,713			11,731
Other income (loss), net		3,472			340			175			37			4,024			570			105			(208	)		4,491
Equity in earnings of unconsolidated subsidiaries, net		29			—			—			—			29			—			—			—			29
EBITDA		30,994			7,679			7,186			898			46,757			(75,078	)		12,511			(23,058	)		(38,868	)
Integration/acquisition costs		—			—			—			—			—			3,027			—			80			3,107
Tradename write-off		—			—			—			—			—			106,555			—			—			106,555
Adjusted EBITDA	$	30,994		$	7,679		$	7,186		$	898		$	46,757		$	34,504		$	12,511		$	(22,978	)	$	70,794
Adjusted EBITDA margin		27.6	%		16.5	%		27.3	%		11.4	%		24.2	%		17.7	%		16.2	%					15.2	%

Three Months Ended October 31, 2017
Executive Search
North
America EMEA Asia Pacific Latin
    America     Subtotal Hay
Group Futurestep     Corporate     Consolidated
(in thousands)
Fee revenue
$   101,544 $   41,346 $   25,912 $       7,964 $       176,766 $     199,953 $ 66,299 $ — $ 443,018
Total revenue
$   104,329 $   42,073 $   26,187 $       7,994 $       180,583 $     203,836 $ 71,049 $ — $ 455,468
Net income attributable to Korn/Ferry International
$ 36,331
Net income attributable to noncontrolling interest
401
Other income, net
(3,626 )
Interest expense, net
2,579
Equity in earnings of unconsolidated subsidiaries, net
(60 )
Income tax provision
15,619

Operating income (loss)
$ 22,945 $ 6,345 $ 4,381 $ 1,527 $ 35,198 $ 26,370 $ 9,409 $ (19,733 ) 51,244
Depreciation and amortization
984 459 371 111 1,925 8,143 784 1,595 12,447
Other income, net
290 43 94 39 466 57 — 3,103 3,626
Equity in earnings of unconsolidated subsidiaries, net
60 — — — 60 — — — 60

EBITDA
24,279 6,847 4,846 1,677 37,649 34,570 10,193 (15,035 ) 67,377
Restructuring (recoveries) charges, net
— — 273 — 273 (481 ) 6 — (202 )
Integration/acquisition costs
— — — — — 2,313 — 80 2,393

Adjusted EBITDA
$ 24,279 $ 6,847 $ 5,119 $ 1,677 $ 37,922 $ 36,402 $ 10,199 $   (14,955 ) $ 69,568

Adjusted EBITDA margin
23.9 % 16.6 % 19.8 % 21.1 % 21.5 % 18.2 % 15.4 % 15.7 %

Three Months Ended October 31, 2016
Executive Search
North
America EMEA Asia Pacific Latin
    America     Subtotal Hay
Group Futurestep     Corporate     Consolidated
(in thousands)
Fee revenue
$     92,732 $   34,779 $   19,470 $       9,247 $       156,228 $     188,842 $ 56,847 $ — $ 401,917
Total revenue
$     95,902 $   35,507 $   19,929 $       9,296 $       160,634 $     192,352 $ 61,968 $ — $ 414,954
Net income attributable to Korn/Ferry International
$ 30,152
Net income attributable to noncontrolling interest
904
Other loss, net
879
Interest expense, net
2,736
Equity in earnings of unconsolidated subsidiaries, net
(29 )
Income tax provision
11,906

Operating income (loss)
$ 26,272 $ 6,847 $ 2,028 $ 2,284 $ 37,431 $ 22,943 $ 7,787 $   (21,613 ) 46,548
Depreciation and amortization
990 229 264 174 1,657 8,025 669 1,401 11,752
Other (loss) income, net
(92 ) (80 ) 24 24 (124 ) (11 ) — (744 ) (879 )
Equity in earnings of unconsolidated subsidiaries, net
29 — — — 29 — — — 29

EBITDA
27,199 6,996 2,316 2,482 38,993 30,957 8,456 (20,956 ) 57,450
Integration/acquisition costs
— — — — — 4,365 — 1,455 5,820

Adjusted EBITDA
$ 27,199 $ 6,996 $ 2,316 $ 2,482 $ 38,993 $ 35,322 $ 8,456 $   (19,501 ) $ 63,270

Adjusted EBITDA margin
29.3 % 20.1 % 11.9 % 26.8 % 25.0 % 18.7 % 14.9 % 15.7 %

Six Months Ended October 31, 2017
Executive Search
North
America EMEA Asia Pacific Latin
  America   Subtotal Hay
Group Futurestep   Corporate   Consolidated
(in thousands)
Fee revenue
$   193,377 $   81,467 $       47,490 $       15,623 $       337,957 $       379,406 $     126,909 $ — $ 844,272
Total revenue
$   199,534 $   83,131 $       48,067 $       15,658 $       346,390 $       387,132 $     136,863 $ — $ 870,385
Net income attributable to Korn/Ferry International
$ 65,372
Net income attributable to noncontrolling interest
789
Other income, net
(7,158 )
Interest expense, net
5,239
Equity in earnings of unconsolidated subsidiaries, net
(90 )
Income tax provision
27,829

Operating income (loss)
$ 44,940 $ 13,020 $ 7,522 $ 2,553 $ 68,035 $ 45,453 $ 17,646 $ (39,153 ) 91,981
Depreciation and amortization
1,933 887 691 218 3,729 16,228 1,580 3,119 24,656
Other income, net
572 99 199 59 929 89 8 6,132 7,158
Equity in earnings of unconsolidated subsidiaries, net
90 — — — 90 — — — 90

EBITDA
47,535 14,006 8,412 2,830 72,783 61,770 19,234 (29,902 ) 123,885
Restructuring (recoveries) charges, net
— — 313 — 313 (241 ) 6 — (78 )
Integration/acquisition costs
— — — — — 4,862 — 119 4,981

Adjusted EBITDA
$ 47,535 $ 14,006 $ 8,725 $ 2,830 $ 73,096 $ 66,391 $ 19,240 $   (29,783 ) $ 128,944

Adjusted EBITDA margin
24.6 % 17.2 % 18.4 % 18.1 % 21.6 % 17.5 % 15.2 % 15.3 %

Six Months Ended October 31, 2016
Executive Search
North
America EMEA Asia Pacific Latin
  America   Subtotal Hay
Group Futurestep   Corporate   Consolidated
(in thousands)
Fee revenue
$   174,534 $   70,149 $       39,096 $       18,810 $       302,589 $       363,424 $     111,525 $ — $ 777,538
Deferred revenue adjustment due to acquisition
— — — — — 3,535 — — 3,535

Adjusted fee revenue
$ 174,534 $ 70,149 $ 39,096 $ 18,810 $ 302,589 $ 366,959 $ 111,525 $ — $ 781,073

Total revenue
$ 181,327 $ 71,756 $ 40,109 $ 18,910 $ 312,102 $ 373,860 $ 121,925 $ — $ 807,887
Net income attributable to Korn/Ferry International
$ 33,360
Net income attributable to noncontrolling interest
1,764
Other income, net
(3,380 )
Interest expense, net
5,797
Equity in earnings of unconsolidated subsidiaries, net
(108 )
Income tax provision
13,631

Operating income (loss)
$ 42,740 $ 12,874 $ 4,130 $ 4,614 $ 64,358 $ 15,200 $ 15,300 $   (43,794 ) 51,064
Depreciation and amortization
1,820 440 489 288 3,037 16,041 1,292 2,826 23,196
Other income (loss), net
196 (56 ) 111 97 348 224 (2 ) 2,810 3,380
Equity in earnings of unconsolidated subsidiaries, net
108 — — — 108 — — — 108

EBITDA
44,864 13,258 4,730 4,999 67,851 31,465 16,590 (38,158 ) 77,748
Restructuring charges, net
1,706 128 622 360 2,816 21,488 — 216 24,520
Integration/acquisition costs
— — — — — 8,629 — 5,218 13,847
Deferred revenue adjustment due to acquisition
— — — — — 3,535 — — 3,535

Adjusted EBITDA
$ 46,570 $ 13,386 $ 5,352 $ 5,359 $ 70,667 $ 65,117 $ 16,590 $ (32,724 ) $ 119,650

Adjusted EBITDA margin
26.7 % 19.1 % 13.7 % 28.5 % 23.4 % 17.7 % 14.9 % 15.3 %

	Three Months Ended July 31, 2017
	Executive Search
	North America			EMEA			Asia Pacific			Latin America			Subtotal			Advisory			RPO & Professional Search			Corporate			Consolidated
	(in thousands)
Fee revenue	$	91,833		$	40,121		$	21,578		$	7,659		$	161,191		$	179,453		$	60,610		$	—		$	401,254
Total revenue	$	95,205		$	41,058		$	21,880		$	7,664		$	165,807		$	183,296		$	65,814		$	—		$	414,917

Net income attributable to Korn/Ferry International																									$	29,041
Net income attributable to noncontrolling interest																										388
Other income, net																										(3,354	)
Interest expense, net																										3,680
Equity in earnings of unconsolidated subsidiaries, net																										(30	)
Income tax provision																										12,210
Operating income (loss)	$	22,070		$	6,675		$	3,141		$	1,026		$	32,912		$	19,055		$	8,245		$	(18,277	)		41,935
Depreciation and amortization		949			428			320			107			1,804			8,085			796			1,524			12,209
Other income, net		282			56			105			20			463			431			8			2,452			3,354
Equity in earnings of unconsolidated subsidiaries, net		30			—			—			—			30			—			—			—			30
EBITDA		23,331			7,159			3,566			1,153			35,209			27,571			9,049			(14,301	)		57,528
Restructuring charges, net		—			—			40			—			40			240			—			—			280
Integration/acquisition costs		—			—			—			—			—			2,549			—			39			2,588
Adjusted EBITDA	$	23,331		$	7,159		$	3,606		$	1,153		$	35,249		$	30,360		$	9,049		$	(14,262	)	$	60,396
Adjusted EBITDA margin		25.4	%		17.8	%		16.7	%		15.1	%		21.9	%		16.9	%		14.9	%					15.0	%

Three Months Ended ~~October~~July 31, ~~2017~~2018 Compared to Three Months Ended ~~October~~July 31, ~~2016~~2017

Fee Revenue

Fee Revenue.Fee revenue increased by ~~$41.1~~$64.3 million, or ~~10%~~16%, to ~~$443.0~~$465.6 million in the three months ended ~~October~~July 31, ~~2017~~2018 compared to ~~$401.9~~$401.3 million in theyear-ago quarter. ~~Exchange~~The impact of exchange rates ~~favorably impacted~~on fee revenue ~~by $5.2 million, or 1%,~~was minimal in the three months ended ~~October~~July 31, ~~2017~~2018 compared to theyear-ago quarter. The higher fee revenue was attributable to organic growth in all ~~lines of business.~~solutions.

Executive Search.Executive Search reported fee revenue of ~~$176.8~~$192.9 million, an increase of ~~$20.6~~$31.7 million, or ~~13%~~20%, in the three months ended ~~October~~July 31, ~~2017~~2018 compared to ~~$156.2~~$161.2 million in theyear-ago quarter. As detailed below, Executive Search fee revenue was higher in ~~North America, EMEA and Asia Pacific~~all regions ~~partially offset by lower fee revenue in the Latin America region~~ in the three months ended ~~October~~July 31, ~~2017~~2018 as compared to theyear-ago quarter. The higher fee revenue in Executive Search was mainly due to a 7%13% increase in the weighted-average fees billed per engagement (calculated using local currency) and a 6% increase in the number of engagements billed during the three months ended July 31, 2018 compared to the year-ago quarter.

North America reported fee revenue of $112.1 million, an increase of $20.3 million, or 22%, in the three months ended July 31, 2018 compared to $91.8 million in the year-ago quarter. North America’s fee revenue was higher due to a 14% increase in the number of engagements billed and 5%a 7% increase in the weighted-average fees billed per engagement (calculated using local currency) during the three months ended ~~October~~July 31, ~~2017~~2018 compared to theyear-ago ~~quarter. Exchange rates favorably impacted fee revenue by $2.0 million, or 1%, in the three months ended October 31, 2017, compared to theyear-ago~~ ~~quarter.~~

~~North America reported fee revenue of $101.5 million, an increase of $8.8 million, or 10%, in the three months ended October 31, 2017 compared to $92.7 million in theyear-ago~~ quarter. North America’s fee revenue was higher due to a 7% increase in the number of engagements billed and a 2% increase in the weighted-average fees billed per engagement (calculated using local currency) during the three months ended October 31, 2017 compared to the~~year-ago~~ quarter. The overall increase in fee revenue was driven by the increase in fee revenue from industrial, financial services, life sciences/healthcare, technology, and consumer goods ~~sectors compared to theyear-ago~~ ~~quarter, offset by a decline in fee revenue in the education/nonprofit and technology~~ sectors. ~~The effect of exchange rates on fee revenue was minimal in the three months ended October 31, 2017, compared to theyear-ago~~ ~~quarter.~~

EMEA reported fee revenue of ~~$41.3~~$46.7 million, an increase of ~~$6.5~~$6.6 million, or ~~19%~~16%, in the three months ended ~~October~~July 31, ~~2017~~2018 compared to ~~$34.8~~$40.1 million in theyear-ago quarter. ~~Exchange rates favorably impacted fee revenue by $1.3 million, or 4%, in the three months ended October 31, 2017, compared to theyear-ago~~ ~~quarter.~~ The ~~rest of the~~ change in fee revenue was due to a ~~20%~~21% increase ~~in the number of engagements billed, offset by a 4% decrease~~ in the weighted-average fees billed per engagement (calculated using local currency), offset by a 6% decrease in the number of engagements billed during the three months ended ~~October~~July 31, ~~2017~~2018 compared to theyear-ago quarter. The performance in ~~the~~France, United Kingdom ~~Germany, France~~ and ~~United Arab Emirates~~Switzerland were the primary contributors to the increase in fee revenue in the three months ended ~~October~~July 31, ~~2017~~2018 compared to theyear-ago quarter. In terms of business sectors, industrial, financial services ~~industrial~~ and consumer goods had the largest ~~increases~~increase in fee revenue in the three months ended ~~October~~July 31, ~~2017~~2018 compared to theyear-ago quarter.

Asia Pacific reported fee revenue of ~~$25.9~~$26.3 million, an increase of ~~$6.4~~$4.7 million, or ~~33%~~22%, in the three months ended ~~October~~July 31, ~~2017~~2018 compared to ~~$19.5~~$21.6 million in theyear-ago quarter. ~~The effect of exchange rates on fee revenue was minimal.~~ The increase in fee revenue was higher due to ~~a 9% increase in the number of engagements billed and a 22%~~an 11% increase in the weighted-average fees billed per engagement (calculated using local currency) and a 9% increase in the number of engagements billed during the three months ended ~~October~~July 31, ~~2017~~2018 compared to theyear-ago quarter. The performance in China, Singapore, Australia and ~~India~~Hong Kong were the primary contributors to the increase in fee revenue in the three months ended ~~October~~July 31, ~~2017~~2018 compared to theyear-ago ~~quarter. Financial~~ quarter, partially offset by a decline in fee revenue in Indonesia. Consumer

goods, life sciences/ healthcare, financial services, and technology were the main sectors contributing to the increase in fee revenue in the three months ended ~~October~~July 31, ~~2017,~~2018 as compared to theyear-ago quarter.

Latin America reported fee revenue of ~~$8.0~~$7.9 million ~~a decrease~~in the three months ended July 31, 2018 compared to $7.7 million in the year-ago quarter. The increase in fee revenue in the region was due to higher fee revenue in Colombia and Peru in the three months ended July 31, 2018 compared to the year-ago quarter, partially offset by lower fee revenue in Chile.

Advisory. Advisory reported fee revenue of ~~$1.2~~$195.4 million, an increase of $15.9 million, or ~~13%~~9%, in the three months ended ~~October~~July 31, ~~2017~~2018 compared to ~~$9.2~~$179.5 million in theyear-ago ~~quarter. The effect of exchange rates on fee revenue was minimal. The decrease is due to lower fee revenue in Mexico in the three months ended October 31, 2017, compared to theyear-ago~~ quarter, partially offset by higher fee revenue in Ecuador and Colombia. Life sciences/healthcare, consumer goods and technology were the main sectors contributing to the decline in fee revenue, offset by the growth in industrial sector.

~~Hay Group.~~~~Hay Group reported fee revenue of $200.0 million, an increase of $11.2 million, or 6%, in the three months ended October 31, 2017 compared to $188.8 million in theyear-ago~~ ~~quarter. Exchange rates favorably impacted fee revenue by $2.3 million, or 1%, compared to theyear-ago~~ quarter. Fee revenue from consulting services was higher by ~~$10.1~~$13.4 million in the three months ended ~~October~~July 31, ~~2017~~2018 compared to theyear-ago quarter, with the remaining increase of ~~$1.1~~$2.5 million generated by our products business.

~~Futurestep.~~~~Futurestep~~RPO & Professional Search. RPO & Professional Search reported fee revenue of ~~$66.3~~$77.3 million, an increase of ~~$9.5~~$16.7 million, or ~~17%~~28%, in the three months ended ~~October~~July 31, ~~2017~~2018 compared to ~~$56.8~~$60.6 million in theyear-ago quarter. ~~Exchange rates favorably impacted fee revenue by $0.9 million, or 2%, in the three months ended October 31, 2017.~~ Higher fee revenues in RPO and ~~professional search~~Professional Search of ~~$7.3~~$9.3 million and ~~$2.8~~$7.4 million, respectively, drove the increase in fee revenue.

Compensation and Benefits

Compensation and benefits expense increased ~~$30.4~~$49.1 million, or ~~11%~~18%, to ~~$301.0~~$321.9 million in the three months ended ~~October~~July 31, ~~2017~~2018 from ~~$270.6~~$272.8 million in theyear-ago quarter. Exchange rates ~~unfavorably~~minimally impacted compensation and benefits expenses

~~by $3.5 million, or 1%,~~ in the three months ended ~~October~~July 31, ~~2017~~2018 compared to theyear-ago quarter. The increase in compensation and benefits was primarily due to an 8%increase in performance related bonus expense of $19.4 million and $1.7 million in the use of outside contractors due to higher fee revenues. Also contributing to the increase was a 6% increase in average headcount, ~~primarily focused on fee earners,~~ which contributed ~~$21.8~~$12.8 million in higher salaries and related payroll taxes, ~~and a $2.6~~$4.9 million increase in amortization of long-term incentive ~~awards. The rest of the change was due to an increase in performance related bonus expense of $4.2~~awards, $2.6 million ~~due to higher fee revenues and an increase~~ in the amounts owed under certain deferred compensation and retirement plans and $1.0 million in stock-based compensation. The rest of ~~$4.1~~the change is due to an increase in severance costs of $2.7 million ~~that was driven by increases~~and the change in the ~~fair~~cash surrender value (“CSV”) of ~~participants’ accounts~~company owned life insurance (“COLI”) of $1.1 million in the three months ended ~~October~~July 31, ~~2017~~2018 compared to theyear-ago quarter. ~~The increases in compensation and benefits were partially offset by a decline in integration costs of $2.8 million.~~

Executive Search compensation and benefits expense increased by ~~$17.8~~$21.5 million, or ~~18%~~20%, to ~~$117.7~~$128.9 million in the three months ended ~~October~~July 31, ~~2017~~2018 compared to ~~$99.9~~$107.4 million in theyear-ago quarter. The increase was primarily due to higher ~~salaries and~~performance related ~~payroll taxes~~bonus expense of ~~$7.8~~$12.6 million, ~~due to an 8% increase in average headcount reflecting our continued growth-related investment back into the business. Also contributing to the increase in compensation and benefits expense was~~ an increase of ~~$5.1~~$2.7 million in amortization of long-term incentive awards and $1.7 million increase in expenses associated with our deferred compensation and retirement plans (including the increases in the fair value of participants’ accounts)~~, $2.1 million~~. Also contributing to the increase in ~~amortization~~compensation and benefits expense was higher salaries and related payroll taxes of ~~long-term incentive awards and $2.4~~$4.1 million due to a 4% increase in ~~performance related bonus expense compared to~~average headcount reflecting our continued growth-related investment back into the~~year-ago~~ ~~quarter.~~ business. The increase in performance related bonus expense was due to the increase in fee revenue. Executive Search compensation and benefits expense, as a percentage of fee revenue, was 67% ~~and 64%~~ in both the three months ended ~~October~~July 31, ~~2017~~2018 and ~~2016, respectively.~~2017.

~~Hay Group~~Advisory compensation and benefits expense increased ~~$6.9~~$11.6 million, or 6%10%, to ~~$126.2~~$125.7 million in the three months ended ~~October~~July 31, ~~2017~~2018 from ~~$119.3~~$114.1 million in theyear-ago quarter. The ~~increase~~change was primarily due to ~~higher average headcount of 3% compared to theyear-ago~~ ~~quarter which contributed $7.0~~$3.3 million in higher performance related bonus expense due to the growth in fee revenue. The rest of the increase in compensation and benefits expense was due to increases in salaries and ~~related~~ payroll taxes ~~and an~~of $1.6 million, $2.0 million increase in ~~performance-related bonus~~severance expense, $1.5 million increase in amortization of ~~$1.0 million due to higher fee revenues, offset by $2.0~~long-term incentive awards, and $0.5 million in ~~lower~~higher integration (retention) costs. ~~Hay Group~~Advisory compensation and benefits expense, as a percentage of fee revenue, was ~~63%~~64% in both the three months ended ~~October~~July 31, ~~2017~~2018 and ~~2016.~~2017.

~~Futurestep~~RPO & Professional Search compensation and benefits expense increased ~~$6.4~~$11.9 million, or ~~16%~~28%, to ~~$46.4~~$54.9 million in the three months ended ~~October~~July 31, ~~2017~~2018 from ~~$40.0~~$43.0 million in theyear-ago quarter. The increase was due to higher salaries and related payroll taxes of ~~$5.9~~$6.3 million due to a ~~16%~~29% increase in the average headcount in the three months ended ~~October~~July 31, ~~2017~~2018 compared to theyear-ago quarter. The higher average headcount and the $1.0 million increase in the use of outside contractors was primarily driven by the need to service an increase in fee revenue in the RPO business. Also contributing to the increase in compensation and benefits was a higher performance related bonus expense of ~~$1.0~~$3.0 million. ~~Futurestep~~RPO & Professional Search compensation and benefits expense, as a percentage of fee revenue, was ~~70%~~71% in both the three months ended ~~October~~July 31, ~~2017~~2018 and ~~theyear-ago~~ ~~quarter.~~2017.

Corporate compensation and benefits expense ~~decreased~~increased by ~~$0.5~~$4.1 million, or 4%49%, to ~~$10.8~~$12.4 million in the three months ended ~~October~~July 31, ~~2017~~2018 from ~~$11.3~~$8.3 million in theyear-ago quarter. ~~This decrease~~The increase was ~~mainly~~primarily due to a ~~decrease~~change in the CSV of ~~$0.8~~COLI that increased compensation and benefits expense by $1.1 million ~~in integration costs~~ in the three months ended ~~October~~July 31, ~~2017~~2018 compared to theyear-ago quarter. Also contributing to the increase in compensation and benefits expense was higher stock-based compensation expense of $0.7 million, an increase in salaries and related payroll taxes of $0.7 million and $0.5 million increase in performance related bonus expense.

General and Administrative Expenses

General and administrative expenses increased ~~$4.5~~$110.4 million, or 8%189%, to ~~$58.6~~$168.7 million in the three months ended ~~October~~July 31, ~~2017~~2018 compared to ~~$54.1~~$58.3 million in theyear-ago quarter. Exchange rates ~~unfavorably~~minimally impacted general and administrative expenses ~~by $0.4 million, or 1%,~~ during the three months ended ~~October~~July 31, ~~2017~~2018 compared to theyear-ago quarter. The increase in general and administrative expenses was due to ~~increases~~the write-off of ~~$1.3~~tradenames of $106.6 million ~~$1.1~~related to the Plan and an increase of $3.2 million ~~and $1.1 million~~ in ~~bad debt expenses, premise and office expense and~~ legal and other professional ~~fees, respectively, offset by a decline of $0.6 million in integration costs compared to theyear-ago~~ ~~quarter. The rest of the change was due to foreign exchange loss of $0.6 million~~expenses during the three months ended ~~October~~July 31, ~~2017~~2018 compared to ~~a foreign exchange gain of $0.4 million during~~ theyear-ago quarter. General and administrative expenses, as a percentage of fee revenue, was 36% in the three months ended July 31, 2018 compared to 15% in the three months ended July 31, 2017. Excluding the tradename write-offs, general and administrative expenses as a percentage of fee revenue, was 13% in the three months ended ~~October~~July 31, ~~2017 compared to 14% in the three months ended October 31, 2016.~~2018.

Executive Search general and administrative expenses increased ~~$3.7~~$2.2 million, or ~~23%~~12%, to ~~$19.9~~$20.5 million in the three months ended ~~October~~July 31, ~~2017~~2018 from ~~$16.2~~$18.3 million in theyear-ago quarter. The increase in general and administrative expenses was due to increases of ~~$0.9~~$0.7 million and ~~$0.7~~$0.6 million in ~~bad debt expenses and~~ legal and other professional ~~fees, respectively. The rest of the change was primarily due to generating~~expenses and foreign exchange loss, ~~of $0.2 million~~respectively, during the three months ended ~~October~~July 31, ~~2017~~2018 compared to ~~a foreign currency gain of $0.8 million in~~ theyear-ago quarter. Executive Search general and administrative expenses, as a percentage of fee revenue, was 11% in both the three months ended ~~October~~July 31, ~~2017 compared to 10% in the three months ended October 31, 2016.~~2018 and 2017.

~~Hay Group~~Advisory general and administrative expenses increased ~~$0.9~~$106.1 million, or 4%426%, to ~~$24.4~~$131.0 million in the three months ended ~~October~~July 31, ~~2017 compared to $23.5~~2018 from $24.9 million in theyear-ago quarter. The increase ~~is primarily~~in general and administrative expenses was mainly due to ~~generating a foreign exchange loss~~the write-off of ~~$0.4~~tradenames of $106.6 million ~~during~~in the three months ended ~~October~~July 31, ~~2017~~2018 compared to the year-ago quarter. Advisory general and administrative expenses, as a ~~foreign exchange gain~~percentage of ~~$0.4 million during~~fee revenue, was 67% in the~~year-ago~~ ~~quarter. Hay Group~~ three months ended July 31, 2018 compared to 14% in the three months ended July 31, 2017. Excluding the tradename write-offs, general and administrative expenses as a percentage of fee revenue, was 12% in ~~both~~ the three months ended ~~October~~July 31, ~~2017 and 2016.~~2018.

~~Futurestep~~RPO & Professional Search general and administrative expenses ~~increased $1.4 million, or 26%, to $6.9~~was $6.8 million in the three months ended ~~October~~July 31, ~~2017 from $5.5~~2018 compared to $6.6 million in theyear-ago quarter. ~~The increase was mainly due to increases of $0.4 million in premise and office expense, $0.4 million in bad debt expense and $0.2 million in business development expense during the~~

~~three months ended October 31, 2017 compared to theyear-ago~~ ~~quarter. Such increases were due in large part to the increase in fee revenue in the three months ended October 31, 2017 compared to theyear-ago~~ ~~quarter. Futurestep~~RPO & Professional Search general and administrative expenses, as a percentage of fee revenue, was ~~11%~~9% in the three months ended ~~October~~July 31, ~~2017~~2018 compared to ~~10%~~11% in theyear-ago quarter.

Corporate general and administrative expenses ~~decreased $1.6~~increased $2.0 million, or ~~18%~~24%, to ~~$7.3~~$10.5 million in the three months ended ~~October~~July 31, ~~2017~~2018 compared to ~~$8.9~~$8.5 million in theyear-ago quarter. The ~~decrease~~increase in general and administrative expenses was mainly due to ~~a decrease~~an increase of ~~$0.7~~$2.0 million in ~~foreign currency losses, $0.6 million in integration costs~~legal and ~~lower business development expenses of $0.4 million during the three months ended October 31, 2017 compared to the three months ended October 31, 2016.~~other professional expenses.

Cost of Services Expense

Cost of services expense consists primarily ofnon-billable contractor and product costs related to the delivery of various services and products, primarily in ~~Futurestep~~RPO & Professional Search and ~~Hay Group.~~Advisory. Cost of services expense increased ~~$1.0~~$2.5 million, or 5%16%, to ~~$19.9~~$18.3 million in the three months ended ~~October~~July 31, ~~2017~~2018 compared to ~~$18.9~~$15.8 million in theyear-ago quarter. Cost of services expense, as a percentage of fee revenue, was 5%4% in both the three months ended ~~October~~July 31, ~~2017~~2018 and ~~2016.~~2017.

Depreciation and Amortization Expenses

Depreciation and amortization expenses were ~~$12.4~~$11.7 million, ~~an increase~~a decrease of ~~$0.6~~$0.5 million, or 5%4%, in the three months ended ~~October~~July 31, ~~2017~~2018 compared to ~~$11.8~~$12.2 million in theyear-ago quarter. The ~~increase relates primarily~~decrease was due to ~~technology investments made in the current and prior year in software and computer equipment, in addition to increases in leasehold improvements, furniture and fixtures and~~lower amortization expense associated with intangible ~~assets.~~assets as some of our intangible assets became fully amortized.

Restructuring ~~(Recoveries)~~ Charges, Net

During the three months ended ~~October~~July 31, 2018, no restructuring charges were incurred.

During the three months ended July 31, 2017, we continued the implementation of the fiscal 2016 restructuring plan to integrate Legacy Hay entities that were acquired in fiscal 2016 and recorded ~~$0.2~~$0.3 million of restructuring ~~recoveries,~~charges, net relating to the consolidation of ~~premises due to adjustments made to previously recorded restructuring charges, net.~~premises.

~~During the three months ended October 31, 2016, no restructuring charges were incurred.~~

Operating (Loss) Income

Operating income ~~was $51.2~~decreased by $97.0 million to an operating loss of $55.1 million in the three months ended ~~October~~July 31, ~~2017 as~~2018 compared to ~~$46.5~~an operating income of $41.9 million in theyear-ago quarter. ~~This~~The decrease was primarily due to the write-off of tradenames of $106.6 million, an increase ~~in operating income resulted from higher fee revenue~~ of ~~$41.1 million, offset by increases of $30.4~~$49.1 million in compensation and benefits expense ~~$4.5~~and $3.2 million more in ~~general~~legal and ~~administrative~~other professional expenses ~~and $1.0 million in cost~~offset by higher fee revenue of ~~services expense.~~$64.3 million.

Executive Search operating income ~~decreased $2.2~~increased $8.0 million, or 6%24%, to ~~$35.2~~$40.9 million in the three months ended ~~October~~July 31, ~~2017~~2018 as compared to ~~$37.4~~$32.9 million in theyear-ago quarter. The ~~decrease~~increase in Executive Search operating income was driven by higher fee revenue of $31.7 million, offset by increases in compensation and benefits expense and general and administrative expenses ~~cost~~ of ~~services expense, restructuring charges, net and depreciation and amortization expenses of $17.8 million, $3.7 million, $0.7 million, $0.3~~$21.5 million and ~~$0.3~~$2.2 million, ~~respectively, offset by higher fee revenue of $20.6 million.~~respectively. Executive Search operating income, as a percentage of fee revenue, was 21% and 20% in the three months ended ~~October~~July 31, 2018 and 2017, ~~as compared to 24% in theyear-ago~~ ~~quarter.~~respectively.

~~Hay Group~~28

Advisory operating ~~income~~loss was ~~$26.4 million, an increase of $3.5~~$83.1 million in the three months ended ~~October~~July 31, ~~2017~~2018, a decrease of $102.2 million, as compared to operating income of ~~$22.9~~$19.1 million in theyear-ago quarter. The ~~change~~decrease in operating income was primarily ~~driven by~~due to the write-off of tradenames of $106.6 million and an increase ~~in fee revenue~~ of ~~$11.2 million, offset by increases of $6.9 million and $0.9~~$11.6 million in compensation and benefits expense, ~~and general and administrative expenses, respectively. Hay Group~~offset by higher fee revenue of $15.9 million. Advisory operating loss, as a percentage of fee revenue, was 43% in the three months ended July 31, 2018 compared to an operating income, as a percentage fee revenue, of 11% in the year-ago quarter. Excluding the tradename write-offs, operating income as a percentage of fee revenue, was ~~13%~~12% in the three months ended ~~October~~July 31, ~~2017 compared to 12% in theyear-ago~~2018. ~~quarter.~~

~~Futurestep~~RPO & Professional Search operating income was ~~$9.4~~$11.6 million, an increase of ~~$1.6~~$3.4 million, or 41%, in the three months ended ~~October~~July 31, ~~2017~~2018 as compared to ~~$7.8~~$8.2 million in theyear-ago quarter. The increase in operating income was driven by higher fee revenue of ~~$9.5~~$16.7 million, offset by ~~an increase~~increases in compensation and benefits expense and cost of ~~$6.4~~services expense of $11.9 million and ~~an increase in general and administrative expenses of $1.4 million. Futurestep~~$1.2 million, respectively. RPO & Professional Search operating income, as a percentage of fee revenue, was ~~14%~~15% in ~~both~~ the three months ended ~~October~~July 31, ~~2017 and 2016.~~2018 compared to 14% in the year-ago quarter.

Net (Loss) Income Attributable to Korn Ferry

Net income attributable to Korn Ferry ~~increased~~decreased by ~~$6.1~~$$67.6 million to ~~$36.3~~a net loss of $38.6 million in the three months ended ~~October~~July 31, ~~2017~~2018 as compared to ~~$30.2~~a net income attributable to Korn Ferry of $29.0 million in theyear-ago quarter. The ~~increase~~decrease was due to an increase in operating expenses of $160.5 million because of the intangible asset write-off of $106.6 million and higher compensation and benefits expense of $49.1 million, offset by higher total revenue of ~~$40.5~~$63.5 million and an ~~increase in other~~ income ~~(loss), net~~tax benefit of ~~$4.5~~$16.1 million ~~offset by higher operating expenses~~during the three months ended July 31, 2018 compared to income tax expense of ~~$35.8~~$12.2 million ~~and an increase~~ in the ~~income tax provision of $3.7 million compared to the~~year-ago quarter. Net ~~income~~loss attributable to Korn Ferry, as a percentage of fee revenue, was 8% in ~~both~~ the three months ended ~~October~~July 31, ~~2017 and 2016.~~2018 as compared to the net income attributable to Korn Ferry, as a percentage of fee revenue, of 7% in the three months ended July 31, 2017.

Adjusted EBITDA

Adjusted EBITDA increased by ~~$6.3~~$10.4 million to ~~$69.6~~$70.8 million in the three months ended ~~October~~July 31, ~~2017~~2018 as compared to ~~$63.3~~$60.4 million in theyear-ago quarter. This increase was driven by higher fee revenue of ~~$41.1~~$64.3 million and an increase on other income, net of ~~$3.6~~$1.1 million, in the three months ended October 31, 2017 compared to other loss, net of $0.9 million in the three months ended October 31, 2016 due to an increase in the change in fair value of our marketable securities, offset by increases of ~~$33.3~~$48.6 million in compensation and benefits expense (excluding integration costs), ~~$5.1~~$3.8 million in general and administrative expenses (excluding ~~integration cost)~~write-off on tradenames) and ~~$1.0~~an increase of $2.5 million in ~~cost of~~costs services expense. ~~Adjusted EBITDA, as a percentage of fee revenue, was 16% in both the three months ended October 31, 2017 and 2016.~~

Executive Search Adjusted EBITDA decreased $1.1 million, or 3%, to $37.9 million in the three months ended October 31, 2017 as compared to $39.0 million in the three months ended October 31, 2016. The decrease was driven by increases of $17.8 million in compensation and benefits expense and $3.7 million in general and administrative expenses, offset by higher fee revenue of $20.6 million during the three months ended October 31, 2017 compared to the~~year-ago~~ ~~quarter. Executive Search Adjusted EBITDA, as a percentage of fee revenue, was 22% in the three months ended October 31, 2017 as compared to 25% in theyear-ago~~ ~~quarter.~~

~~Hay Group Adjusted EBITDA was $36.4 million in the three months ended October 31, 2017 as compared to $35.3 million in theyear-ago~~ quarter. The increase was driven by higher fee revenue of $11.2 million, offset by increases of $8.9 million in compensation and benefits expense (excluding integration costs) and $0.9 million in general and administrative expenses during the three months ended October 31, 2017 compared to the~~year-ago~~ ~~quarter. Hay Group Adjusted EBITDA, as a percentage of fee revenue, was 18% in the three months ended October 31, 2017 as compared to 19% in the year-ago quarter.~~

~~Futurestep Adjusted EBITDA was $10.2 million in the three months ended October 31, 2017 as compared to $8.5 million in theyear-ago~~ quarter. The increase was driven by higher fee revenue of $9.5 million, offset by increases of $6.4 million in compensation and benefits expense and $1.4 million in general and administrative expenses during the three months ended October 31, 2017 compared to the~~year-ago~~ ~~quarter. Futurestep~~ Adjusted EBITDA, as a percentage of fee revenue, was 15% in both the three months ended ~~October~~July 31, ~~2017~~2018 and ~~2016.~~2017.

~~Other Income (Loss)~~Executive Search Adjusted EBITDA increased $11.6 million, or 33%, ~~Net~~

~~Other income, net was $3.6~~to $46.8 million in the three months ended ~~October~~July 31, ~~2017~~2018 as compared to $35.2 million in the three months ended July 31, 2017. The increase was driven by higher fee revenue of $31.7 million and an increase in other ~~losses,~~income, net of ~~$0.9~~$3.6 million during the three months ended July 31, 2018 compared to the year-ago quarter, offset by increases of $21.5 million in compensation and benefits expense and $2.2 million in general and administrative expenses. Executive Search Adjusted EBITDA, as a percentage of fee revenue, was 24% in the three months ended July 31, 2018 as compared to 22% in the three months ended July 31, 2017.

Advisory Adjusted EBITDA was $34.5 million in the three months ended July 31, 2018, an increase of $4.1 million, or 13%, as compared to $30.4 million in the year-ago quarter. The increase was driven by higher fee revenue of $15.9 million, offset by increases of $11.1 million in compensation and benefits expense (excluding integration costs) and an increase of $1.1 million in cost of services expense during the three months ended July 31, 2018 compared to the year-ago quarter. Advisory Adjusted EBITDA, as a percentage of fee revenue, was 18% in the three months ended July 31, 2018 as compared to 17% in the year-ago quarter.

RPO & Professional Search Adjusted EBITDA was $12.5 million in the three months ended July 31, 2018, an increase of $3.5 million, as compared to $9.0 million in the year-ago quarter. The increase was driven by higher fee revenue of $16.7 million, offset by increases of $11.9 million in compensation and benefits expense and an increase of $1.2 million in cost of services expense during the three months ended July 31, 2018 compared to the year-ago quarter. RPO & Professional Search Adjusted EBITDA, as a percentage of fee revenue, was 16% in the three months ended July 31, 2018 compared to 15% in the year-ago quarter.

Other Income, Net

Other income, net was $4.5 million in the three months ended July 31, 2018 as compared to $3.4 million in the year-ago quarter. The increase was primarily due to the change in the fair value of our marketable securities, ~~which created~~where there was a larger gain during the three months ended ~~October~~July 31, ~~2017~~2018 compared to ~~a loss in~~ theyear-ago quarter.

Interest Expense, Net

Interest expense, net primarily relates to our term loan facility and borrowings under our COLI policies, which is partially offset by interest earned on cash and cash equivalent balances. Interest expense, net was ~~$2.6~~$4.1 million in the three months ended ~~October~~July 31, ~~2017~~2018 as compared to ~~$2.7~~$3.7 million in theyear-ago quarter.

Income Tax (Benefit) Provision

The provision for income tax was ~~$15.6~~a benefit of $16.1 million in the three months ended ~~October~~July 31, ~~2017~~2018 compared to ~~$11.9~~an expense of $12.2 million in theyear-ago quarter. This reflects a ~~30%~~29.4% and ~~28%~~29.3% tax rate for the three months ended July 31, 2018 and 2017, respectively. The Company’s effective tax rate was 29.4% for the three months ended July 31, 2018 compared to the U.S. federal statutory rate of 21.0%. This difference is primarily due to the trademark impairment charge and the excess tax benefit on vested stock-based awards, both of which were recorded as discrete to the current quarter. The Company’s effective tax rate for the three months ended ~~October~~July 31, 2017 ~~and 2016, respectively. The increase in~~was lower than the ~~effective tax~~then U.S. federal statutory rate ~~for the three months ended October 31, 2017 is~~of 35.0% due principally to the ~~higher percentage of taxable income arising in jurisdictions with higher statutory tax rates.~~Company’s earnings outside the United States which were generally taxed at rates lower than the then applicable U.S. federal rate.

Net Income Attributable to Noncontrolling Interest

Net income attributable to noncontrolling interest represents the portion of a subsidiary’s net earnings that are attributable to shares of ~~such~~a subsidiary not held by Korn Ferry that are included in the consolidated results of operations. Net income attributable to noncontrolling interest for the three months ended ~~October~~July 31, ~~2017~~2018 was ~~$0.4 million~~minimal as compared to ~~$0.9~~$0.4 million for the three months ended ~~October~~July 31, ~~2016.~~

~~Six Months Ended October 31, 2017 Compared to Six Months Ended October 31, 2016~~

~~Fee Revenue.~~~~Fee revenue went up by $66.8 million, or 9%, to $844.3 million in the six months ended October 31, 2017 compared to $777.5 million in theyear-ago~~ ~~period. Exchange rates minimally impacted fee revenue in the six months ended October 31, 2017 compared to theyear-ago~~ ~~period. The higher fee revenue was attributable to organic growth in all lines of business.~~

~~Executive Search.~~~~Executive Search reported fee revenue of $338.0 million, an increase of $35.4 million, or 12%, in the six months ended October 31, 2017 compared to $302.6 million in theyear-ago~~ period. As detailed below, Executive Search fee revenue was higher in North America, EMEA and Asia Pacific, partially offset by lower fee revenue in the Latin America region in the six months ended October 31, 2017 as compared to the~~year-ago~~ period. The higher fee revenue in Executive Search was mainly due to an 8% increase in the number of engagements billed and a 3% increase in the weighted-average fees billed per engagement (calculated using local currency) during the six months ended October 31, 2017 compared to the year-

~~ago period. Exchange rates minimally impacted fee revenue in the six months ended October 31, 2017, compared to theyear-ago~~ ~~period.~~

~~North America reported fee revenue of $193.4 million, an increase of $18.9 million, or 11%, in the six months ended October 31, 2017 compared to $174.5 million in theyear-ago~~ period. North America’s fee revenue was higher due to a 7% increase in the number of engagements billed and a 3% increase in the weighted-average fees billed per engagement (calculated using local currency) during the six months ended October 31, 2017 compared to the~~year-ago~~ ~~period. The overall increase in fee revenue was driven by the increase in fee revenue from the industrial, financial services and technology sectors compared to theyear-ago~~ ~~period, offset by a decline in fee revenue in the life sciences/healthcare sector. The effect of exchange rates on fee revenue was minimal in the six months ended October 31, 2017, compared to theyear-ago~~ ~~period.~~

~~EMEA reported fee revenue of $81.5 million, an increase of $11.4 million, or 16%, in the six months ended October 31, 2017 compared to $70.1 million in theyear-ago~~ period. Exchange rates minimally impacted fee revenue. The change in fee revenue was due to a 21% increase in the number of engagements billed, offset by a 4% decrease in the weighted-average fees billed per engagement (calculated using local currency) during the six months ended October 31, 2017 compared to the~~year-ago~~ ~~period. The performance in the United Kingdom, Germany and France were the primary contributors to the increase in fee revenue in the six months ended October 31, 2017 compared to theyear-ago~~ ~~period. All of the business sectors contributed to the growth in fee revenue in the six months ended October 31, 2017 as compared to theyear-ago~~ ~~period, with industrial and financial services contributing the most.~~

~~Asia Pacific reported fee revenue of $47.5 million, an increase of $8.4 million, or 22%, in the six months ended October 31, 2017 compared to $39.1 million in theyear-ago~~ period. The effect of exchange rates on fee revenue was minimal. The increase in fee revenue was due to a 7% increase in the number of engagements billed and a 14% increase in the weighted-average fees billed per engagement (calculated using local currency) in the six months ended October 31, 2017 compared to the~~year-ago~~ ~~period. The performance in Australia, China, Japan and India were the primary contributors to the increase in fee revenue in the six months ended October 31, 2017 compared to theyear-ago~~ period, partially offset by a decline in fee revenue in Hong Kong. Financial services, industrial and technology were the main sectors contributing to the increase in fee revenue in the six months ended October 31, 2017, as compared to the~~year-ago~~ ~~period.~~

~~Latin America reported fee revenue of $15.6 million, a decrease of $3.2 million, or 17%, in the six months ended October 31, 2017 compared to $18.8 million in theyear-ago~~ ~~period. Exchange rates favorably impacted fee revenue by $0.3 million, or 2%, in the six months ended October 31, 2017 compared to theyear-ago~~ ~~period. The decrease in fee revenue is due to lower fee revenue in Mexico and Brazil in the six months ended October 31, 2017, compared to theyear-ago~~ period, partially offset by higher fee revenue in Chile and Ecuador. Consumer goods, financial services and life science/healthcare were the main sectors contributing to the decline in fee revenue, offset by the growth in the industrial sector in the six months ended October 31, 2017, compared to the~~year-ago~~ ~~period.~~

~~Hay Group.~~~~Hay Group reported fee revenue of $379.4 million, an increase of $16.0 million, or 4%, in the six months ended October 31, 2017 compared to $363.4 million in theyear-ago~~ ~~period. Exchange rates minimally impacted fee revenue. Fee revenue from consulting services was higher by $10.3 million in the six months ended October 31, 2017 compared to theyear-ago~~ ~~period, with the remaining increase of $5.7 million generated by our products business.~~

~~Futurestep.~~~~Futurestep reported fee revenue of $126.9 million, an increase of $15.4 million, or 14%, in the six months ended October 31, 2017 compared to $111.5 million in theyear-ago~~ ~~period. Exchange rates minimally impacted fee. Higher fee revenues in RPO and professional search of $12.5 million and $4.1 million, respectively, drove the increase in fee revenue.~~

~~Compensation and Benefits~~

~~Compensation and benefits expense increased $41.4 million, or 8%, to $575.0 million in the six months ended October 31, 2017 from $533.6 million in theyear-ago~~ ~~period. Exchange rates unfavorably impacted compensation and benefits expenses by $1.5 million, or 0.3%, in the six months ended October 31, 2017 compared to theyear-ago~~ period. The increase in compensation and benefits was primarily due to a 6% increase in the average headcount, primarily focused on fee earners, which contributed $32.8 million in higher salaries and related payroll taxes and $8.8 million more in expenses associated with our deferred compensation and retirement plans (includes the increases in the fair value of participants’ accounts) in the six months ended October 31, 2017 compared to the~~year-ago~~ period. The rest of the change was due to the $4.5 million increase in amortization of long term incentive awards and $3.4 million increase in performance-related bonus expense, offset by $5.8 million in integration costs compared to the~~year-ago~~ ~~period.~~

~~Executive Search compensation and benefits expense increased by $26.6 million, or 13%, to $225.2 million in the six months ended October 31, 2017 compared to $198.6 million in theyear-ago~~ period. The increase was primarily due to higher salaries and related payroll taxes of $12.1 million due to a 7% increase in average headcount reflecting our continued growth-related investment back into the business. Also contributing to the increase in compensation and benefits expense was an increase of $6.9 million in expenses associated with our deferred compensation and retirement plans (includes the increases in the fair value of participants’ accounts), a $3.7 million increase in amortization of long-term incentive awards and a $2.0 million increase in performance related bonus expense compared to the~~year-ago~~ ~~period. The increase in performance related bonus expense was due to a 12% increase in fee revenue~~

~~in the six months ended October 31, 2017 compared to theyear-ago~~ ~~period. Executive Search compensation and benefits expense, as a percentage of fee revenue, was 67% in the six months ended October 31, 2017 compared to 66% in theyear-ago~~ ~~period.~~

~~Hay Group compensation and benefits expense increased $5.6 million, or 2%, to $240.2 million in the six months ended October 31, 2017 from $234.6 million in theyear-ago~~ period. The change was primarily due to increases in salaries and payroll taxes of $8.1 million and employer insurance cost of $1.1 million, offset by a decrease in integration costs of $3.8 million compared to~~year-ago~~ ~~period. Hay Group compensation and benefits expense, as a percentage of fee revenue, was 63% in the six months ended October 31, 2017 compared to 65% in theyear-ago~~ ~~period.~~

~~Futurestep compensation and benefits expense increased $11.4 million, or 15%, to $89.4 million in the six months ended October 31, 2017 from $78.0 million in theyear-ago~~ ~~period. The increase was due to higher salaries and related payroll taxes of $11.0 million due to a 15% increase in the average headcount in the six months ended October 31, 2017 compared to theyear-ago~~ period. The higher average headcount was primarily driven by the need to service an increase in fee revenue in the RPO business. Futurestep compensation and benefits expense, as a percentage of fee revenue, was 70% in both the six months ended October 31, 2017 and 2016.

~~Corporate compensation and benefits expense decreased by $2.2 million, or 10%, to $20.2 million in the six months ended October 31, 2017 from $22.4 million in theyear-ago~~ ~~period. This decrease was mainly due to a decrease of $2.1 million in integration costs in the six months ended October 31, 2017 compared to theyear-ago~~ ~~period.~~

~~General and Administrative Expenses~~

~~General and administrative expenses increased $7.4 million, or 7%, to $116.9 million in the six months ended October 31, 2017 compared to $109.5 million in theyear-ago~~ ~~period. Exchange rates minimally impacted general and administrative expenses during the six months ended October 31, 2017 compared to theyear-ago~~ period. The increase in general and administrative expenses was due to foreign exchange loss of $2.0 million during the six months ended October 31, 2017 compared to a foreign exchange gain of $1.8 million during the~~year-ago~~ period. The rest of the change in general and administrative expenses was due to increases of $2.4 million, $1.8 million and $0.8 million in premise and office expense, bad debt expense and marketing and business development expenses, respectively, offset by a decline of $3.0 million in integration costs compared to the~~year-ago~~ ~~period. General and administrative expenses, as a percentage of fee revenue, was 14% in both the six months ended October 31, 2017 and 2016.~~

~~Executive Search general and administrative expenses increased $6.0 million, or 19%, to $38.3 million in the six months ended October 31, 2017 from $32.3 million in theyear-ago~~ period. General and administrative expenses increased primarily due to generating foreign exchange losses of $0.2 million during the six months ended October 31, 2017 compared to a foreign exchange gain of $1.8 million during the~~year-ago~~ period and an increase in bad debt expense of $1.2 million. The rest of the change was due to an increase of $0.6 million in legal and other professional fees and an increase in marketing and business development of $0.5 million to support the higher fee revenues generated in the six months ended October 31, 2017 compared to the~~year-ago~~ ~~period. Executive Search general and administrative expenses, as a percentage of fee revenue, was 11% in both the six months ended October 31, 2017 and 2016.~~

~~Hay Group general and administrative expenses increased $1.7 million, or 4%, to $49.3 million in the six months ended October 31, 2017 compared to $47.6 million in theyear-ago~~ ~~period. The increase was primarily due to foreign exchange losses of $1.0 million during the six months ended October 31, 2017 compared to a foreign exchange gains of $0.8 million during theyear-ago~~ ~~period. Hay Group general and administrative expenses, as a percentage of fee revenue, was 13% in both the six months ended October 31, 2017 and 2016.~~

~~Futurestep general and administrative expenses increased $2.3 million, or 21%, to $13.5 million in the six months ended October 31, 2017 from $11.2 million in theyear-ago~~ period. The increase was due primarily to increases in premise and office expense and bad debt expense of $0.9 million each in order to support the higher fee revenue generated in the six months ended October 31, 2017 compared to the~~year-ago~~ ~~period. Futurestep general and administrative expenses, as a percentage of fee revenue, was 11% in the six months ended October 31, 2017 compared to 10% in theyear-ago~~ ~~period.~~

~~Corporate general and administrative expenses decreased $2.6 million, or 14%, to $15.8 million in the six months ended October 31, 2017 compared to $18.4 million in theyear-ago~~ period. The decrease in general and administrative expenses was due to a decrease of $3.0 million in integration costs associated with the Legacy Hay acquisition and a decrease in marketing and business development expense of $0.6 million, offset by an increase in legal and other professional fees of $0.9 million during the six months ended October 31, 2017 compared to the six months ended October 31, 2016.

~~Cost of Services Expense~~

~~Cost of services expense consists primarily ofnon-billable~~ contractor and product costs related to the delivery of various services and products, primarily in Futurestep and Hay Group. Cost of services expense was $35.7 million in both the six months ended October 31, 2017 and 2016. Cost of services expense, as a percentage of fee revenue, was 4% in the six months ended October 31, 2017 as compared to 5% in the year-ago period.

~~Depreciation and Amortization Expenses~~

~~Depreciation and amortization expenses were $24.7 million, an increase of $1.5 million, or 7%, in the six months ended October 31, 2017 compared to $23.2 million in theyear-ago~~ period. The increase relates primarily to technology investments made in the current and prior year in software and computer equipment, in addition to increases in leasehold improvements, furniture and fixtures and intangible assets.

~~Restructuring Charges, Net~~

During the six months ended October 31, 2017, we continued the implementation of the fiscal 2016 restructuring plan to integrate Legacy Hay entities that were acquired in fiscal 2016 and recorded $0.1 million of restructuring charges relating to the consolidation of premises.

During the six months ended October 31, 2016, 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 consolidating of office space. As a result, we recorded $24.5 million of restructuring charges with $11.5 million of severance costs and $13.0 million relating to the consolidation of office space during the six months ended October 31, 2016.

~~Operating Income~~

~~Operating income was $92.0 million in the six months ended October 31, 2017 as compared to $51.1 million in theyear-ago~~ period. This increase in operating income resulted from higher fee revenue of $66.8 million and a decrease in restructuring charges, net of $24.4 million offset by increases of $41.4 million in compensation and benefits expense and $7.4 million in general and administrative expenses.

~~Executive Search operating income increased $3.6 million, or 6%, to $68.0 million in the six months ended October 31, 2017 as compared to $64.4 million in theyear-ago~~ period. The increase in Executive Search operating income was driven by increases in higher fee revenue of $35.4 million and a decrease in restructuring charges, net of $2.5 million, offset by increases in compensation and benefits expense, general and administrative expenses, cost of services expense and depreciation and amortization expenses of $26.6 million, $6.0 million, $1.0 million and $0.7 million, respectively. Executive Search operating income, as a percentage of fee revenue, was 20% in the six months ended October 31, 2017 as compared to 21% in the~~year-ago~~ ~~period.~~

~~Hay Group operating income was $45.5 million, an increase of $30.3 million, in the six months ended October 31, 2017 as compared to operating income of $15.2 million in theyear-ago~~ period. The change was primarily driven by an increase in fee revenue of $16.0 million and restructuring recoveries, net of $0.2 million during the six months ended October 31, 2017 compared to restructuring charges, net of $21.5 million during the year-ago period, offset by an increase of $5.6 million in compensation and benefits expense and general and administrative expenses of $1.7 million in the six months ended October 31, 2017 compared to the~~year-ago~~ ~~period. Hay Group operating income, as a percentage of fee revenue, was 12% in the six months ended October 31, 2017 compared to 4% in theyear-ago~~ ~~period.~~

~~Futurestep operating income was $17.6 million, an increase of $2.3 million, in the six months ended October 31, 2017 as compared to $15.3 million in theyear-ago~~ period. The increase in operating income was driven by higher fee revenue of $15.4 million, offset by an increase in compensation and benefits expense of $11.4 million and general and administrative expenses of $2.3 million. Futurestep operating income, as a percentage of fee revenue, was 14% in both the six months ended October 31, 2017 and 2016.

~~Net Income Attributable to Korn Ferry~~

~~Net income attributable to Korn Ferry increased by $32.0 million to $65.4 million in the six months ended October 31, 2017 compared to $33.4 million in theyear-ago~~ period. The increase was due to higher total revenue of $62.5 million and an increase in other income (loss), net of $3.8 million offset by higher operating expenses of $21.6 million and income tax provision of $14.2 million due to higher profitability compared to the~~year-ago~~ ~~period. Net income attributable to Korn Ferry, as a percentage of fee revenue, was 8% for the six months ended October 31, 2017 as compared to 4% in theyear-ago~~ ~~period.~~

~~Adjusted EBITDA~~

~~Adjusted EBITDA increased by $9.2 million to $128.9 million in the six months ended October 31, 2017 as compared to $119.7 million in theyear-ago~~ period. This increase was driven by higher adjusted fee revenue of $63.2 million and an increase of $3.8 million in other income, net primarily due to the change in the fair value of our marketable securities, offset by increases of $47.2 million in compensation and benefits expense (excluding integration costs) and $10.4 million in general and administrative expenses (excluding integration costs). Adjusted EBITDA, as a percentage of adjusted fee revenue, was 15% in both the six months ended October 31, 2017 and 2016.

Executive Search Adjusted EBITDA increased $2.4 million, or 3%, to $73.1 million in the six months ended October 31, 2017 as compared to $70.7 million in the six months ended October 31, 2016. The increase was driven by higher fee revenue of $35.4 million, offset by increases of $26.6 million in compensation and benefits expense and $6.0 million in general and

~~administrative expenses during the six months ended October 31, 2017 compared to theyear-ago~~ ~~period. Executive Search Adjusted EBITDA, as a percentage of fee revenue, was 22% in the six months ended October 31, 2017 as compared to 23% in the year-ago period.~~

~~Hay Group Adjusted EBITDA was $66.4 million in the six months ended October 31, 2017 as compared to $65.1 million in theyear-ago~~ period. The increase was driven by higher adjusted fee revenue of $12.4 million, offset by increases of $9.4 million in compensation and benefits expense (excluding integration costs) and $1.7 million in general and administrative expenses during the six months ended October 31, 2017 compared to the~~year-ago~~ ~~period. Hay Group Adjusted EBITDA, as a percentage of adjusted fee revenue, was 18% in both the six months ended October 31, 2017 and 2016.~~

~~Futurestep Adjusted EBITDA was $19.2 million in the six months ended October 31, 2017 as compared to $16.6 million in theyear-ago~~ period. The increase was driven by higher fee revenue of $15.4 million, offset by increases of $11.4 million in compensation and benefits expense and $2.3 million in general and administrative expenses during the six months ended October 31, 2017 compared to the~~year-ago~~ ~~period. Futurestep Adjusted EBITDA, as a percentage of fee revenue, was 15% in both the six months ended October 31, 2017 and 2016.~~

~~Other Income, Net~~

~~Other income, net was $7.2 million in the six months ended October 31, 2017 as compared to $3.4 million in theyear-ago~~ ~~period. The increase was primarily due to the change in the fair value of our marketable securities, which created a bigger gain during the six months ended October 31, 2017 compared to theyear-ago~~ ~~period.~~

~~Interest Expense, Net~~

Interest expense, net primarily relates to our term loan facility and borrowings under our COLI policies, which is partially offset by interest earned on cash and cash equivalent balances. Interest expense, net was $5.2 million in the six months ended October 31, 2017 as compared to $5.8 million in the~~year-ago~~ ~~period. The decrease was mainly due to thewrite-off~~ ~~of $1.0 million in debt issuance costs in theyear-ago~~ ~~period associated with our prior term facility.~~

~~Income Tax Provision~~

~~The provision for income tax was $27.8 million in the six months ended October 31, 2017 compared to $13.6 million in theyear-ago~~ period. This reflects a 30% and 28% effective tax rate for the six months ended October 31, 2017 and 2016, respectively. The increase in the effective tax rate for the six months ended October 31, 2017 is due to a higher percentage of taxable income arising in jurisdictions with higher statutory tax rates.

~~Net Income Attributable to Noncontrolling Interest~~

Net income attributable to noncontrolling 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. Net income attributable to noncontrolling interest for the six months ended October 31, 2017 was $0.8 million compared to $1.8 million for the six months ended October 31, 2016.2017.

Liquidity and Capital Resources

The Company and its Board of Directors endorse a balanced approach to capital allocation. The Company’s priority is to invest in growth initiatives, such as the hiring of consultants, the continued development of ~~intellectual property~~IP and derivative products and services, and the investment in synergistic, accretive merger and acquisition transactions that earn a return that is superior to the ~~Company’s~~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 and in the “Risk Factors” section of the Annual Report on Form10-K for the fiscal year ~~ending~~ended April 30, ~~2017.~~2018. Additionally, the Company considers share repurchases on an opportunistic basis and subject to the terms of our credit agreement.

On June 15, 2016, we entered into a senior secured $400 million Credit Agreement with a syndicate of banks and Wells Fargo Bank, National Association as administrative agent, to provide for enhanced financial flexibility and in recognition of the accelerated pace of ~~the Legacy Hay integration.~~integrating a previous acquisition. See Note ~~10 —~~10—Long-Term Debtfor a description of the ~~new~~ credit facility. In anticipation of the Plan, on June 8, 2018, we entered into an amendment (the “Amendment”) to the Credit Agreement. The Amendment permits the KF Merger and would become effective when certain conditions set forth therein, including consummation of the KF Merger, were satisfied. We previously considered pursuing a holding company reorganization. We continue to pursue the Plan and are further evaluating various other structuring alternatives to effectuate the Plan but may not do so via the KF Merger structure previously disclosed.

We drew down $275 million on the ~~new~~ term loan and used $140 million of the proceeds topay-off the term loan that was outstanding as of April 30, 2016. We had ~~$3.0~~$2.9 million standby letters of credit issued under our long-term debt arrangements as of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017.~~2018, respectively. We had a total of ~~$8.2~~$7.9 million and ~~$8.1~~$7.4 million of standby letters of credits with other financial institutions as of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, respectively. The standby letters of credits were generally issued as a result of entering into office premise leases.

As part of ~~the Legacy Hay~~a previous acquisition, the Company ~~has~~ committed to a $40 million retention pool (of which ~~$9.0~~$23.5 million ~~was paid in fiscal 2017)~~has been paid) for certain employees of ~~Legacy Hay~~the previous acquired company subject to certain circumstances. ~~Of the~~The remaining balance ~~50% will be payable within 45 days after November 30, 2017and the remaining 50%~~ will be payable within 45 days after November 30, 2018.

~~On December 8, 2014, the~~The Board of Directors has adopted a dividend policy to distribute, to our stockholders, a regular quarterly cash dividend of $0.10 per share. Every quarter since the adoption of the dividend policy, the Company has declared a quarterly dividend. The declaration and payment of future dividends under the quarterly dividend program will be at the

discretion of the Board of Directors and will depend upon many factors, including our earnings, capital requirements, financial conditions, the terms of our indebtedness and other factors our Board of Directors may deem to be relevant. Our Board of Directors may, however, amend, revoke or suspend our dividend policy at any time and for any reason.

~~On December 8, 2014, the~~The Board of Directors also 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~~No shares were repurchased by the ~~second quarter of fiscal 2017, we resumed~~Company during the three months ended July 30, 2018 as compared to repurchasing ~~shares through this program. We repurchased~~ approximately ~~$29.3~~$4.0 million of the Company’s ~~common~~ stock during the ~~six~~three months ended ~~October~~July 31, 2017. As of ~~October~~July 31, ~~2017, $91.9~~2018, $88.1 million remained available for common stock repurchases under our stock repurchase program. Any decision to continue to execute our currently outstanding ~~issuer~~share repurchase program will depend on our earnings, capital requirements, financial condition and other factors considered relevant by our Board of Directors. Our senior secured credit agreement requires that our pro forma leverage ratio, defined as the ratio of consolidated funded indebtedness to consolidated ~~adjusted~~Adjusted EBITDA, is no greater than 2.50 to 1.00, and our pro forma domestic liquidity is at least $50.0 million, including undrawn amounts on our revolving credit facility as a condition to consummating permitted acquisitions, paying dividends to our stockholders and share repurchases of our common stock.

Our performance is subject to the general level of economic activity in the geographic regions and the industries which we service. We believe, based on current economic conditions, that our cash on hand and funds from operations and the Credit Agreement we entered into on June 15, 2016 will be sufficient to meet anticipated working capital, capital expenditures,general corporate requirements, repayment of the debt incurred in connection with the ~~Legacy Hay~~previous acquisition, the retention pool obligations in connection with the ~~Legacy Hay~~previous acquisition, ~~shares~~share repurchases and dividend payments under our dividend policy during the next twelve months. However, if the national or global economy, credit market conditions and/or labor markets were to deteriorate in the future, such changes could put negative pressure on demand for our services and affect our operating cash flows. If these conditions were to persist over an extended period of time, we may incur negative cash flows and it might require us to access our existing credit facility to meet our capital needs and/or discontinue our share repurchases and dividend policy.

Cash and cash equivalents and marketable securities were ~~$413.9~~$499.8 million and ~~$530.8~~$657.9 million as of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, respectively. Net of amounts held in trust for deferred compensation plans and accrued bonuses, cash and marketable securities were ~~$184.9~~$295.5 million and ~~$245.1~~$312.4 million at ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, respectively. As of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, we held ~~$168.2~~$217.6 million and ~~$165.8~~$207.6 million, respectively of cash and cash equivalents in foreign locations, net of amounts held in trust for deferred compensation plans and to pay fiscal ~~2018~~2019 and ~~2017~~2018 annual bonuses. If these amounts were distributed to the United States, in the form of dividends, we would be subject to additional U.S. income taxes. The Company has a plan to distribute a small portion of the cash held in foreign locations to the United States. No deferred tax liability has been recorded because no additional taxes would arise in connection with such distributions. Cash and cash equivalents consist of cash and highly liquid investments purchased with original maturities of three months or less. Marketable securities consist of mutual ~~funds in the six months ended October 31, 2017.~~funds. The primary objectives of our investment in mutual funds are to meet the obligations under certain of our deferred compensation plans.

As of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, marketable securities of ~~$131.2~~$134.1 million (net of gross unrealized gains of ~~$12.1~~$10.4 million and gross unrealized losses of ~~$0.5~~$0.9 million) and ~~$119.9~~$137.1 million (net of gross unrealized gains of ~~$6.7~~$11.0 million and gross unrealized losses of ~~$0.6~~$1.0 million), respectively, were held in trust for settlement of our obligations under certain deferred compensation plans, of which ~~$117.6~~$123.1 million and ~~$115.6~~$122.8 million, respectively, are classified asnon-current. These marketable securities were held to satisfy vested obligations totaling ~~$115.7~~$125.4 million and ~~$99.5~~$118.2 million as of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, respectively. Unvested obligations under the deferred compensation plans totaled ~~$28.8~~$19.1 million and ~~$37.6~~$29.5 million as of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, respectively.

The net increase in our working capital of ~~$2.5~~$14.5 million as of ~~October~~July 31, ~~2017~~2018 compared to April 30, ~~2017~~2018 is primarily attributable to a decrease in compensation and benefits payable and an increase in accounts receivable, offset by decreases in cash and cash equivalents. The decrease in cash and cash equivalents and compensation and benefits payable ~~and cash and cash equivalents~~ was primarily due to the payment of annual bonuses earned in fiscal ~~2017~~2018 and paid during the first quarter of fiscal ~~2018,~~2019, with cash and cash equivalents also decreasing due tosign-on and retention payments made during the quarter. The increase in accounts receivable was due to an increase in days of sales outstanding which went from 6158 days to 6765 days (which is consistent with historical experience) from April 30, ~~2017~~2018 to ~~October~~July 31, ~~2017.~~2018. Cash used inby operating activities was ~~$56.2~~$117.5 million in the ~~six~~three months ended ~~October~~July 31, ~~2017, a decrease~~2018, an increase of ~~$32.4~~$7.9 million, compared to ~~$88.6~~$109.6 million in theyear-ago ~~period.~~ quarter.

Cash used in investing activities was ~~$24.7~~$6.6 million in the ~~six~~three months ended ~~October~~July 31, ~~2017, a decrease of $6.1 million,~~2018 compared to ~~$30.8~~$11.8 million in theyear-ago ~~period.~~ quarter. Cash used in investing activities was lower due to ~~a decrease~~an increase in ~~purchases~~proceeds from sales/maturities of ~~property and equipment and a payment made on the final working capital settlement related to the Legacy Hay acquisition made during the six months ended October 31, 2016, offset by~~marketable securities net of cash used to purchase marketable securities, ~~net~~offset by higher cash used for the purchases of ~~sales/maturities~~property and equipment in the ~~six~~three months ended ~~October~~July 31, ~~2017~~2018 compared to ~~cash provided by sales/maturities of marketable securities net of purchase of marketable securities in~~ theyear-ago ~~period.~~ quarter.

Cash used in financing activities was ~~$53.0~~$20.6 million in the ~~six~~three months ended ~~October~~July 31, ~~2017~~2018 compared to ~~cash provided by~~

~~financing activities of $108.5~~$15.3 million in the~~year-ago~~ ~~period.~~ three months ended July 31, 2017. The change ~~from cash provided by financing activities to cash used in financing activities~~ was primarily due to ~~a decrease of $135.0 million in proceeds from our term loan facility net ofpay-off~~ ~~of the term loan that was outstanding as of April 30, 2016, $5.2 million more in term loan payments and~~ an increase of $9.7 million in cash used to repurchase shares of common stock to satisfy tax withholding requirements upon the vesting of restricted stock, offset by a decrease in shares repurchased under the stock repurchase program of ~~$22.3~~$4.0 million in the ~~six~~three months ended ~~October~~July 31, ~~2017~~2018 compared to theyear-ago period.

Cash Surrender Value of Company Owned Life Insurance Policies, Net of Loans

The Company purchased COLI policies or contracts insuring the lives of certain employees eligible to participate in the deferred compensation and pension plans as a means of funding benefits under such plans. As of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, we held contracts with gross CSV of ~~$182.5~~$188.5 million and ~~$180.3~~$186.8 million, respectively. ~~Since fiscal 2012, we paid~~Total outstanding borrowings against the ~~premiums under our~~CSV of COLI contracts ~~from operating cash,~~were $66.7 million as of July 31, 2018 and ~~in prior years, we generally borrowed under our COLI contracts to pay related premiums.~~April 30, 2018. Such borrowings do not require annual principal repayments, bear interest primarily at variable rates and are secured by the CSV of COLI contracts. ~~Total outstanding borrowings against the CSV of COLI contracts were $66.8 million and $67.2 million as of October~~At July 31, ~~2017~~2018 and April 30, ~~2017, respectively. At October 31, 2017 and April 30, 2017,~~2018, the net cash value of these policies was ~~$115.6~~$121.8 million and ~~$113.1~~$120.1 million, respectively.

Long-Term Debt

On June 15, 2016, we entered into a senior secured $400 million Credit Agreement (the “Credit Agreement”) with a syndicate of banks and Wells Fargo Bank, National Association as administrative ~~agent (to provide for enhanced financial flexibility and~~agent. On June 8, 2018, in ~~recognition~~anticipation of the ~~accelerated pace~~approval by the Board of Directors of the ~~Hay Group integration).~~Company of a rebranding and restructuring plan (which plan was approved on June 12, 2018), we entered into an amendment to our Credit Agreement. The Amendment permits a holding company reorganization (the “KF Merger”), after which a new public holding company, Korn Ferry, would own all of the stock of the Company, and would

become effective when certain conditions set forth therein, including consummation of the KF Merger, were satisfied. We previously considered pursuing a holding company reorganization. We continue to pursue the Plan and are further evaluating various other structuring alternatives to effectuate the Plan but may not do so via the KF Merger structure previously disclosed. The Credit Agreement provides for, among other things: (a) a senior secured term loan facility in an aggregate principal amount of $275 million (the “ Term Facility”), (b) a senior secured revolving credit facility (the “Revolver” and together with the Term Facility, the “Credit Facilities”) in an aggregate principal amount of $125 million, (c) annual term loan amortization of 7.5%, 7.5%, 10.0%, 10.0% and 10.0%, with the remaining principal due at maturity, (d) certain customary affirmative and negative covenants, including a maximum consolidated total leverage ratio (as defined below) and a minimum interest coverage ratio and (e) an expanded definition of permittedadd-backs to Adjusted EBITDA in recognition of the accelerated integration actions. Our credit agreement permits payment of dividends to stockholders and ~~make~~ share repurchases so long as the pro forma leverage ratio is no greater than 2.50 to 1.00, and the pro forma domestic liquidity is at least $50.0 million.We drew down $275 million on the ~~new~~ term loan and used $140 million of the proceeds topay-off the term loan that was outstanding as of April 30, 2016.

At our option, loans issued under the Credit Agreement will bear interest at either LIBOR or an alternate base rate, in each case plus the applicable interest rate margin. The interest rate applicable to loans outstanding under the Credit Facilities may fluctuate between LIBOR plus 1.25% per annum to LIBOR plus 2.00% per annum, in the case of LIBOR borrowings (or between the alternate base rate plus 0.25% per annum and the alternate base rate plus 1.00% per annum, in the alternative), based upon our total funded debt to adjusted EBITDA ratio (as set forth in the Credit Agreement, the “consolidated leverage ratio”) at such time. In addition, we will be required to pay to the lenders a quarterly fee ranging from 0.20% to 0.35% per annum on the average daily unused amount of the Term Facility, based upon our consolidated leverage ratio at such time and fees relating to the issuance of letters of credit. During the three ~~and six~~ months ended ~~October~~July 31, 2018 and 2017, the average rate on the Term Facility was ~~2.49%~~3.24% and ~~2.41%, respectively. During the three and six months ended October 31, 2016, the average rate was 2.44% and 2.43%~~2.34%, respectively.

Both the Revolver and the Term Facility mature on June 15, 2021 and may be prepaid and terminated early by us at any time without premium or penalty (subject to customary LIBOR breakage fees). The Term Facility is payable in quarterly installments with principal payments totalling ~~$10.3~~$5.2 million made during the ~~six~~three months ended ~~October~~July 31, ~~2017.~~2018. As of ~~October~~July 31, ~~2017, $249.2~~2018, $233.7 million was outstanding under the Term Facility compared to ~~$259.5~~$238.9 million as of April 30, ~~2017.~~2018. The current and long-term portion of unamortized debt issuance costs associated with the long-term debt, was ~~$3.1~~$2.4 million and ~~$3.5~~$2.7 million as of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, respectively. The fair value of our Term Facility is based on borrowing rates currently required of loans with similar terms, maturity and credit risk. The carrying amount of the Term Facility approximates fair value because the base interest rate charged varies with market conditions and the credit spread is commensurate with current market spreads for issuers of similar risk. The fair value of the Term Facility is classified as a Level 2 liability in the fair value hierarchy. As of ~~October~~July 31, ~~2017,~~2018, we were in compliance with our debt covenants.

As of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, we had no borrowings under the Revolver. WeThe Company had ~~$3.0~~a total of $122.1 million ofavailable under the Revolver after $2.9 million standby letters of ~~credits~~credit were issued ~~under its long-term debt arrangements~~ as of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017.~~2018. We had a total of ~~$8.2~~$7.9 million and ~~$8.1~~$7.4 million of standby letters of credits with other financial institutions as of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017,~~2018, respectively. The standby letters of credits were generally issued as a result of entering into office premise leases.

We are not aware of any other trends, demands or commitments that would materially affect liquidity or those that relate to our resources.

Off-Balance Sheet Arrangements

We have nooff-balance sheet arrangements and have not entered into any transactions involving unconsolidated, special purpose entities. We had no material changes in contractual obligations as of ~~October~~July 31, ~~2017,~~2018, as compared to those disclosed in our table of contractual obligations included in our Annual Report.

Critical Accounting Policies

Preparation of this Quarterly Report onForm 10-Q requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, 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 interim 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 related to revenue recognition, performance related bonuses, deferred compensation, carrying values of receivables, goodwill, intangible assets ~~fair value of contingent consideration~~ and recoverability of deferred income taxes as critical to an understanding of our interim 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 our Form10-K filed with the Securities Exchange Commission. ~~There~~During the three months ended July 30, 2018, we implemented the new

revenue standard (ASU 2014-09), which superseded revenue recognition requirements regarding contracts with customers to transfer goods or services or for the transfer of nonfinancial assets.

Revenue Recognition

Revenue is recognized when control of the goods and services are transferred to the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods and services. Revenue contracts with customers are evaluated based on the five-step model outlined in the Accounting Standard Codification 606 (“ASC 606”): 1) identify the contract with a customer; 2) identify the performance obligation(s) in the contract; 3) determine the transaction price; 4) allocate the transaction price to the separate performance obligation(s); and 5) recognize revenue when (or as) each performance obligation is satisfied.

Fee revenue from executive search and non-executive professional activities is generally one-third of the estimated first year compensation of the placed candidate plus a percentage of the fee to cover indirect engagement related expenses. In addition to the search retainer, an uptick fee is billed when the actual compensation awarded by the client for a placement is higher than the estimated compensation. In the aggregate upticks are a relatively consistent percentage of the original estimated fee therefore we estimate upticks using the expected value method based on historical data on a portfolio basis. In a standard search engagement, there is one performance obligation which is the promise to undertake a search. We generally recognize such revenue over the course of a search and when it is legally entitled to payment as outlined in the billing terms of the contract. Any revenues associated with services that are provided on a contingent basis are recognized once the contingency is resolved as this is when control is transferred to the customer. These assumptions determine the timing of revenue recognition for the reported period.

RPO fee revenue is generated through two distinct phases 1) the implementation phase and 2) post-implementation recruitment phase. The fees associated with the implementation phase are recognized over the period that the related Implementation services are provided. The post-implementation recruitment phase represents end-to-end recruiting services to clients for which there are both fixed and variable fees, which are recognized over the period that the related recruiting services are performed.

Consulting fee revenue, primarily generated from Advisory, is recognized as services are rendered, measured by total hours incurred to the total estimated hours at completion. It is possible that updated estimates for consulting engagements may vary from initial estimates with such updates being recognized in the period of determination. Depending on the timing of billings and services rendered, we accrue or defer revenue as appropriate.

Product revenue is generated from a range of online tools designed to support human resource processes for pay, talent and engagement, assessments, as well as licenses to proprietary IP and tangible/digital products. IP subscriptions grant access to proprietary compensation and job evaluation databases. IP subscriptions are considered symbolic IP due to the dynamic nature of the content and, as a result, revenue is recognized over the term of the contract. Functional IP licenses grant customers the right to use IP content via delivery of a flat file. Because the IP content license has significant standalone functionality, revenue is recognized upon delivery and when an enforceable right to payment exists.Online assessments are delivered in the form of online questionnaires.A bundle of assessments represents one performance obligation, and revenue is recognized as assessment services are delivered and we have ~~been no material changes~~a legally enforceable right to payment. Tangible/Digital products sold by us mainly consist of books and digital files covering a variety of topics including performance management, team effectiveness, and coaching and development. We recognize revenue for its products when sold or shipped as in ~~our critical accounting policies since fiscal 2017.~~the case for books.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

As a result of our global operating activities, we are exposed to certain market risks, including foreign currency exchange fluctuations and fluctuations in interest rates. We manage our exposure to these risks in the normal course of our business as described below.

Foreign Currency Risk

Substantially all our foreign subsidiaries’ operations are measured in their local currencies. Assets and liabilities are translated into U.S. dollars at the rates of exchange in effect at the end of each reporting period and revenue and expenses are translated at average rates of exchange during the reporting period. Resulting translation adjustments are reported as a component of accumulated other comprehensive loss, net on our consolidated balance sheets.

Transactions denominated in a currency other than the reporting entity’s functional currency may give rise to foreign currency gains or losses that impact our results of operations. Historically, we have not realized significant foreign currency gains or

losses on such transactions. Foreign currency losses, on an after tax basis, included in net ~~income~~loss were ~~$1.4~~$0.7 million in the ~~six~~three months ended ~~October~~July 31, ~~2017~~2018 as compared to ~~foreign currency gains, on an after tax basis,~~$1.0 million included in net income ~~were $1.3 million~~ in the ~~six~~three months ended ~~October~~July 31, ~~2016.~~2017.

Our exposure to foreign currency exchange rates is primarily driven by fluctuations involving the following currencies – U.S. Dollar, Canadian Dollar, Euro, Pound Sterling, Swiss Franc, Korean Won, Brazilian Real, ~~Russian Ruble~~Singapore Dollar, Mexican Peso, Indonesian Rupiah and ~~Indonesian Rupiah.~~Indian Rupee. Based on balances exposed to fluctuation in exchange rates between these currencies as of ~~October~~July 31, ~~2017,~~2018, a 10% increase or decrease equally in the value of these currencies could result in a foreign exchange gain or loss of ~~$8.6~~$9.7 million. We have ~~established~~ a program that primarily utilizes foreign currency forward contracts to offset the risks associated with the effects of certain foreign currency ~~exposures which increased as a result of the Legacy Hay acquisition.~~exposures. These foreign currency forward contracts are neither used for trading purposes nor are they designated as hedging instruments pursuant to Accounting Standards Codification 815,Derivatives and Hedging.

Interest Rate Risk

Our exposure to interest rate risk is limited to our Term Facility and borrowings against the CSV of COLI contracts. As of ~~October~~July 31, ~~2017,~~2018, there was ~~$249.2~~$233.7 million outstanding under the Term Facility. At our option, loans issued under the Credit Facilities bear interest at either LIBOR or an alternate base rate, in each case plus the applicable interest rate margin. The interest rate applicable to loans outstanding under the Credit Facilities may fluctuate between LIBOR plus 1.25% per annum to LIBOR plus 2.00% per annum, in the case of LIBOR borrowings (or between the alternate base rate plus 0.25% per annum and the alternate base rate plus 1.00% per annum, in the alternative), based upon our total funded debt to adjusted EBITDA ratio (as set forth in the Credit Agreement, the “consolidated leverage ratio”) at such time. In addition, we are required to pay the lenders a quarterly fee ranging from 0.20% to 0.35% per annum on the average daily unused amount of the Term Facility, based upon our consolidated leverage ratio at such time, and fees relating to the issuance of letters of credit. A 100 basis point increase in LIBOR rates would have increased our interest expense by approximately $0.6 million ~~and $1.3 million~~ for the three ~~and six~~ months ended ~~October~~July 31, ~~2017, respectively.~~2018. During the three ~~and six~~ months ended ~~October~~July 31, 2018 and 2017, the average interest rate on the term loan was ~~2.49%~~3.24% and ~~2.41%~~2.34%, respectively. We had no borrowings under the Revolver as of ~~October~~July 31, ~~2017.~~2018.

To mitigate the interest rate risk on our Term Facility, we entered into an interest rate swap contract with an initial notional amount of $129.8 million to hedge the variability to changes in cash flows attributable to interest rate risks caused by changes

in interest rates related to our variable rate debt. We have designated the swap as a cash flow hedge. The notional amount is amortized so that the amount is always 50% of the principal balance of the debt outstanding. As of ~~October~~July 31, ~~2017,~~2018, the notional amount was ~~$124.6~~$116.9 million. The interest rate swap agreement matures on June 15, 2021 and locks the interest rates on 50% of our outstanding debt at 1.919%, exclusive of the credit spread on the debt.

We had ~~$66.8 million and $67.2~~$66.7 million of borrowings against the CSV of COLI contracts as of ~~October~~July 31, ~~2017~~2018 and April 30, ~~2017, respectively,~~2018, bearing interest primarily at variable rates. The risk of fluctuations in these variable rates is minimized by the fact that we receive a corresponding adjustment to our borrowed funds crediting rate which has the effect of increasing the CSV on our COLI contracts.

Item 4.Controls and Procedures

a)	Evaluation of Disclosure Controls and Procedures.

Based on their evaluation of our disclosure controls and procedures (as defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) conducted as of the end of the period covered by this Quarterly Report on Form10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined inRules 13a-15(e) and15d-15(e) under the Exchange Act) are effective.

b)	Changes in Internal Control over Financial Reporting.

There were no changes in our internal control over financial reporting during the three months ended ~~October~~July 31, ~~2017~~2018 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

From time to time, ~~the Company has been and is~~we are involved in litigation ~~incidental~~both as a plaintiff and a defendant, relating to ~~its business. The Company is currently~~claims arising out of our operations. As of the date of this report, we are not ~~a party to~~engaged in any ~~litigation, which, if resolved adversely against the Company, would,~~legal proceedings that are expected, individually or in the ~~opinion of management, after consultation with legal counsel,~~aggregate, to have a material adverse effect on ~~the Company’s~~our business, financial ~~position~~condition or results of operations.

Item 1A.Risk Factors

In our Form10-K for the year ended April 30, ~~2017,~~2018, we described material risk factors facing our business. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. ~~Except as set forth below, as~~As of the date of this report, there have been no material changes to the risk factors described in our Form10-K.

~~Recently proposed changes in U.S. tax law may have a material impact on our results of operation.~~

Both the United States Senate and House of Representatives have recently passed legislation that would significantly reform U.S. tax laws. The proposed changes currently include a reduction in the maximum corporate tax rate, immediate expensing of certain business investments, a limitation on the net interest expense deduction and substantial changes to the international tax system. While we are unable to predict the scope of the proposed tax reforms that will be enacted into law, and what effects any enacted legislation will have on our liability for U.S. corporate tax, these potential changes could have a material impact on our results of operation.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and ~~Issuer~~Issuers Purchases of Equity Securities

Issuer Purchases of Equity Securities

The following table summarizes common stock repurchased by us during the quarter ended ~~October~~July 31, ~~2017:~~2018:

   Shares
Purchased (1)    Average
  Price Paid
Per Share    Shares Purchased
as Part of Publicly
Announced
Programs (2)    Approximate Dollar
Value of Shares
That May Yet be
Purchased Under
the
Programs (2)
August 1, 2017—August 31, 2017
   728,923    $   32.56    728,923    $93.4 million
September 1, 2017—September 30, 2017
   45,181    $   33.36    45,000    $91.9 million
October 1, 2017—October 31, 2017
   2,707    $   39.85    —    $91.9 million





Total
   776,811    $   32.63    773,923

	Shares Purchased (1)		Average Price Paid Per Share		Shares Purchased as Part of Publicly- Announced Programs (2)		Approximate Dollar Value of Shares That May Yet be Purchased Under the Programs (2)

May 1, 2018— May 31, 2018		892	$	53.75		—	$88.1 million
June 1, 2018— June 30, 2018		722	$	57.30		—	$88.1 million
July 1, 2018— July 31, 2018		198,181	$	65.42		—	$88.1 million
Total		199,795	$	65.34		—

(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 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 $25.3 million~~did not repurchase shares of the Company’s common stock under the program during the ~~second~~first quarter of fiscal ~~2018.~~2019.

Our senior secured 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.

Item 6.Exhibits

Exhibit Number
~~Exhibit~~ ~~Number~~		Description

31.1		Chief Executive Officer Certification pursuant to Rule13a-14(a) under the Exchange Act.
31.2		Chief Financial Officer Certification pursuant to Rule13a-14(a) under the Exchange Act.
32.1		Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350.
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

~~SIGNATURES~~SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Korn/Ferry International
~~Korn/Ferry International~~
By:
~~By:~~	/s/ Robert P. Rozek
	Robert P. Rozek
	Executive Vice President, Chief Financial Officer and Chief Corporate Officer

Date: ~~December 8, 2017~~September 7, 2018

Delaware		95-2623879
~~Delaware~~		~~95-2623879~~
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)


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