content_image/108725.jpg content_image/108726.jpg
## Dear Shareholder, 

After three years of prolonged decline, the global search market finally began to return in Fiscal Year 2004. While the market was sluggish in the first six months, we finished the fiscal year strongly, with a 20 percent increase in fee revenue in the second half over the first half. Our relentless focus on cost-cutting also paid off as we generated $0.21 of earnings per share in the fourth quarter, the highest quarterly EPS since 2001. 

Our improved financial performance was fueled by our multi- product strategy, our focus on client relationships and our discipline on the cost side of the business. With these building blocks in place, we benefited substantially from the recovery in the global economy and an increased demand for executive-level jobs. 

I am especially pleased to report that Futurestep not only recorded an increase in revenue for FY04, but also recorded an operating profit for the first time since the inception of the business in 1999. We restructured the Futurestep business model in line with client demand, by focusing on project recruiting and outsourcing. As a result, we have developed a strong operational model that meets client needs and presents a scalable, profitable business proposition for Korn/Ferry shareholders. In addition, we continue to evolve our Leadership Development Solutions offerings, which include strategic management assessment and executive coaching. In FY04, these businesses, coupled with Futurestep, accounted for 13 percent of our revenue. This is in line with our three-year plan to generate 25 percent of our revenue from businesses other than executive search. 

The key to our long-term growth lies in deep and broad client relationships and our ability to evolve our customer interactions from the purely transactional to a more strategic relationship. In FY04, we continued to enhance our account management structure, and began cascading our global account systems down to regional teams. These regional and global accounts allow us to provide clients with an array of recruitment solutions and to solidify long- term business relationships. 

Perhaps most critical to our success has been our deep pool of talented consultants, who represent the best in the business. We were able to enhance our terrific team this past year, with the strategic recruitment of new consultants to add strength in specific areas. In FY04, we recruited 46 new Senior Client and Client Part- ners in to Korn/Ferry. These consultants came from each of our major competitors and from senior industry roles, and have brought incremental revenue and client relationships to the firm. Many of these consultants are well known in the marketplace, including Joe Griesedieck, former CEO of Spencer Stuart, and Bob Damon, a former Vice Chairman of Spencer Stuart. Our ability to recruit industry leaders like Joe and Bob is a reflection of the strength of our brand, the reputation of our search consultants, and the under- lying belief in our long-term strategy. 

On the cost side of the business, we have taken the difficult steps to build a strong balance sheet and healthy cash flow. With cost cut- ting actions that began in 2001, we ultimately reduced our global headcount from 3,000 to 1,400, and we sublet more than 400,000 square feet of office space. As a result, our FY04 EBITDA (excluding non-recurring restructuring charges) improved from $2.9 million to $25.8 million year-over-year, and we ended the fiscal year with $108 million in cash on hand. 

Looking forward, we are bullish on the executive search market and on Korn/Ferry’s multi-product strategy. In June, we presented our board with a three-year strategic plan which calls for an invest- ment in and focus on our clients, our people and our technology — a program that we are calling K/F One. 

K/F One is a three-year strategic roadmap designed to make Korn/Ferry the undisputed career destination in the executive search industry, a plan that sets the stage for Korn/Ferry to dominate in the 21st century. It is a comprehensive approach that encompasses our major corporate initiatives for the next three years, with pro- grams focused on clients, culture, quality, technology, and branding. 

I’d like to thank all of our employees, and our board of directors for their support and commitment throughout the tough eco- nomic downturn, and for their energy and resolute focus during the recovery. In FY04, we welcomed two new board members, Ihno Schneevoigt and Ken Whipple, who bring deep international experience and broad corporate and financial expertise. Ihno and Ken have already made great contributions, and I look forward to their continued guidance. 

Our core strengths are our people, our brand and our culture. These competitive assets, coupled with an extensive global footprint and macro demographic trends that will create and sustain a war for talent for the next two decades, make us confident in our ability to grow and thrive. We are committed to providing our clients with unparalleled service, our employees with the best available tech- nology and professional development, and our shareholders with superior returns and growth. We have endured the most prolonged and severe recession that the search industry has ever faced, and we have emerged stronger, more focused and better equipped for the upturn. I look forward to a great Fiscal Year 05. 

<img src='content_image/108725.jpg'>

<img src='content_image/108726.jpg'>

