Annual Report 2017 is an award-winning professional staffing services firm that
provides strategic partnership in the areas of Technology and Finance & Accounting. Our name
stands for KnowledgeForce® which describes the experience we have gained since 1962 and the
36,000 highly skilled professionals we engage annually. The customer-centric Kforce Knowledge
Staffing Process sm℠ allows for high-touch, relationship-driven results backed by progressive
technologies. Each year, our network of 60 offices with two national recruiting centers provides
opportunities across 4,000 companies, including 70% of the Fortune 100. At Kforce, We love what
we do. We love who we serve.®
TECHNOLOGY
FINANCE & ACCOUNTING
GOVERNMENT SOLUTIONS
As the 5th largest technology staffing
firm in the U.S., we engage more
than 15,000 consultants annually
in technology roles on a temporary,
consulting and direct-hire basis. Our
Technology professionals range from
project managers to developers to
data and network architects and
technicians:
• PROJECT MANAGEMENT AND
BUSINESS ANALYSIS offers a full
suite of functional professionals
to support the full scope of your
initiative.
• APPLICATION DEVELOPMENT
supports applications and systems
software creation and maintenance.
• ENTERPRISE DATA MANAGEMENT
supports any operating
environment from unstructured to
mature Big Data.
• INFRASTRUCTURE specializes in
providing reliable infrastructure
support to build and maintain the
backbone of your organization.
largest finance and
As the 4th
accounting staffing firm in the U.S.,
we engage more than 21,000 highly
skilled professionals annually
in
finance and accounting roles on a
temporary, consulting and direct-
hire basis. Our Finance & Accounting
professionals range from strategic
and operational to transactional and
professional administration:
• OPERATIONAL AND TECHNICAL
professionals perform day-to-
day accounting and staff-level
analysis, which includes directing,
controlling and planning.
• TRANSACTIONAL functions include
Accounts Receivable, Accounts
Payable and Payroll.
• PROFESSIONAL ADMINISTRATION
tasks include Loan Servicing,
Benefits Administration, Customer
Service/Call Center, Data Entry,
Human Resources and Professional
Administrative Support.
Kforce Government Solutions, a wholly-
owned subsidiary of Kforce, is a
government contracting services and
solutions provider that has offered a
comprehensive portfolio of solutions
to a wide range of Federal and Defense
agencies since 1970. Headquartered in
Fairfax, VA with offices in San Antonio,
TX and Tampa, FL:
• GS offers a full range of solutions in
the areas of Healthcare Informatics,
Financial Management and
Accounting, Enterprise Technology,
Engineering and Intelligence.
This Annual Report contains forward-
looking statements (within the meaning of
the federal securities laws). Please see the
“Cautionary Note Regarding Forward-Looking
Statements” contained in the introductory
portion of our Annual Report on Form 10-K
for the year ended December 31, 2017 for
additional information regarding forward
looking statements.
The total shareholder
return on our stock
has been 695%,
outperforming the Russell
2000 Index, which has
returned 411% over the
same period.
800%
600%
400%
200%
0%
KFRC
Russell 2000
Kforce stock performance vs. Russell 2000 from 8/15/95 (IPO) to 12/31/17
TO OUR FELLOW SHAREHOLDERS, CLIENTS, CONSULTANTS AND EMPLOYEES:
We began 2017 following a period of significant transition.
Our newly enhanced sales transformation initiative
was underway allowing our sales associates to engage in more
strategic conversations and shape solutions with our clients. We
initiated the implementation of our new Customer Relationship
Management (CRM) system and crystallized our customer
segmentation strategy. While revenue growth heading into
2017 was flat, we were confident in our course of action and are
pleased that we made significant progress throughout 2017 as
demonstrated by the revenue growth we experienced in the second
half of 2017. While Fortune 1000 continue to be the largest buyers of
our services, we are encouraged that client opportunities outside of
our largest clients accounted for the greatest share of our growth in
the second half of 2017. These large clients continue to concentrate
spend with partners, such as Kforce, that can meet their needs
nationally as well as ensure compliance with their internal and
external policies and regulations. We believe that our continued
focus within growing industry verticals should allow us to expand
the breadth of our service offerings to deepen our relationships
with these larger, sophisticated buyers. This strategy is particularly
well supported by our mature centralized delivery platform, which
allows us to efficiently deliver consultants at scale across the U.S.
including locations where we do not have a physical presence. This
capability, combined with improved execution and focus in our field
offices, has allowed us to increase productivity levels as we begin to
see results from our sales transformation and streamlining our field
operations. We completed our CRM implementation in late 2017
and expect to see additional efficiencies generated by this program
as well as our other technology investments going forward.
The demand environment for our services, particularly within our
largest service line, Tech Flex, appears to be very strong with the
potential for continued improvement. The U.S. economy continues
to improve and strengthen, as reflected by improving GDP growth
over recent quarters. The new administration appears to have made
it a priority to reduce complex and costly regulations. The recent
passage of the Tax Cuts and Jobs Act has created a renewed sense
of optimism which we anticipate may translate into increased
investment plans, particularly in technology, and it should give
new life and energy to the economic cycle and continued growth.
We believe companies continue to look increasingly to temporary
labor suppliers like Kforce to meet their human capital needs. This
is evidenced by another near all-time high in December 2017 of the
temporary penetration rate.
Skilled technology talent continues to be in high demand with
the prospect of tightening of immigration standards exacerbating
already tight supply. We believe the secular drivers of technology
spend is accelerating as many companies are becoming increasingly
dependent on the efficiencies provided by technology to
sustain relevancy with their customers in today’s digitally driven
marketplace. Technology investments, mobility, cloud computing,
cyber security, e-commerce, machine learning, digital marketing,
advancements in the use of big data, and business intelligence have
contributed to the demand landscape for technology resources. Over
the past year, some of the largest companies in the world publicly
announced significant increases in their technology budgets to
improve the experience of their customers and to meet the ever-
growing risks of cyber security. In addition, heightened scrutiny
and uncertainty around immigration and employee classification
have created a higher risk employment environment for clients.
We believe these trends will cause our clients to continue to rely on
larger staffing firms with a national footprint and robust compliance
infrastructures as their solution of choice for human capital.
Turning now to our 2017 results, we want to recognize the efforts
of our team for what has been a year of great progress while at the
same time managing great change. Kforce reported annual revenues
of $1.36 billion in 2017, which was an increase of 2.9% as compared
to 2016. Net income for the year ended December 31, 2017 was $33.3
million, or $1.30 per share, which represented an increase of 1.6%, or
4.0% per share, compared to 2016. During the year, we returned a
total of $24.3 million in capital to our shareholders in the form of
$12.2 million in open market share repurchases and $12.1 million
in dividends. During 2017, we experienced year-over-year growth in
seven of our top ten industry verticals. Communications, computer
manufacturing and transportation each performed particularly well,
in addition to certain professional services and solutions companies
supporting the Federal Government.
Revenue by Service Line
• Revenues for our largest business, Tech Flex, of $887.7 million
represented 65.4% of our total net service revenues. Tech Flex
revenues increased 2.8% in 2017 over 2016. We began to see
improvements in sequential revenue trends coming out of the
summer months and experienced a 5.4% year-over-year increase
on a billing day basis in the fourth quarter. As we entered 2018,
our activity levels within this unit have remained elevated, which
KFORCE INC. AND SUBSIDIARIES 1
We believe we remain well positioned to maximize our market
opportunities and achieve our near and long-term goals. Based
on current trends, we expect to achieve our operating margin
commitment of 6.3% at $1.4 billion in annualized revenue by the
second quarter of 2018 and remain on track to reach an operating
margin of 7.5% at $1.6 billion in annualized revenue. We continue
to be focused on embracing technology by making targeted
investments in training, technology and other tools to enhance our
customer experience and relationships in addition to enabling our
talent associates to be more productive.
Stewardship
We are also very proud that Stewardship and Community, a Kforce
core value, is a way for our Great People to give back to their
communities and support charities, organizations and people in
need by contributing time and making a difference in the lives of
others. In 2017, Kforce employees spent approximately 16,000 hours
supporting more than 130 charities nationwide. More importantly,
the hearts of our associates were on full display through our
pledge of up to $1 million in support of recovery efforts from
the devastation caused by Hurricanes Harvey and Irma. Stewardship
and community is a Kforce core value, and we could not be prouder
of our team.
We are very optimistic about our prospects in 2018 and beyond and
appreciate your continued interest and support. Thanks to each and
every member of our field and corporate teams, as well as to our
consultants, clients and shareholders, for allowing us the privilege
of serving you.
David L. Dunkel
Chairman and
Chief Executive Officer
Joseph J. Liberatore
President
suggests continued strength in demand within our Tech clients. We
are also continuing to benefit from positive trends in the length
of our average assignment, which we believe is driven by our
ability to identify and deliver a high caliber of qualified and skilled
technology talent and, given the high demand for technological
resources, a trend by our clients to retain this scarce talent for
longer periods.
• Revenues for our FA Flex business of $318.3 million represented
23.4% of our total net service revenues. FA Flex revenues increased
3.6% in 2017 over 2016. We continue to see demand from clients for
FA talent as their businesses grow. From an industry perspective, we
saw strength in business services, retail and insurance institutions.
• Revenues for our GS business of $104.3 million represented
7.7% of our total net service revenues. GS revenues increased 5.7%
in 2017 compared to 2016. Our GS segment provides staffing
services and solutions to the Federal Government as both a
prime contractor and subcontractor in the fields of information
technology and finance and accounting, as well as a product
business specializing in manufacturing and delivering trauma-
training manikins. Our GS management team has worked diligently
over the last several years to shift their business development and
capture management efforts towards securing prime contracts
and we are pleased with their progress. Exiting 2017, GS derived
53% of revenues from work as a prime contractor compared to 45%
in 2016. We are particularly pleased with our opportunity under
two prime contract awards which are expected to deliver close to
$100 million in revenue over the next five years. We continue to
believe that these prime contract wins can serve to increasingly
build a solid, more profitable, revenue base moving forward.
• Direct Hire revenues of $47.7 million represented 3.5% of our
total net service revenues. Direct Hire revenues decreased 5.4% in
2017 over 2016. We provide direct hire services to our clients in
both Tech and FA. Our objective is to meet the talent needs of our
clients through whatever means they prefer, and we will continue
to provide this capability going forward.
As we head into 2018, we believe the actions we’ve taken over the
past year, and continue to build on, have laid a solid foundation for
strong revenue growth rates and improved profitability. After the
passage of the Tax Cuts and Jobs Act, we expect that our effective
tax rate will be in the range of 25.5% to 27.5% for 2018, which we
expect will result in an additional $10 million in operating cash in
2018. Our plan for 2018 also contemplates continued technology
investments that we expect will improve the productivity of our
associates and position us to better serve our clients, consultants
and candidates.
2 KFORCE INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
The information set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with
Kforce’s Consolidated Financial Statements and the related notes thereto incorporated into this Annual Report, hereinafter collectively
referred to as “Consolidated Financial Statements.”
Years Ended December 31,
(In thousands, except per share amounts)
Net service revenues
Gross profit
Selling, general and administrative expenses
Goodwill impairment
Depreciation and amortization
Other expense, net
Income from continuing operations,
before income taxes
Income tax expense
Income from continuing operations
Income from discontinued operations,
net of tax
Net income
2017(1)
2016(2)
2015
2014(3)
2013(3)(4)(5)
$1,357,940
408,056
331,172
—
8,255
4,535
64,094
30,809
33,285
$1,319,706
408,499
340,742
—
8,701
3,101
55,955
23,182
32,773
$1,319,238
414,114
330,034
—
9,831
2,577
71,672
28,848
42,824
$1,217,331
374,581
314,966
—
9,894
1,764
47,957
18,559
29,398
$1,073,728
344,376
307,339
14,510
9,846
1,752
10,929
5,635
5,294
—
33,285
$
—
$ 32,773
—
$ 42,824
61,517
$ 90,915
5,493
$ 10,787
Earnings per share—basic, continuing operations
Earnings per share—diluted, continuing operations
Earnings per share—basic
Earnings per share—diluted
Weighted average shares outstanding—basic
Weighted average shares outstanding—diluted
Dividends declared per share
$1.32
$1.30
$1.32
$1.30
25,222
25,586
$0.48
$1.26
$1.25
$1.26
$1.25
26,099
26,274
$0.48
$1.53
$1.52
$1.53
$1.52
27,910
28,190
$0.45
$0.94
$0.93
$2.89
$2.87
31,475
31,691
$0.41
$0.16
$0.16
$0.32
$0.32
33,511
33,643
$0.10
As of December 31,
(In thousands)
Working capital
Total assets
Total outstanding borrowings on credit facility
Total long-term liabilities
Stockholders’ equity
2017
2016
2015
2014
2013
$ 161,726
$ 384,304
$ 116,523
$ 166,308
$ 134,277
$ 135,353
$ 365,421
$ 111,547
$ 160,332
$ 121,736
$ 122,270
$ 351,822
$ 80,472
$ 124,449
$ 139,627
$ 125,246
$ 363,922
$ 93,333
$ 130,351
$ 139,388
$ 108,251
$ 347,768
$ 62,642
$ 100,562
$ 157,233
(1) The Tax Cuts and Jobs Act (TCJA) was enacted in December 2017, which reduces the U.S. federal corporate tax rate from 35.0% to 21.0% beginning in 2018. As a result, we revalued
our net deferred income tax assets and recorded $5.4 million of additional income tax expense during the year ended December 31, 2017.
(2) During 2016, Kforce incurred approximately $6.0 million in severance costs associated with realignment activities focused on further streamlining our organization which were
recorded in selling, general and administrative expense (SG&A).
(3) During 2014, Kforce disposed of Kforce Healthcare, Inc. (“KHI”), a wholly-owned subsidiary of Kforce Inc. The results of operations for KHI have been presented as discontinued
operations for the years ended December 31, 2014 and 2013.
(4) Kforce recognized a $14.5 million goodwill impairment charge related to the GS reporting unit during 2013. The tax benefit associated with this impairment charge was $5.2
million resulting in an after-tax impairment charge of $9.3 million.
(5) During 2013, Kforce commenced a plan to streamline its structure through an organizational realignment and incurred severance and termination-related expenses of $7.1
million which were recorded within SG&A. In connection with the realignment and succession planning, the Kforce’s Compensation Committee approved discretionary bonuses
of $3.6 million paid to a broad group of senior management during the fourth quarter of 2013.
KFORCE INC. AND SUBSIDIARIES 3
STOCK PRICE PERFORMANCE
The following graph is a comparison of the cumulative total returns for Kforce common stock as compared with the cumulative total
return for the 2017 Industry Peer Group and the NASDAQ Stock Market (U.S.) Index. Kforce’s cumulative return was computed by dividing the
difference between the price of Kforce common stock at the end of each year and the beginning of the measurement period (December 31,
2012 to December 31, 2017) by the price of Kforce common stock at the beginning of the measurement period. Cumulative total returns
for Kforce, the 2017 Industry Peer Group and the NASDAQ include dividends in the calculation of total return and are based on an
assumed $100 investment on December 31, 2012, with all returns weighted based on market capitalization at the end of each discrete
measurement period. The comparisons in the graph below are based on historical data and are not intended to forecast the possible future
performance of Kforce common stock. For purposes of the TSR graph below, Kforce has been excluded from the 2017 Industry Peer Group.
s
r
a
l
l
o
D
250
225
200
175
150
125
100
75
2012
2013
2014
2015
2016
2017
End of Year
Kforce Inc.
NASDAQ Stock Market (Composite)
2017 Industry Peer Group
Investment of $100 on December 31, 2012
Kforce Inc.
NASDAQ Stock Market (Composite)
2017 Industry Peer Group (1)
2012
100.0
100.0
100.0
2013
143.4
138.3
161.3
2014
172.4
156.8
165.1
2015
184.0
165.8
171.6
2016
172.2
178.3
182.4
2017
192.7
228.6
235.1
(1) Our 2016 Industry Peer Group included CDI Corporation which was acquired by another company during 2017 and has been excluded from
our 2017 Industry Peer Group.
2017 Industry Peer Group:
Computer Task Group Inc.
Kelly Services, Inc.
Manpower Inc.
On Assignment, Inc.
Resources Connection, Inc.
Robert Half International Inc.
TrueBlue Inc.
In determining the Industry Peer Group, we focus on selecting publicly-traded staffing companies that are active in recruiting and placing
similar skill sets at similar types of clients. The specialty staffing industry is made up of thousands of companies, most of which are small local
firms providing limited service offerings to a relatively small local client base. A report published by Staffing Industry Analysts in 2017 indicated
that Kforce is one of the 10 largest publicly-traded specialty staffing firms in the United States.
In addition to the specific staffing industry in which we operate, other primary criteria for peer group selection includes customers, revenue
footprint (i.e., revenue derived from different industries as a percentage of total revenue), geographical presence, talent, domestic presence,
complexity of operating model and companies with which we compete for executive level talent. Most importantly, we consider the companies
in the Industry Peer Group as our direct business competitors on a day-to-day basis and, as a result, their size and scope varies considerably.
4 KFORCE INC. AND SUBSIDIARIES
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock trades on the NASDAQ Global Select Market (NASDAQ) using the ticker symbol “KFRC.” The following table sets forth,
for the periods indicated, the high and low intra-day sales price of our common stock, as reported on the NASDAQ. These prices represent
inter-dealer quotations without retail markups, markdowns or commissions, and may not represent actual transactions.
Three Months Ended
March 31,
June 30,
September 30,
December 31,
2017
High
Low
2016
High
Low
$26.95
$21.28
$25.00
$14.87
$24.30
$17.45
$20.40
$15.78
$20.65
$16.75
$20.55
$16.22
$26.75
$19.10
$24.25
$15.95
From January 1, 2018 through February 21, 2018, the high and low intra-day sales price of our common stock was $28.94 and $23.80
respectively. On February 21, 2018, the last reported sale price of our common stock on the NASDAQ was $28.20 per share.
Holders of Common Stock
As of February 21, 2018, there were approximately 158 holders of record.
Dividends
Kforce’s Board of Directors (Board) may, at its discretion, declare and pay dividends on the outstanding shares of Kforce’s common stock out of
retained earnings, subject to statutory requirements. Dividends for any outstanding and unvested restricted stock as of the record date are awarded
in the form of additional shares of forfeitable restricted stock, at the same rate as the cash dividend on common stock and based on the closing stock
price on the record date. Such additional shares have the same vesting terms and conditions as the outstanding and unvested restricted stock.
During the years ended December 31, 2017 and 2016, Kforce declared and paid a dividend of $0.12 in each quarter for all outstanding shares
of common stock. Kforce currently expects to continue to declare and pay quarterly dividends of a similar amount. However, the declaration,
payment and amount of future dividends are discretionary and will be subject to determination by Kforce’s Board each quarter following its
review of, among other things, the Firm’s current and expected financial performance and our legal ability to pay dividends. There can be no
assurances that dividends will be paid in the future.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In addition to the risks inherent in its operations, Kforce is exposed to certain market risks, primarily changes in interest rates.
As of December 31, 2017, we had $116.5 million outstanding under our credit facility. See Note 8—“Credit Facility” in the Notes to
Consolidated Financial Statements, included in this Annual Report, for further details on our credit facility. A hypothetical 10% increase in
interest rates on variable debt in effect at December 31, 2017 would have an increase to annual interest expense of less than $0.4 million.
On April 21, 2017, Kforce entered into a forward-starting interest rate swap agreement with Wells Fargo Bank, N.A. to mitigate the risk of
rising interest rates on the Firm’s financial statements. The Swap rate is 1.81%, which is added to our interest rate margin to determine the
fixed rate that the Firm will pay to the counterparty during the term of the Swap based on the notional amount of the Swap. The effective
date of the Swap is May 31, 2017 and the maturity date is April 29, 2022. The notional amount of the Swap is $65.0 million for the first three
years and decreases to $25.0 million for years four and five.
KFORCE INC. AND SUBSIDIARIES 5
BUSINESS OVERVIEW
Company Overview
Tech Segment
Kforce Inc. and its subsidiaries (collectively, “Kforce”) provide professional
staffing services and solutions to clients through the following segments:
Technology (“Tech”), Finance and Accounting (“FA”), and Government
Solutions (“GS”). Kforce provides staffing services and solutions on both
a temporary (“Flex”) and permanent (“Direct Hire”) basis. We operate
through our corporate headquarters in Tampa, Florida and 59 field offices
located throughout the U.S. Kforce was incorporated in 1994 but its
predecessor companies have been providing staffing services since 1962.
Kforce completed its Initial Public Offering in August 1995.
Kforce serves clients across many industries, geographies and our
clients range in size from small to mid-sized companies to the largest
companies in the Fortune 1000. We also provide services and solutions
to the Federal Government as well as state and local governments,
as a prime contractor and subcontractor. For perspective, our 10 largest
clients represented approximately 25% of revenues and no single
client accounted for more than 6% of revenues for the year ended
December 31, 2017.
Substantially all of our revenues are derived from U.S. domestic
operations. Kforce Global Solutions, Inc., (“Global”) a wholly-owned
subsidiary located in the Philippines, has historically contributed
approximately 1% of net service revenues and was included in our Tech
segment. In September 2017, we completed the sale of Global’s assets.
This sale did not meet the definition of discontinued operations.
Our periodic operating results can be affected by:
• the number of billing days in a particular quarter,
• seasonality in our clients’ businesses,
• increased holidays and vacation days taken, which is usually highest
in the fourth quarter of each calendar year, and
• increased costs as a result of certain annual U.S. state and federal
employment tax resets that occur at the beginning of each
calendar year, which negatively impacts our gross profit and overall
profitability in the first fiscal quarter of each calendar year.
The following charts depict the percentage of our total revenues for
each of our segments for the years ended December 31, 2017, 2016 and
2015:
2017
7.7%
GS
2016
7.5%
GS
2015
7.4%
GS
25.5%
FA
25.6%
FA
66.8%
Tech
24.7%
FA
66.9%
Tech
67.9%
Tech
For additional segment financial data see Note 13—“Reportable
Segments” in the Notes to Consolidated Financial Statements, included in
this Annual Report.
Our largest segment, Tech, provides both Flex and Direct Hire services to
our clients, focusing primarily on areas of information technology such as
systems/applications architecture and development, project management,
enterprise data management, business intelligence, artificial intelligence,
machine learning, network architecture and security. Within our Tech
segment, we provide service to clients in a variety of industries with a
strong footprint in the financial services, communications, insurance
services and government sectors. Revenues for our Tech segment increased
2.7% to $907.5 million in 2017 with quarterly growth rates accelerating in
the second half of 2017 on a year-over-year basis. The average bill rate for
our Tech segment in the fourth quarter of 2017 (after the sale of Global’s
assets was completed) was approximately $72 per hour. The September
2017 report published by Staffing Industry Analysts (“SIA”) stated that
temporary technology staffing is expected to experience growth of
4% in 2018. We believe that the secular drivers of technology spend
remain intact with many companies increasingly looking to technology
investments to improve internal efficiencies, enhance their customer-
facing applications in support of their business strategies and to sustain
relevancy in the rapidly changing marketplace. At the macro level, demand
is also being driven by an ever-changing and complex corporate regulatory
and employment law environment, which increases the overall cost of
employment for companies. These factors, among others, are continuing
to drive companies to look to temporary staffing providers, such as Kforce,
to meet their human capital needs.
An acute challenge within our Tech business is the scarcity of qualified
consultants, especially in certain niche skillsets such as cybersecurity,
business intelligence, and application developers with less common
programming languages.
FA Segment
Our FA segment provides both Flex and Direct Hire services to our
clients in areas such as general accounting, business analysis, accounts
payable, accounts receivable, financial analysis and reporting, taxation,
budget preparation and analysis, mortgage and loan processing, cost
analysis, professional administration, outsourced functional support,
credit and collections, audit services, and systems and controls analysis
and documentation. Within our FA segment, we provide services to
clients in a variety of industries with a strong footprint in the financial
services, healthcare and government sectors. Revenues for our FA
segment increased 2.5% to $346.1 million in 2017 though our growth
rates in this segment decelerated in the second half of 2017 on a
year-over-year basis as a result of certain client headwinds and large
project ends. The average bill rate for our FA segment during 2017 was
approximately $33 per hour. The September 2017 report published by
SIA stated that finance and accounting temporary staffing is expected
to experience growth of 5% in 2018.
While there are some new technical accounting standards and other
factors that could result in some macro demand in FA temporary staffing
providers, we believe that the relative limited demand stimuli present
in the traditional areas of finance and accounting may temper future
growth. However, we also believe there continues to be significant
demand in outsourced functional support areas, which could result in
larger volume opportunities for the Firm.
6 KFORCE INC. AND SUBSIDIARIES
GS Segment
Our GS segment provides staffing services and solutions to the
Federal Government as both a prime contractor and a subcontractor in
the fields of information technology and finance and accounting. GS
offers integrated business solutions to its clients in areas including but
not limited to: information technology infrastructure transformation,
healthcare informatics, data and knowledge management and analytics,
research and development, audit readiness, financial management and
accounting. This segment’s contracts are concentrated among clients,
such as the U.S. Department of Veteran Affairs, and the types of services
and support that have historically been less likely to be impacted by
sequestration threats and budget constraints, though a prolonged
government shutdown would be expected to negatively impact GS
revenues. Revenues for our GS segment increased 5.7% to $104.3
million in 2017. Our GS segment also includes a product-based business
specialized in manufacturing and delivering trauma-training manikins,
which accounted for approximately 12% of total GS revenues in 2017.
The majority of GS services are supplied to the Federal Government
(or through a prime contractor to the Federal Government) through
field offices located in the Washington, D.C. metropolitan area and San
Antonio and Austin, Texas.
Our backlog represents only those contracts for which funding has
been provided for U.S. government contracts and subcontracts, excluding
renewal option years. Our backlog was $59.3 million as of December 31,
2017 as compared to $42.9 million as of December 31, 2016.
Flex Revenues
Flex revenues have represented approximately 96% of total revenues
over the last three fiscal years. We provide our clients with qualified
individuals (“consultants”) on a temporary basis when it is determined
that they have the appropriate skills and experience and are the right
match for our clients. We utilize a diversified set of recruitment platforms
to identify consultants including traditional job boards (both general and
niche in nature), Kforce.com, social media sites and passive candidate
marketing, where we identify individuals who are currently employed
and not actively seeking another position. These consultants can either
be directly employed by Kforce, qualified independent contractors or
foreign nationals sponsored by Kforce. Our success is dependent upon our
internal employees’ (“associates”) ability to: (1) acknowledge, understand
and participate in creating solutions for our clients’ needs; (2) determine
and understand the experience and capabilities of the consultants being
recruited; and (3) ensure excellence in delivering and managing the client-
consultant relationship. We believe proper execution by our associates
and consultants directly impacts the longevity of the assignments,
increases the likelihood of being able to generate repeat business with
our clients and fosters a better experience for our consultants, which has
a direct correlation to their redeployment.
To gauge our success in providing quality service and support to our
clients and consultants, we monitor our client and consultant net promoter
scores, which is conducted by an independent third-party provider.
Flex revenues are driven by the number of consultant assignments,
total consultant hours billed and pre-established bill rates. Our Flex gross
profit is determined by deducting consultant pay, benefits and other
related costs from Flex revenues. Associate commissions, related taxes
and other compensation and benefits, as well as field management
compensation are included in SG&A, along with other customary costs
such as administrative and corporate compensation. The Flex business
model involves attempting to maximize the number of billable consultant
hours and bill rates, while managing consultant pay rates and benefit
costs, as well as compensation and benefits for our associates.
Direct Hire Revenues
Our Direct Hire business is a significantly smaller, yet an important, part
of our business that involves locating qualified individuals (“candidates”)
for permanent placement with our clients. We recruit candidates using
methods that are consistent with Flex consultants. Candidate searches
are generally performed on a contingency basis (as opposed to a retained
search), therefore fees are only earned if the candidates are ultimately
hired by our clients. The typical fee structure is based upon a percentage
of the candidate’s annual compensation in their first year of employment,
which is known or can be estimated at the time of placement. There are
also occasions where consultants are initially assigned to a client on a
temporary basis and are later converted to a permanent placement, for
which we may also receive a conversion fee, which are also recognized as
Direct Hire revenue.
Direct Hire revenues are driven by the number of candidates placed (or
converted) and the associated placement fees and are recognized net of
an allowance for “fallouts,” which occur when candidates do not complete
the applicable contingency period (typically 90 days or less). There are no
consultant payroll costs associated with Direct Hire placements, thus,
all Direct Hire revenues increase gross profit by the full amount of the
fee. Direct Hire associate commissions, compensation and benefits are
included in SG&A.
Industry Overview
The specialty staffing industry is made up of thousands of companies,
most of which are small local firms providing limited service offerings
to a relatively small local client base. A report published by SIA in 2017
indicated that Kforce is one of the 10 largest publicly-traded specialty
staffing firms in the U.S.
Based upon previous economic cycles experienced by Kforce, we believe
that times of sustained economic recovery generally stimulate demand
for additional temporary workers in the U.S. and, conversely, an economic
slowdown results in a contraction in demand for additional temporary
workers in the U.S. From an economic standpoint, temporary employment
figures and trends are important indicators of staffing demand, which
continued to be positive during 2017, based on data published by the
Bureau of Labor Statistics (“BLS”) and SIA. The penetration rate (the
percentage of temporary staffing to total employment) remained at
a record high of 2.1% in December 2017. The unemployment rate was
4.1% as of December 2017 and a total non-farm payroll of approximately
148,000 jobs were added in December 2017. Additionally, the college-
level unemployment rate, which we believe serves as a reasonable proxy
for professional employment and, as such, is a good data point for the
consultant and candidate population that Kforce most typically serves, was
at 2.1% in December 2017. Further, we believe that the unemployment
rate in the specialties we serve, especially in certain technology skill sets,
is lower than the published averages, which we believe speaks to the
KFORCE INC. AND SUBSIDIARIES 7
demand environment in which we are operating. Management believes
that the overall tepid growth experienced in the U.S. economy during this
recovery (despite recent acceleration in GDP growth), the recent change
in administration, and the increasing costs and government regulation
of employment may be driving a secular shift to an increased use of
temporary staff as a percentage of the total workforce as employers
may be reluctant to increase permanent hiring. If the penetration rate of
temporary staffing grows in the coming months and years, we believe our
Flex revenues can continue to grow even in a relatively modest growth
macro-economic environment. Kforce remains optimistic about the
growth prospects of the temporary staffing industry, the penetration
rate, and in particular, our revenue portfolio; however, the economic
environment includes uncertainty and volatility and therefore no reliable
predictions can be made about the general economy, the staffing industry
as a whole, specialty staffing in particular or our future performance.
According to a U.S. Staffing Industry Forecast published by SIA in
September 2017, the technology temporary staffing industry and finance
and accounting temporary staffing industry are expected to generate
projected revenues of $30.9 billion and $8.4 billion, respectively, in 2018
and based on these projected revenues, our market share is approximately
3% and 4%, respectively. Our business strategies are sharply focused
around expanding our share of the U.S. temporary staffing industry and
further penetrating our existing clients’ human capital needs.
Business Strategies
Our primary objective is to drive long-term shareholder value by
achieving above-market revenue growth, making prudent investments
to enhance our operating model in terms of efficiency and effectiveness
and generating significantly improved levels of operating profitability. We
believe the following strategies will help us achieve our objectives.
Improving Productivity of our Talent. We continue to focus on providing
our associates with the necessary tools to be more effective and efficient
in performing their roles, to better evaluate business opportunities and
to allow us to elevate the value we bring to our clients and consultants. In
the fourth quarter of 2016, we made a significant investment to enhance
our sales methodologies and processes to allow us to better evaluate and
shape business opportunities with our clients as well as train our sales
associates on this consistent and uniform methodology. Since making
this investment, we have been focused on conducting appropriate
activities to seek to ensure sustainment of this methodology. We are also
implementing new and upgrading existing technologies that we expect
should allow us to serve our clients, consultants and candidates more
effectively and efficiently and improve the productivity and scalability of
our organization. To that end, in the third quarter of 2017, we completed
the deployment of our new client relationship management system,
which has the elements of our sales methodology embedded within
the application.
We have been investing in other areas of technological change including
new time and expense applications for our consultants and associates, as
well as continued enhancements to our business and data intelligence
capabilities. Beginning in 2018, we expect to invest in a new talent
relationship management system to leverage our delivery strategies and
processes. These investments are part of a multi-year effort to replace
and upgrade our technology tools to equip our associates with improved
capabilities to deliver exceptional service to our clients, consultants and
candidates and improve the productivity of our associates.
Enhancing our Client Relationships. We strive to differentiate ourselves
by working collaboratively with our clients to understand their business
challenges and help them attain their organizational objectives. This
collaboration focuses on building a consultative partnership rather than
a transactional client relationship; thus, increasing the intimacy with our
clients and improving our ability to offer higher value and a broader array
of services and support to our clients. In order to accomplish this, we align
our revenue-generating talent with the appropriate clients based on their
experience with markets, products and industries.
We measure our success in building long-lasting relationships with
our clients using staffing industry benchmarks and surveys conducted
by a specialized, independent third-party provider. Our client ratings
compare very favorably against staffing industry averages and give us
helpful insights directly from our clients on how to continue improving
our relationships. We believe long-lasting relationships with our clients is
a critical element to our ability to grow revenues.
Improving the Job Seeker Experience. Our consultants are a critical
component to our business and essential in sustaining our client
relationships. We are focused on effective and efficient processes and
tools to find and attract prospective consultants, matching them to a
client assignment and supporting them during their tenure with Kforce.
Our success in this regard would be expected to positively influence the
tenure and loyalty of our consultants and be their “Employer of Choice,”
thus enabling us to deliver the highest quality talent to our clients.
We measure the quality of our service to and support of our
consultants using staffing industry benchmarks and surveys conducted
by a specialized, independent third-party provider. Our consultant
ratings, similar to our client ratings, compare very favorably against
staffing industry averages and give us helpful insights directly from our
consultants on where and how we can continue improving our service
during the various phases of our relationship.
8 KFORCE INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This section is intended to help the reader understand Kforce,
our operations, and our present business environment. This MD&A
should be read in conjunction with our Consolidated Financial
Statements and the accompanying notes thereto contained in this
Annual Report as well as Business Overview for an overview of our
operations and business environment.
This overview summarizes the MD&A, which includes the
following sections:
• Executive Summary—An executive summary of our results of
operations for 2017.
• Results of Operations—An analysis of Kforce’s consolidated
results of operations for the three years presented in the
consolidated financial statements. In order to assist the reader
in understanding our business as a whole, certain metrics are
presented for each of our segments.
• Liquidity and Capital Resources—An analysis of cash flows, credit
facility, off-balance sheet arrangements, stock repurchases,
contractual obligations and commitments.
• Critical Accounting Estimates—A discussion of the accounting
estimates that are most critical to aid in fully understanding
and evaluating our reported financial results and that require
management’s most difficult, subjective or complex judgments.
• New Accounting Standards—A discussion of recently issued
accounting standards and the potential impact on our
consolidated financial statements.
EXECUTIVE SUMMARY
The following is an executive summary of what Kforce believes
are highlights for 2017, which should be considered in the context
of the additional discussions herein and in conjunction with the
consolidated financial statements and notes thereto.
• Net service revenues increased 2.9% to $1.36 billion in 2017
from $1.32 billion in 2016. Net service revenues increased 2.7%
for Tech, 2.5% for FA and 5.7% for GS.
• Flex revenues increased 3.2% to $1.31 billion in 2017 from $1.27
billion in 2016. Flex revenues increased 2.8%, 3.6% and 5.7% for
Tech, FA and GS, respectively. Quarterly year-over-year growth
rates in Tech Flex, our largest segment, accelerated in the second
half of 2017.
• Direct Hire revenues decreased 5.4% to $47.7 million in 2017
from $50.4 million in 2016.
• Flex gross profit margin decreased 70 basis points to 27.5% in
2017 from 28.2% in 2016. Flex gross profit margin decreased
60 basis points for Tech, 90 basis points for FA and 150 basis
points for GS. These margin decreases were primarily a result of
compression in the spread between our bill rates and pay rates,
higher health insurance costs and the impact of Hurricanes
Harvey and Irma. In the second half of 2017, we made progress
in partially mitigating the spread compression we experienced
in the first half of 2017 through increased pricing discipline and
other operational programs.
• SG&A expenses as a percentage of revenues for the year ended
December 31, 2017 decreased to 24.4% from 25.8% in 2016. The
140 basis point decrease was driven primarily by $6.0 million
in severance costs recognized in 2016 related to realignment
activities, improving associate productivity levels in 2017 and
overall continued discipline in areas such as travel and office
related expenses. These benefits were partially offset by an
increase in information technology investments.
• Additionally, during 2017, Kforce completed the sale of Global’s
assets and recorded a $3.3 million gain within SG&A. Prior to the
sale, Global generated approximately $2.5 million in Tech Flex
revenue per quarter.
• Net income for the year ended December 31, 2017 increased
1.6% to $33.3 million from $32.8 million in 2016 and diluted
earnings per share for the year ended December 31, 2017
increased to $1.30 from $1.25 per share in 2016, primarily driven
by the SG&A items described above.
• During 2017, Kforce repurchased 526 thousand shares
of common stock on the open market at a total cost of
approximately $12.2 million.
• The Firm declared and paid dividends totaling $0.48 per share
during the year ended December 31, 2017, resulting in a total
cash payout of $12.1 million.
• The Firm entered into a new credit facility on May 25, 2017,
which, among other things, increased our borrowing capacity by
$130.0 million to $300.0 million. The total amount outstanding
under the credit facility increased $5.0 million to $116.5 million
as of December 31, 2017 as compared to $111.5 million as of
December 31, 2016. This increase was primarily driven by lower
than anticipated operating cash flows as a result of an increase
in accounts receivable due to our revenue growth, timing of
collections and certain clients extending payment terms.
• The Firm entered into a forward-starting interest rate swap
agreement on April 21, 2017 to mitigate the risk of rising interest
rates. The notional amount of the interest rate swap (the “Swap”)
is $65.0 million for the first three years and decreases to $25.0
million for years four and five. The fair value of our Swap as of
December 31, 2017 was a $0.5 million asset.
RESULTS OF OPERATIONS
In 2017, we continued to make progress on our strategic
initiatives including:
• Implementing new and upgrading existing technologies
that we believe will allow us to more effectively and
efficiently serve our clients, consultants and candidates and
improve the productivity of our people and scalability of our
organization. We completed the deployment of our new
customer relationship management system during 2017
and made significant progress towards the implementation
of other technology initiatives related to our consultant
time and expense management process, associate expense
reimbursement, business and data intelligence applications
among other areas, which we expect to benefit us in 2018 and
beyond. We also laid the foundation during 2017 for future
technology initiatives.
KFORCE INC. AND SUBSIDIARIES 9
• Continuing to align our revenue-generating talent to the
markets, products, industries and clients that we believe
present Kforce with the greatest opportunity for profitable
revenue growth. During 2017, we further optimized the
alignment of our revenue-generating and revenue-enabling
organizations to enhance our efficiency and effectiveness
in serving our clients, consultants and candidates. We also
conducted sustainment activities related to our enhanced
sales methodology that was rolled out in the fourth quarter
of 2016.
During the third quarter of 2017, our results of operation were
adversely impacted by Hurricanes Harvey and Irma and, more
importantly, the devastation felt by our associates, clients and
consultants was significant. We made the decision to prioritize the
care and safety of our core associates and consultants by continuing to
compensate them while our clients were closed and provided
additional support for those with more critical needs. We also more
broadly supported the recovery efforts with a pledge of $1.0 million
in charitable contributions to support these efforts. The combined
impact to our earnings per share was $0.04 during 2017.
Net Service Revenues. The following table presents certain items in our Consolidated Statements of Operations and Comprehensive
Income as a percentage of net service revenues for the years ended:
December 31,
Revenues by segment:
Tech
FA
GS
Net service revenues
Revenues by type:
Flex
Direct Hire
Net service revenues
Gross profit
Selling, general and administrative expenses
Depreciation and amortization
Income from operations
Income before income taxes
Net income
2017
2016
2015
66.8%
25.5
7.7
100.0%
96.5%
3.5
100.0%
30.0%
24.4%
0.6%
5.1%
4.7%
2.5%
66.9%
25.6
7.5
100.0%
96.2%
3.8
100.0%
31.0%
25.8%
0.7%
4.5%
4.2%
2.5%
67.9%
24.7
7.4
100.0%
95.9%
4.0%
100.0%
31.4%
25.0%
0.7%
5.6%
5.4%
3.2%
10 KFORCE INC. AND SUBSIDIARIES
The following table presents net service revenues for Flex and Direct Hire by segment and percentage change from the prior period for
the years ended December 31 (in thousands):
Tech revenues
Flex revenues
Direct Hire revenues
Total Tech revenues
FA revenues
Flex revenues
Direct Hire revenues
Total FA revenues
GS revenues
Flex revenues
Total GS revenues
Total Flex revenues
Total Direct Hire revenues
Total Net service revenues
2017
Increase
(Decrease)
2016
Increase
(Decrease)
2015
$ 887,675
19,836
$ 907,511
$ 318,294
27,841
$ 346,135
$ 104,294
$ 104,294
$1,310,263
47,677
$1,357,940
2.8%
(1.0)%
2.7%
3.6%
(8.3)%
2.5%
5.7%
5.7% $
3.2%
(5.4)%
2.9%
$ 863,434
20,043
$ 883,477
(1.2)%
(10.3)%
$ 873,609
22,333
(1.4)%
$ 895,942
$ 307,245
30,356
$ 337,601
$ 98,628
98,628
$1,269,307
50,399
$1,319,706
4.4%
(4.4)%
3.6%
$ 294,186
31,738
$ 325,924
1.3%
1.3%
0.3%
(6.8)%
—%
$ 97,372
$ 97,372
$1,265,167
54,071
$1,319,238
Certain quarterly revenue trends are referred to in discussing annual comparisons. Our quarterly operating results are affected by the
number of billing days in a quarter. The following 2017 quarterly information is presented for informational purposes only (in thousands,
except Billing Days).
Three Months Ended
December 31
September 30
June 30
March 31
Year-Over-Year
Revenue Growth
Rates (Per
Billng Day)
Revenues
Year-Over-Year
Revenue Growth
Rates (Per
Billng Day)
Revenues
Year-Over-Year
Revenue Growth
Rates (Per
Billng Day)
Revenues
Year-Over-Year
Revenue Growth
Rates (Per
Billng Day)
Revenues
$223,897
79,098
29,421
$332,416
5.4%
0.3%
25.7%
$224,148
78,209
26,547
5.6%
$328,904
3.3%
4.1%
0.6%
3.3%
$222,744
80,038
23,674
$326,456
1.5% $216,886
80,949
4.3%
24,652
(6.4)%
1.6% $322,487
2.7%
7.5%
6.6%
4.2%
$ 3,919
6,251
(10.3)%
(9.6)%
$ 5,133
7,016
1.3%
(9.0)%
$ 5,625
8,228
9.3%
(2.4)%
$ 5,159
6,346
(4.1)%
(11.7)%
$ 10,170
(9.9)%
$ 12,149
(4.9)% $ 13,853
2.1% $ 11,505
(8.4)%
$227,816
85,349
29,421
5.1%
(0.5)%
25.7%
$229,281
85,225
26,547
3.3%
2.9%
0.6%
$228,369
88,266
23,674
1.7% $222,045
87,295
3.6%
24,652
(6.4)%
$342,586
5.1%
$341,053
3.0%
$340,309
1.6% $333,992
2.5%
5.8%
6.6%
3.7%
64
Billing Days
61
63
64
Flex revenues
Tech
FA
GS
Total Flex revenues
Direct Hire revenues
Tech
FA
Total Direct Hire
revenues
Revenue by segment
Tech
FA
GS
Total Net service
revenues
KFORCE INC. AND SUBSIDIARIES 11
Flex Revenues. The key drivers of Flex revenues are the number of
consultants on assignment, number of billable hours, the consultant
bill rate per hour and, to a limited extent, the amount of billable
expenses incurred by Kforce.
Flex revenues for our largest segment, Tech, increased 2.8% during
the year ended December 31, 2017, as compared to 2016 and
decreased 1.2% in 2016 from 2015. Our 2017 increase was driven
by an acceleration of quarterly year-over-year growth rates in the
second half of 2017, which we believe is a result of our strategic
portfolio alignment efforts as well as the investments we have made
in an effort to improve the productivity and effectiveness of our
revenue-generating talent. We have been focused on diversifying
our portfolio to grow revenues with other Fortune 500 companies
outside of our top 25 largest clients; much of the revenue growth
that we experienced in the second half of 2017 was a result of these
efforts. Our belief in the strength in the demand environment within
Tech Flex has not changed; thus, we expected continued growth in
2018 in this segment.
Our FA segment experienced an increase in Flex revenues of
3.6% during the year ended December 31, 2017, as compared to
2016 and increased 4.4% in 2016 from 2015. Over the last several
years, we have seen greater opportunities from larger volume
projects in centralized and partially outsourced functional areas
such as benefits and enrollment support and other service and
administrative functions as clients continue to evaluate their
strategies for meeting their human capital needs. We expect our
FA segment to grow on a year-over-year basis in 2018.
Our GS segment experienced an increase in Flex revenues of 5.7%
during the year ended December 31, 2017, as compared to 2016 and
increased 1.3% in 2016 from 2015. Our GS segment was awarded
two prime contract wins in the third quarter of 2017 under the
T4 Next Generation contract vehicle with the U.S. Department of
Veterans Affairs totaling nearly $100 million. Revenues for GS grew
approximately 25% on a year-over-year basis in the fourth quarter
of 2017 primarily as a result of these prime contract wins. Our
GS segment’s largest contract is being recompeted by the prime
contractor in the first quarter of 2018. Provided GS is successful at
retaining this contract, we expect our GS segment should grow in
the low double digits on a year-over-year basis in 2018.
The following table presents the key drivers for the change in Flex revenues for our Tech and FA segments over the prior period for the years
ended December 31 (in thousands):
Key Drivers
Volume (hours billed)
Bill rate
Billable expenses
Total change in Flex revenues
2017
2016
Tech
FA
Tech
FA
$ 9,710
14,563
(32)
$24,241
$ 3,915
7,053
81
$11,049
$(10,115)
896
(956)
$(10,175)
$15,198
(2,055)
(84)
$13,059
The following table presents total Flex hours billed for our Tech and FA segments and percentage change over the prior period for the years
ended December 31 (in thousands):
Tech
FA
Total Flex hours billed
2017
12,878
9,595
22,473
Increase
(Decrease)
1.1%
1.3%
1.2%
2016
12,735
9,474
22,209
Increase
(Decrease)
(1.2)%
5.2%
1.4%
2015
12,885
9,008
21,893
As the GS segment primarily provides integrated business solutions as compared to staffing services, Flex hours are not presented above.
12 KFORCE INC. AND SUBSIDIARIES
Direct Hire Revenues. The key drivers of Direct Hire revenues are the
number of placements and the associated placement fee. Direct Hire
revenues also include conversion revenues, which can occur when
consultants initially assigned to a client on a temporary basis are
later converted to a permanent placement for a fee. Our GS segment
does not make permanent placements.
Direct Hire revenues decreased 5.4% during the year ended
December 31, 2017 as compared to 2016 and decreased 6.8% in
2016 from 2015. The decrease for 2017 as compared to 2016
and 2016 as compared to 2015 is primarily the result of a shift in
management’s strategy to make selective investments only where
capacity needs exist.
The following table presents the key drivers for the change in Direct Hire revenues over the prior period for the years ended December 31
(in thousands):
Key Drivers
Volume (number of placements)
Placement fee
Total change in Direct Hire revenues
2017
2016
$(3,084)
362
$(2,722)
$(2,476)
(1,196)
$(3,672)
The following table presents the total number of placements for our Tech and FA segments and percentage change over the prior period
for the years ended December 31:
Tech
FA
Total number of placements
2017
1,139
2,355
3,494
Increase
(Decrease)
(4.4)%
(7.0)%
(6.1)%
2016
1,191
2,531
3,722
Increase
(Decrease)
(14.6)%
1.0%
(4.6)%
2015
1,395
2,505
3,900
The following table presents the average fee per placement for our Tech and FA segments and percentage change over the prior period
for the years ended December 31:
Tech
FA
Total average placement fee
2017
$17,410
11,826
$13,646
Increase
(Decrease)
3.4%
(1.4)%
0.8%
2016
$16,836
11,994
$13,543
Increase
(Decrease)
5.1%
(5.3)%
(2.3)%
2015
$16,014
12,668
$13,864
Gross Profit. Gross profit is determined by deducting the direct cost of services (primarily consultant compensation, payroll taxes, payroll-
related insurance and certain fringe benefits, as well as subcontractor costs) from total revenues. In addition, there are no consultant payroll
costs associated with Direct Hire placements, thus, all Direct Hire revenues increase gross profit by the full amount of the placement fee.
The following table presents the gross profit percentage (gross profit as a percentage of total revenues) for each segment and percentage
change over the prior period for the years ended December 31:
Tech
FA
GS
Total gross profit percentage
2017
28.3%
34.2%
31.1%
30.0%
Increase
(Decrease)
(2.4)%
(4.2)%
(4.6)%
(3.2)%
2016
29.0%
35.7%
32.6%
31.0%
Increase
(Decrease)
(0.7)%
(2.2)%
(5.0)%
(1.3)%
2015
29.2%
36.5%
34.3%
31.4%
KFORCE INC. AND SUBSIDIARIES 13
The change in total gross profit percentage for 2017 as compared
to 2016 and 2016 as compared to 2015 is primarily the result of
a lower mix of Direct Hire revenues to total revenues as well as
declines in our Flex gross profit.
Our Flex gross profit percentage (Flex gross profit as a
percentage of Flex revenues) provides management with
helpful insight into the other drivers of total gross profit
percentage driven by our Flex business such as changes in
the spread between the consultants’ bill rate and pay rate
for Flex. As noted above, our GS segment does not make permanent
placements; as a result, its Flex gross profit percentage is the same
as its gross profit percentage.
The following table presents the Flex gross profit percentage for
each segment and percentage change over the prior period for the
years ended December 31:
Tech
FA
GS
Total Flex gross profit percentage
2017
26.7%
28.5%
31.1%
27.5%
Increase
(Decrease)
(2.2)%
(3.1)%
(4.6)%
(2.5)%
2016
27.3%
29.4%
32.6%
28.2%
Increase
(Decrease)
(0.4)%
(1.0)%
(5.0)%
(1.1)%
2015
27.4%
29.7%
34.3%
28.5%
The decrease in Flex gross profit percentage of 70 basis points
in 2017 from 2016 was due primarily to compression in the spread
between our consultants’ bill rates and pay rates and higher health
insurance and other benefit costs, and the impact of Hurricanes
Harvey and Irma. Kforce continues to focus on optimizing the spread
between bill rates and pay rates by providing our associates with
training and other defined programs to drive improvement in the
effectiveness of our pricing strategy for our staffing services. The
pricing environment for our services continues to be competitive
and the scarcity of talent, especially in our Tech segment, continues
to be a challenge. Thus, we expect that we may encounter wage
inflation, especially in the skill sets of greatest demand, and will
likely face spread compression as we work with our clients to
increase our bill rates. With that said, many of our clients also lack
pricing power in the conduct of their businesses; therefore, spreads
on a longer-term basis may continue to be under pressure. As a
result, our continued efforts toward pricing discipline and diligence
will be important in mitigating this impact.
The decrease in Flex gross profit percentage of 30 basis points
in 2016 from 2015 was due primarily to lower realized margins for
our GS segment on some of its recompete wins and a lower mix of
higher margin business. Furthermore, during 2016, we experienced
an increase in the revenue concentration within our large client
portfolio in Tech Flex, which resulted in a reduction in the Flex gross
profit percentage, and spread compression within certain of these
clients that have, in many cases, narrowed their number of vendor
partners and are leveraging volume-based rebates in exchange for
this increased concentration of business.
The following table presents the key drivers for the change in Flex
gross profit over the prior period for the years ended December 31
(in thousands):
2017
2016
Key Drivers
Volume (hours billed)
Bill rate
$11,708
(9,429)
Total change in Flex gross profit
$ 2,279
$ 1,178
(3,121)
$(1,943)
SG&A Expenses. For the years ended December 31, 2017, 2016 and
2015, total compensation, commissions, payroll taxes, and benefit
costs represented 84.8%, 84.0%, and 84.2% of SG&A, respectively.
Commissions, certain revenue-generating bonuses and related
payroll taxes and benefit costs are variable costs driven primarily
by revenue and gross profit levels, and associate performance.
Therefore, as gross profit levels change, these expenses would also
generally be anticipated to change, but remain relatively consistent
as a percentage of revenues.
14 KFORCE INC. AND SUBSIDIARIES
The following table presents certain components of SG&A as a percentage of total revenues for the years ended December 31
(in thousands):
2017
% of
Revenues
2016
% of
Revenues
2015
% of
Revenues
Compensation, commissions,
payroll taxes and benefits costs
Other (1)
Total SG&A
$280,721
50,451
$331,172
20.7%
3.7%
24.4%
$286,261
54,481
$340,742
21.7%
4.1%
25.8%
$277,825
52,209
$330,034
21.1%
3.9%
25.0%
(1) Includes items such as bad debt expense, lease expense, professional fees, travel, telephone, computer and certain other expenses.
SG&A as a percentage of net service revenues decreased 140
basis points in 2017 compared to 2016, which was driven primarily
by $6.0 million in severance costs recognized in 2016 related to
realignment activities, improving associate productivity levels in
2017, and overall continued discipline in areas of travel and office
related expenses. These benefits were partially offset by an increase
in information technology investments. Additionally, during 2017,
Kforce recorded a $3.3 million gain on the sale of Global’s assets.
SG&A as a percentage of net service revenues increased 80 basis
points in 2016 compared to 2015. This was primarily a result of
the factors mentioned above as well as targeted investments in
information technology and our revenue-generating talent, which
negatively impacted SG&A as a percentage of revenue for 2016.
Depreciation and Amortization. The following table presents depreciation and amortization expense and percentage change over the prior
period by major category for the years ended December 31 (in thousands):
Fixed asset depreciation (1)
Capitalized software amortization
Intangible asset amortization
Total Depreciation and amortization
(1) Includes amortization of capital leases.
2017
$6,939
971
345
$8,255
Increase
(Decrease)
4.2%
(32.9)%
(41.8)%
(5.1)%
2016
$6,660
1,448
593
$8,701
Increase
(Decrease)
(1.2)%
(37.5)%
(23.5)%
(11.5)%
2015
$6,738
2,318
775
$9,831
Other Expense, Net. Other expense, net was $4.5 million in 2017,
$3.1 million in 2016, and $2.6 million in 2015, and consists primarily
of interest expense related to outstanding borrowings under our
credit facility.
Income Tax Expense. Income tax expense as a percentage of
income before income taxes (our “effective tax rate”) for the year
ended December 31, 2017, was 48.1%. Our effective tax rate for
2017 was unfavorably impacted due to the revaluation of our net
deferred tax assets as a result of the TCJA. Excluding the impact of
this revaluation, our effective tax rate would have been 39.7%. For
the year ended December 31, 2016, our effective tax rate was 41.4%,
which was unfavorably impacted by certain one-time non-cash
adjustments. For the year ended December 31, 2015, our effective
tax rate was 40.3%, which was unfavorably impacted by a change in
the overall mix of income in the various state jurisdictions and the
increase in particular uncertain tax positions.
We expect that our effective tax rate will be in the range of 25.5%
to 27.5% for 2018 as a result of the TCJA.
KFORCE INC. AND SUBSIDIARIES 15
NON-GAAP FINANCIAL MEASURES
Free Cash Flow “Free Cash Flow”, a non-GAAP financial measure,
is defined by Kforce as net cash provided by (used in) operating
activities determined in accordance with GAAP, less capital
expenditures. Management believes this provides an additional way
of viewing our liquidity that, when viewed with our GAAP results,
provides a more complete understanding of factors and trends
affecting our cash flows and is useful information to investors as
it provides a measure of the amount of cash generated from the
business that can be used for strategic opportunities including
investing in our business, making acquisitions, repurchasing
common stock or paying dividends. Free cash flow has limitations
due to the fact that it does not represent the residual cash flow
available for discretionary expenditures.
Therefore, we believe it is important to view free cash flow as a complement to our Consolidated Statements of Cash Flows. The following
table presents Free Cash Flow (in thousands):
Years Ended December 31,
Net income
Non-cash provisions and other
Changes in operating assets/liabilities
Net cash provided by operating activities
Capital expenditures
Free cash flow
Change in debt
Repurchases of common stock
Cash dividend
Other
2017
$ 33,285
29,134
(33,080)
29,339
(5,846)
23,493
4,976
(14,622)
(12,144)
(2,806)
2016
$ 32,773
21,093
(14,043)
39,823
(12,420)
27,403
31,075
(46,013)
(12,447)
(33)
2015
$ 42,824
22,153
5,754
70,731
(8,328)
62,403
(12,861)
(38,471)
(12,545)
1,733
Change in cash and cash equivalents
$ (1,103)
$ (15)
$ 259
Adjusted EBITDA. “Adjusted EBITDA”, a non-GAAP financial
measure, is defined by Kforce as net income before depreciation
and amortization, stock-based compensation expense, interest
expense, net and income tax expense. Adjusted EBITDA should not
be considered a measure of financial performance under GAAP.
Items excluded from Adjusted EBITDA are significant components
in understanding and assessing our past and future financial
performance, and this presentation should not be construed as
an inference by us that our future results will be unaffected by
those items excluded from Adjusted EBITDA. Adjusted EBITDA
is a key measure used by management to assess our operations
including our ability to generate cash flows and our ability to repay
our debt obligations. Management believes it is useful information
to investors as it provides a good metric of our core profitability
in comparing our performance to our competitors, as well as our
performance over different time periods. The measure should
not be considered in isolation or as an alternative to net income,
cash flows or other financial statement information presented in
the consolidated financial statements as indicators of financial
performance or liquidity. The measure is not determined in
accordance with GAAP and is susceptible to varying calculations,
and as presented, may not be comparable to similarly titled
measures of other companies.
In addition, although we excluded amortization of stock-based
compensation expense (which we expect to continue to incur in the
future) because it is a non-cash expense, the associated stock issued
may result in an increase in our outstanding shares of stock, which
may result in the dilution of our shareholder ownership interest.
We suggest that you evaluate these items and the potential risks of
excluding such items when analyzing our financial position.
The following table presents Adjusted EBITDA and includes a reconciliation of Adjusted EBITDA to net income (in thousands):
Years Ended December 31,
Net income
Depreciation and amortization
Stock-based compensation expense
Interest expense, net
Income tax expense
Adjusted EBITDA
16 KFORCE INC. AND SUBSIDIARIES
2017
$33,285
8,508
7,600
5,039
30,809
$85,241
2016
$32,773
8,796
6,705
3,050
23,182
$74,506
2015
$42,824
9,831
5,819
2,342
28,848
$89,664
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Our largest source of operating cash flows is the collection of trade
receivables and our largest use of operating cash flows is the payment
of our associate and consultant populations’ compensation. When
comparing cash flows from operating activities, the decrease in cash
provided by operating activities during the year ended December 31,
2017, as compared to 2016 is primarily due to an increase in accounts
receivable, which was driven by the revenue growth in our business, the
timing of collections and continued pressure from certain larger clients
for extended payment terms. The decrease in cash provided by operating
activities during the year ended December 31, 2016 as compared to 2015
is primarily a result of lower earnings as well as the delayed timing in
collections of accounts receivable.
Investing Activities
Capital expenditures for the years ended December 31, 2017, 2016
and 2015, which exclude equipment acquired under capital leases,
were $5.8 million, $12.4 million and $8.3 million, respectively. We
expect to continue selectively investing in our infrastructure in order
to support the expected future profitable growth in our business.
We believe that we have sufficient cash and availability under the
credit facility to pursue new business acquisitions or make any
expected necessary capital expenditures in the foreseeable future.
In addition, we continually review our portfolio of businesses
and their operations in comparison to our internal strategic and
performance objectives. As part of this review, we may acquire other
businesses and further invest in, fully divest and/or sell parts of our
current businesses.
During the year ended December 31, 2017, Kforce completed
the sale of Global’s assets and received an initial $1.0 million in
cash proceeds.
To meet our capital and liquidity requirements, we primarily
rely on operating cash flow, as well as borrowings under our credit
facility. At December 31, 2017, Kforce had $161.7 million in working
capital compared to $135.4 million at December 31, 2016.
Cash Flows
The accompanying Consolidated Statements of Cash Flows
for each of the years ended December 31, 2017, 2016 and
2015 in this Annual Report provide a more detailed description
of our cash flows. Currently, Kforce is principally focused on
achieving the appropriate balance in the following areas of
cash flow: (1) generating positive cash flow from operating
activities; (2) returning capital to our shareholders through
our quarterly dividends and common stock repurchase program;
(3) sustaining leverage under our credit facility; (4) investing
in our infrastructure to allow sustainable growth via capital
expenditures; and (5) maintaining sufficient availability under our
credit facility for the possibility of completing an acquisition or other
strategic investments.
As a result of the TCJA, we expect to generate an additional
$10.0 million in operating cash in 2018 related to the decrease
in our effective tax rate. We believe that existing cash and cash
equivalents, cash flow from operations, and available borrowings
under our credit facility will be adequate to meet the capital
expenditure and working capital requirements of our operations
for at least the next 12 months. However, a material deterioration
in the economic environment or market conditions, among other
things, could negatively impact operating results and liquidity, as
well as the ability of our lenders to fund borrowings.
Actual results could also differ materially from those indicated
as a result of a number of factors, including the use of currently
available resources for potential acquisitions and additional
stock repurchases.
The following table presents a summary of our net cash flows
from operating, investing and financing activities (in thousands):
Years Ended December 31,
2017
2016
2015
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
$ 29,339
(4,846)
(25,596)
$ 39,823
(12,420)
(27,418)
$ 70,731
(8,364)
(62,108)
Net (decrease) increase in
cash and cash equivalents $ (1,103)
$ (15) $ 259
KFORCE INC. AND SUBSIDIARIES 17
Financing Activities
The following table presents the cash flow impact of the common
stock repurchase activity for the years ended December 31 (in thousands):
Open market repurchases
Repurchase of shares related to
tax withholding requirements
for vesting of restricted stock
Total cash flow impact of
common stock repurchases
Cash paid in current year for
settlement of prior year
2017
2016
2015
$ 12,276
$ 44,109
$ 37,125
2,346
1,904
1,346
$14,622
$46,013
$38,471
repurchases
$ 935
$ 1,012
$ 1,425
During the years ended December 31, 2017, 2016 and 2015,
Kforce declared and paid dividends of $12.1 million ($0.48 per
share), $12.4 million ($0.48 per share), and $12.5 million ($0.45 per
share), respectively. The declaration, payment and amount of future
dividends are discretionary and will be subject to determination by
Kforce’s Board each quarter following its review of, among other
things, the Firm’s current and expected financial performance and
its legal ability to pay dividends.
Credit Facility
On May 25, 2017, the Firm entered into a Credit Agreement with
Wells Fargo Bank, National Association, as administrative agent,
Bank of America, N.A., as syndication agent, Regions Bank and
BMO Harris Bank, N.A., as co-documentation agents, Wells Fargo
Securities, LLC, as lead arranger and bookrunner, and the lenders
referred to in the credit facility. Our new credit facility includes a
maximum borrowing capacity of $300.0 million which, subject
to certain conditions and participation of the lenders, may be
increased up to an aggregate additional amount of $150.0 million
in the form of revolving credit loans, swingline loans, and letters of
credit. Letters of credit and swingline loans under the credit facility
are subject to sublimits of $10.0 million. As of December 31, 2017,
$116.5 million was outstanding and $180.3 million was available,
subject to the covenants described below and as of December 31,
2016, $111.5 million was outstanding under the previous credit
facility, which was paid off using the Firm’s initial draw under the
new credit facility.
The Firm will continually be subject to certain affirmative and
negative covenants including (but not limited to), the maintenance
of a fixed charge coverage ratio of no less than 1.25 to 1.00 and
the maintenance of a total leverage ratio of no greater than
3.25 to 1.00. The numerator in the fixed charge coverage ratio is
defined pursuant to the credit facility as earnings before interest
expense, income taxes, depreciation and amortization, stock-based
compensation expense and other permitted items pursuant to our
credit facility (disclosed as “Consolidated EBITDA”), less cash paid for
capital expenditures, income taxes and dividends. The denominator
is defined as Kforce’s fixed charges such as interest expense and
principal payments paid or payable on outstanding debt other
than borrowings under the credit facility. The total leverage ratio
is defined pursuant to the credit facility as total indebtedness
divided by Consolidated EBITDA. Our ability to make distributions
or repurchases of equity securities could be limited if an event
of default has occurred. Furthermore, our ability to repurchase
equity securities could be limited if (a) the total leverage ratio is
greater than 2.75 to 1.00 and (b) the Firm’s availability, under the
credit facility plus unrestricted cash and cash equivalents, is less
than $25.0 million. At December 31, 2017, Kforce was not limited
in making distributions and executing repurchases of its equity
securities. See Note 8 —“Credit Facility” in the Notes to Consolidated
Financial Statements, included in this Annual Report for a complete
discussion of our credit facility.
Off-Balance Sheet Arrangements
Kforce provides letters of credit to certain vendors in lieu of
cash deposits. At December 31, 2017, Kforce had letters of credit
outstanding for workers’ compensation and other insurance
coverage totaling $2.9 million, and for facility lease deposits totaling
$0.3 million. Aside from certain obligations more fully described in
the Contractual Obligations and Commitments section below, we do
not have any additional off-balance sheet arrangements that have
had, or are expected to have, a material effect on our consolidated
financial statements.
Stock Repurchases
The following table presents the open market repurchase activity
under the Board-authorized common stock repurchase program for
the years ended December 31 (in thousands):
2017
2016(1)
Shares
$ Shares $
Open market
repurchases
526
$12,239
2,291
$44,032
(1) On July 29, 2016, our Board approved an increase in our stock repurchase
authorization bringing the then available authorization to $75.0 million.
As of December 31, 2017 and 2016, $38.5 million and $50.7
million, respectively, remained available for further repurchases
under the Board-authorized common stock repurchase program.
18 KFORCE INC. AND SUBSIDIARIES
Contractual Obligations and Commitments
The following table presents our expected future contractual obligations as of December 31, 2017 (in thousands):
Credit facility (1)
Interest payable—credit facility (2)
Operating lease obligations
Capital lease obligations
Purchase obligations (3)
Notes payable (4)
Interest payable—notes payable (4)
Liability for unrecognized tax positions (5)
Deferred compensation plans liability (6)
Supplemental Executive Retirement Plan (7)
Total
Payments due by period
Total
$116,523
14,808
25,928
1,958
14,543
3,077
26
—
31,446
17,070
$225,379
Less than
1 year
$ —
3,089
9,338
1,359
8,624
934
13
—
2,579
—
$25,936
1-3 Years
$ —
6,405
12,420
594
5,919
1,919
13
—
2,615
—
$29,885
3-5 Years
$116,523
5,314
2,723
5
—
224
—
—
2,592
12,788
$140,169
More than
5 years
$ —
—
1,447
—
—
—
—
—
23,660
4,282
$29,389
(1) Our credit facility matures May 25, 2022.
(2) Kforce’s weighted average interest rate as of December 31, 2017 was utilized to forecast the expected future interest rate payments. These payments are inherently uncertain
due to fluctuations in interest rates and outstanding borrowings that will occur over the remaining term of the credit facility.
(3) Purchase obligations include agreements to purchase goods and services that are enforceable, legally binding, and specify all significant terms.
(4) Our notes payable as of December 31, 2017 are included in the accompanying Consolidated Balance Sheets and classified in Other current liabilities if payable within the next
year or in Long-term debt—other if payable after the next year. The interest rate on the notes range from 2.58% to 2.80% and expire between November 2020 and October 2021.
(5) Kforce’s liability for unrecognized tax positions as of December 31, 2017 was $1.1 million. This balance has been excluded from the table above due to the significant uncertainty
with respect to the timing and amount of settlement, if any.
(6) Kforce maintains various non-qualified deferred compensation plans pursuant to which eligible management and highly-compensated key employees may elect to defer all or
part of their compensation to later years. These amounts are included in the accompanying Consolidated Balance Sheets and classified as Accounts payable and other accrued
liabilities and Other long-term liabilities, as appropriate, and are payable based upon the elections of the plan participants (e.g. retirement, termination of employment, change-
in-control). Amounts payable upon the retirement or termination of employment may become payable during the next five years if covered employees schedule a distribution,
retire or terminate during that time.
(7) There is no funding requirement associated with our Supplemental Executive Retirement Plan (“SERP”) and, as a result, no contributions have been made through the year ended
December 31, 2017. Kforce does not currently anticipate funding our SERP during 2018. Kforce has included the total undiscounted projected benefit payments, as determined
at December 31, 2017, in the table above.
Kforce has no material unrecorded commitments, losses, contingencies or guarantees associated with any related parties or
unconsolidated entities.
CRITICAL ACCOUNTING ESTIMATES
Our consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the U.S. (“GAAP”).
In connection with the preparation of our consolidated financial
statements, we are required to make assumptions and estimates
about future events, and apply judgments that affect the reported
amount of assets, liabilities, revenues, expenses and the related
disclosures. We base our assumptions, estimates and judgments
on historical experience, current trends, and other factors that
management believes to be relevant at the time our consolidated
financial statements are prepared. On a regular basis, management
reviews the accounting policies, estimates, assumptions and
judgments to ensure that our consolidated financial statements are
presented fairly and in accordance with GAAP. However, because
future events and their effects cannot be determined with certainty,
actual results could differ from our assumptions and estimates, and
such differences could be material.
Our significant accounting policies are discussed in Note 1—
“Summary of Significant Accounting Policies” in the Notes to
Consolidated Financial Statements, included in this Annual Report.
Management believes that the following accounting estimates
are the most critical to aid in fully understanding and evaluating
our reported financial results, and they require management’s
most difficult, subjective or complex judgments, resulting from
the need to make estimates about the effect of matters that are
inherently uncertain.
KFORCE INC. AND SUBSIDIARIES 19
Description
Judgments and Uncertainties
Effect if Actual Results
Differ From Assumptions
ALLOWANCE FOR DOUBTFUL ACCOUNTS, FALLOUTS
AND OTHER ACCOUNTS RECEIVABLE RESERVES
See Note 1—“Summary of Significant
Accounting Policies” in the Notes to Consolidated
Financial Statements, included in this Annual
Report, for a complete discussion of our policies
related to determining our allowance for
doubtful accounts, fallouts and other accounts
receivable reserves.
ACCOUNTING FOR INCOME TAXES
See Note 3—“Income Taxes” in the Notes to
Consolidated Financial Statements, included in
this Annual Report for a complete discussion of the
components of Kforce’s income tax expense, as
well as the temporary differences that exist as of
December 31, 2017
Kforce performs an ongoing analysis of factors
including recent write-off and delinquency
trends, a specific analysis of significant receivable
balances that are past due, the concentration of
accounts receivable among clients and higher-
risk sectors, and the current state of the U.S.
economy, in establishing its allowance for
doubtful accounts.
Kforce estimates its allowance for Direct Hire
fallouts based on our historical experience with
the actual occurrence of fallouts.
Kforce estimates its reserve for future revenue
adjustments (e.g. bill rate adjustments, time card
adjustments, early pay discounts) based on our
historical experience.
We have not made any material changes in
the accounting methodology used to establish
our allowance for doubtful accounts, fallouts
and other accounts receivable reserves.
We do not believe there is a reasonable
likelihood that there will be a material change
in the future estimates or assumptions we use
to calculate our allowance for doubtful accounts,
fallouts and other accounts receivable reserves.
However, if our estimates regarding estimated
accounts receivable losses are inaccurate,
we may be exposed to losses or gains that could
be material.
A 10% change in accounts receivable reserved
at December 31, 2017, would have impacted
our net income for 2017 by approximately $0.1
million.
Our consolidated effective income tax rate
is influenced by tax planning opportunities
available to us in the various jurisdictions in
which we conduct business. Significant judgment
is required in determining our effective tax rate
and in evaluating our tax positions, including
those that may be uncertain.
Kforce is also required to exercise judgment
with respect to the realization of our net deferred
tax assets. Management evaluates all positive
and negative evidence and exercises judgment
regarding past and future events to determine if
it is more likely than not that all or some portion
of the deferred tax assets may not be realized. If
appropriate, a valuation allowance is recorded
against deferred tax assets to offset future tax
benefits that may not be realized.
We do not believe that there is a reasonable
likelihood that there will be a material change in
our effective tax rate for 2017 or our liability for
uncertain income tax positions.
However, if actual results are not consistent
with our estimates or assumptions, we may be
exposed to losses that could be material. Kforce
recorded a valuation allowance of approximately
$1.7 million as of December 31, 2017 related
primarily to a foreign tax credit that we expect may
not be realizable.
A 0.50% change in our effective income tax rate
would have impacted our net income for 2017 by
approximately $0.3 million.
20 KFORCE INC. AND SUBSIDIARIES
Description
Judgments and Uncertainties
Effect if Actual Results
Differ From Assumptions
SELF-INSURED LIABILITIES
We are self-insured for certain losses related
to health insurance and workers’ compensation
claims that are below insurable limits. However,
we obtain third-party insurance coverage to limit
our exposure to claims in excess of insurable limits.
When estimating our self-insured liabilities, we
consider a number of factors, including historical
claims experience, plan structure, internal claims
management activities, demographic factors and
severity factors. Periodically, management reviews
its assumptions to determine the adequacy of our
self-insured liabilities.
Our liabilities for health insurance and workers’
compensation claims as of December 31, 2017
were $2.6 million and $1.2 million, respectively.
DEFINED BENEFIT PENSION PLANS
We have a defined benefit pension plan that
benefits certain named executive officers, the
SERP. See Note 7– “Employee Benefit Plans” in
the Notes to Consolidated Financial Statements,
included in this Annual Report for a complete
discussion of the terms of this plan.
The SERP was not funded as of December 31,
2017 or 2016.
Our self-insured liabilities contain uncertainties
because management is required to make
assumptions and to apply judgment to estimate
the ultimate total cost to settle reported claims
and claims incurred but not reported (“IBNR”) as
of the balance sheet date.
When estimating the obligation for our
pension benefit plan, management is required to
make certain assumptions and to apply judgment
with respect to determining an appropriate
discount rate, bonus percentage assumptions
and expected effect of future compensation
increases for the participants in the plan
GOODWILL IMPAIRMENT
We evaluate goodwill for impairment
annually or more frequently whenever
events or circumstances indicate that the fair
value of a reporting unit is below its carrying
value. We monitor the existence of potential
impairment indicators throughout the year.
See Note 4—“Goodwill and Other Intangible
Assets” in the Notes to Consolidated Financial
Statements, included in this Annual Report
for a complete discussion of the valuation
methodologies employed.
The carrying value of goodwill as of
December 31, 2017 by reporting unit was
approximately $17.0 million, $8.0 million and
$20.9 million for our Tech, FA and GS reporting
units, respectively.
We determine the fair value of our reporting
units (Tech, FA and GS) using widely accepted
valuation techniques, including the discounted cash
flow, guideline transaction method and guideline
company method. These types of analyses contain
uncertainties because they require management
to make significant assumptions and judgments
including: (1) an appropriate rate to discount the
expected future cash flows; (2) the inherent risk
in achieving forecasted operating results; (3) long-
term growth rates; (4) expectations for future
economic cycles; (5) market comparable companies
and appropriate adjustments thereto; and (6)
market multiples.
It is our policy to conduct impairment testing
based on our current business strategy in light of
present industry and economic conditions, as well
as future expectations.
We have not made any material changes in
the accounting methodologies used to establish
our self-insured liabilities.
We do not believe there is a reasonable
likelihood that there will be a material change in
the estimates or assumptions we use to calculate
our self-insured liabilities. However, if actual
results are not consistent with our estimates or
assumptions, we may be exposed to losses or
gains that could be material.
A 10% change in our self-insured liabilities
related to health insurance and workers’
compensation as of December 31, 2017 would
have impacted our net income for 2017 by
approximately $0.2 million.
We do not believe there is a reasonable
likelihood that there will be a material change in
the estimates or assumptions we use to calculate
our obligation. However, if actual results are not
consistent with our estimates or assumptions,
we may be exposed to losses or gains that could
be material.
A 10% change in the discount rate used
to measure the net periodic pension cost for
the SERP during 2017 would have had an
insignificant impact on our net income for 2017.
Kforce performed a quantitative assessment
for each of our reporting units (Tech, FA and
GS) as of December 31, 2017. We compared
the carrying value of each reporting unit to the
respective estimated fair value as of December 31,
2017 and determined that the fair value
significantly exceeded carrying value for each
of our reporting units. As a result, no goodwill
impairment charges were recognized during the
year ended December 31, 2017.
Although the valuation of the business
supported its carrying value in 2017, a
deterioration in any of the assumptions
could result in an impairment charge in
the future.
NEW ACCOUNTING STANDARDS
See Note 1—“Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements, included in this Annual
Report for a discussion of new accounting standards.
KFORCE INC. AND SUBSIDIARIES 21
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Kforce is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) of the Exchange Act. Kforce’s internal control system was designed to provide reasonable assurance to Kforce’s management
and Board of Directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of the CEO and the CFO, Kforce’s management assessed the effectiveness of Kforce’s
internal control over financial reporting as of December 31, 2017. In making this assessment, it used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on our assessment
we believe that, as of December 31, 2017, Kforce’s internal control over financial reporting is effective based on those criteria.
Kforce’s independent registered public accounting firm, Deloitte & Touche LLP, has issued an audit report on our internal control over
financial reporting. This report follows.
22 KFORCE INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Kforce Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Kforce Inc. and subsidiaries (“Kforce”) as of December 31, 2017 and
2016, the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows, for
each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”).
We also have audited Kforce’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal
Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kforce as of
December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2017, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, Kforce maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal
Control—Integrated Framework (2013) issued by COSO.
Basis for Opinions
Kforce’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on
Kforce’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to Kforce in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and
whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our
audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that
our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Tampa, Florida
February 23, 2018
We have served as Kforce’s auditor since 2000.
KFORCE INC. AND SUBSIDIARIES 23
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
Years Ended December 31,
Net service revenues
Direct costs of services
Gross profit
Selling, general and administrative expenses
Depreciation and amortization
Income from operations
Other expense, net
Income before income taxes
Income tax expense
Net income
Other comprehensive (loss) income:
Defined benefit pension plans, net of tax
Change in fair value of interest rate swap, net of tax
Comprehensive income
Earnings per share—basic
Earnings per share—diluted
2017
$1,357,940
949,884
408,056
331,172
8,255
68,629
4,535
64,094
30,809
33,285
2016
$1,319,706
911,207
408,499
340,742
8,701
59,056
3,101
55,955
23,182
32,773
2015
$1,319,238
905,124
414,114
330,034
9,831
74,249
2,577
71,672
28,848
42,824
(373)
289
(134)
—
689
—
$ 33,201
$ 32,639
$ 43,513
$1.32
$1.30
$1.26
$1.25
$1.53
$1.52
Weighted average shares outstanding—basic
25,222
26,099
27,910
Weighted average shares outstanding—diluted
25,586
26,274
28,190
Dividends declared per share
$0.48
$0.48
$0.45
The accompanying notes are an integral part of these consolidated financial statements.
24 KFORCE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
ASSETS
Current assets:
Cash and cash equivalents
Trade receivables, net of allowances of $2,333 and $2,066, respectively
Income tax refund receivable
Prepaid expenses and other current assets
Total current assets
Fixed assets, net
Other assets, net
Deferred tax assets, net
Intangible assets, net
Goodwill
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities
Accrued payroll costs
Other current liabilities
Income taxes payable
Total current liabilities
Long-term debt—credit facility
Long-term debt—other
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding
Common stock, $0.01 par; 250,000 shares authorized, 71,494 and 71,268 issued, respectively
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings
Treasury stock, at cost; 45,167 and 44,469 shares, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
2017
2016
$ 379 $
225,865
7,116
12,085
245,445
39,680
38,598
11,316
3,297
45,968
$ 384,304
$ 34,873
46,886
1,960
—
83,719
116,523
2,597
47,188
250,027
1,482
206,361
172
10,691
218,706
43,145
30,511
23,449
3,642
45,968
$ 365,421
$ 37,230
44,137
1,765
221
83,353
111,547
3,984
44,801
243,685
—
715
437,394
100
195,143
(499,075)
134,277
$ 384,304
—
713
428,212
184
174,967
(482,340)
121,736
$ 365,421
KFORCE INC. AND SUBSIDIARIES 25
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
Years Ended December 31,
Common stock—shares:
Shares at beginning of year
Issuance for stock-based compensation and dividends, net of forfeitures
Exercise of stock options
Shares at end of year
Common stock—par value:
Balance at beginning of year
Issuance for stock-based compensation and dividends, net of forfeitures
Exercise of stock options
Balance at end of year
Additional paid-in capital:
Balance at beginning of year
Cumulative effect upon adoption of new accounting standard (Note 1)
Issuance for stock-based compensation and dividends, net of forfeitures
Exercise of stock options
Income tax benefit from stock-based compensation
Stock-based compensation expense
Employee stock purchase plan
Balance at end of year
Accumulated other comprehensive income (loss):
Balance at beginning of year
Defined benefit pension plans, net of tax benefit of $207 and $89,
and tax expense of $429, respectively
Change in fair value of interest rate swap, net of tax of $189
Balance at end of year
Retained earnings:
Balance at beginning of year
Cumulative effect upon adoption of new accounting standard (Note 1), net of tax of $300
Net income
Dividends, net of forfeitures ($0.48, $0.48 and $0.45 per share, respectively)
Balance at end of year
Treasury stock—shares:
Shares at beginning of year
Repurchases of common stock
Shares tendered in payment of the exercise price of stock options
Employee stock purchase plan
Shares at end of year
Treasury stock—cost:
Balance at beginning of year
Repurchases of common stock
Shares tendered in payment of the exercise price of stock options
Employee stock purchase plan
Balance at end of year
The accompanying notes are an integral part of these consolidated financial statements.
2017
2016
2015
71,268
221
5
71,494
$ 713
2
—
$ 715
$ 428,212
769
494
72
—
7,600
247
$ 437,394
70,558
695
15
71,268
$ 705
8
—
$ 713
$ 420,276
—
447
172
307
6,705
305
$ 428,212
70,029
497
32
70,558
$ 700
5
—
$ 705
$ 412,642
—
556
381
551
5,819
327
$ 420,276
$ 184
$ 318
$ (371
)
(373)
289
$ 100
$ 174,967
(469)
33,285
(12,640)
$ 195,143
44,469
723
—
(25)
45,167
(134)
—
$ 184
$ 155,096
—
32,773
(12,902)
$ 174,967
42,130
2,370
3
(34)
44,469
689
—
$ 318
$ 125,378
—
42,824
(13,106)
$ 155,096
40,616
1,540
—
(26)
42,130
$(482,340)
(17,010)
—
275
$(499,075)
$(436,768)
(45,873)
(63)
364
$(482,340)
$(398,961)
(38,058)
—
251
$(436,768)
26 KFORCE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to cash provided by operating activities:
2017
2016
2015
$ 33,285
$ 32,773
$ 42,824
Deferred income tax provision, net
Provision for bad debt
Depreciation and amortization
Stock-based compensation expense
Defined benefit pension plans expense
Loss on deferred compensation plan investments, net
Gain on sale of Global’s assets
Contingent consideration liability remeasurement
Other
(Increase) decrease in operating assets
Trade receivables, net
Income tax refund receivable
Prepaid expenses and other current assets
Other assets, net
(Decrease) increase in operating liabilities
Accounts payable and other current liabilities
Accrued payroll costs
Income taxes payable
Other long-term liabilities
Cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Proceeds from sale of Global’s assets
Proceeds from the disposition of assets held within the Rabbi Trust
Purchase of assets held within the Rabbi Trust
Cash used in investing activities
Cash flows from financing activities:
Proceeds from credit facility
Payments on credit facility
Proceeds from other financing arrangements
Payments on other financing arrangements
Payments of loan financing fees
Proceeds from exercise of stock options, net of shares tendered in payment of exercise
Repurchases of common stock
Cash dividend
Other
Cash used in financing activities
Change in cash and cash equivalents
Cash and cash equivalents at beginning of year
12,243
1,031
8,508
7,600
937
510
(3,148)
565
888
(20,535)
(6,944)
(1,471)
(556)
(1,537)
1,954
(221)
(3,770)
29,339
(5,846)
1,000
—
—
(4,846)
1,038,593
(1,033,617)
—
(2,148)
(1,730)
72
(14,622)
(12,144)
—
(25,596)
(1,103)
1,482
2,007
976
8,796
6,705
1,733
597
—
(42)
321
(8,403)
354
(1,631)
(495)
(1,920)
(1,320)
(489)
(139)
39,823
(12,420)
—
—
—
(12,420)
937,083
(906,008)
1,783
(1,830)
(158)
172
(46,013)
(12,447)
—
(27,418)
(15)
1,497
2,380
1,553
9,849
5,819
1,846
77
—
321
308
4,223
2,785
1,110
(298)
1,788
(5,503)
(1,657)
3,306
70,731
(8,328)
—
445
(481)
(8,364)
604,668
(617,529)
2,914
(1,274)
—
381
(38,471)
(12,545)
(252)
(62,108)
259
1,238
Cash and cash equivalents at end of year
$ 379
$ 1,482
$ 1,497
The accompanying notes are an integral part of these consolidated financial statements.
KFORCE INC. AND SUBSIDIARIES 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in
conformity with U.S. GAAP and the rules of the SEC.
Principles of Consolidation
The consolidated financial statements include the accounts of
Kforce Inc. and its wholly-owned subsidiaries. All intercompany
transactions and balances have been eliminated in consolidation.
References in this document to “Kforce,” “the Company,” “we,”
“the Firm,” “management,” “our” or “us” refer to Kforce Inc. and its
subsidiaries, except where the context indicates otherwise.
Use of Estimates
The preparation of financial statements in conformity with U.S.
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
financial statements and the reported amounts of revenues and
expenses during the reporting period. The most important of these
estimates and assumptions relate to the following: allowance for
doubtful accounts, fallouts and other trade accounts receivable
reserves; income taxes; self-insured liabilities for workers’
compensation and health insurance; obligations for defined benefit
pension plans and goodwill and identifiable intangible assets and
any related impairment. Although these and other estimates and
assumptions are based on the best available information, actual
results could be materially different from these estimates.
Revenue Recognition
Revenue is considered earned once evidence of an arrangement
has been obtained, service is performed or delivery has occurred, fees
are fixed or determinable, and collectability is reasonably assured.
Kforce’s primary sources of revenues are Flex and Direct Hire.
Flex revenues are recognized as the temporary staffing services
are provided by Kforce’s consultants. Flex revenues are recorded
net of credits, discounts, rebates and revenue-related reserves.
Reimbursements of travel and out-of-pocket expenses (“billable
expenses”) are also recorded within Flex revenues with an equivalent
amount of expense recorded in direct costs of services.
Direct Hire revenues are recognized when candidates accept
offers of permanent employment and are scheduled to commence
employment within 30 days. Direct Hire revenues are recorded
net of an estimated reserve for fallouts, which is estimated based
on Kforce’s historical fallout experience. Fallouts occur when a
candidate does not remain employed with the client through
the contingency period, which is typically 90 days or less. Our GS
segment does not generate any Direct Hire revenues.
Our GS segment generates its revenues under contracts that are,
in general, greater in duration than our other segments and which
can often span several years, inclusive of renewal periods. Our GS
segment, which represents approximately 8% of total revenues,
generates revenues under the following contract arrangements:
• Revenues for time-and-materials contracts, which accounts for
approximately 58% of this segment’s revenue, are recognized
based on contractually established billing rates at the time
services are provided.
• Revenues for fixed-price contracts are recognized on the basis
of the estimated percentage-of-completion. Approximately
30% of this segment’s revenues are recognized under this
method. Progress towards completion is typically measured
based on costs incurred as a proportion of estimated total costs
or other measures of progress when applicable. Profit in a given
28 KFORCE INC. AND SUBSIDIARIES
period is reported at the expected profit margin to be achieved
on the overall contract.
• Revenues for the product-based business, which accounts for
approximately 12% of this segment’s revenues, are recognized
at the time of delivery.
Kforce collects sales tax for various taxing authorities and our
policy is to record these amounts on a net basis; thus, gross sales
tax amounts are not included in net service revenues.
Direct Costs of Services
Direct costs of services are composed of all related costs of
employment for consultants, including compensation, payroll
taxes, payroll-related insurance and certain fringe benefits, as well
as subcontractor costs. Direct costs of services exclude depreciation
and amortization expense (except for the GS product-based
business), which is presented on a separate line in the accompanying
Consolidated Statements of Operations and Comprehensive Income.
Commissions
Our associates make placements and earn commissions as a
percentage of gross profit for Flex or Direct Hire revenues pursuant
to a commission plan. The amount of associate commissions paid
increases as volume increases. Kforce accrues commissions at a
percentage equal to the percent of total expected commissions
payable to total revenues or gross profit for the commission-plan
period, as applicable.
Stock-Based Compensation
Stock-based compensation is measured using the grant-date fair
value of the award of equity instruments. The expense is recognized
over the requisite service period. Effective January 1, 2017, as a
result of our adoption of a recently issued accounting standard, the
Firm changed its accounting policy regarding forfeitures and elected
to recognize as incurred.
Income Taxes
Kforce accounts for income taxes using the asset and liability
approach to the recognition of deferred tax assets and liabilities for
the expected future tax consequences of differences between the
financial statement carrying amounts and the tax basis of assets
and liabilities. Unless it is more likely than not that a deferred tax
asset can be utilized to offset future taxes, a valuation allowance is
recorded against that asset. Effective January 1, 2017, as a result of
our adoption of a recently issued accounting standard, excess tax
benefits or deficiencies of deductions attributable to employees’
vesting of restricted stock are reflected in Income tax expense in
the accompanying Consolidated Statements of Operations and
Comprehensive Income.
Management evaluates tax positions that have been taken or
are expected to be taken in its tax returns and records a liability
for uncertain tax positions. Kforce recognizes tax benefits from
uncertain tax positions when it is more likely than not that the
position will be sustained upon examination, including resolutions
of any related appeals or litigation processes.
Cash and Cash Equivalents
Kforce classifies all highly liquid investments with an original
initial maturity of three months or less as cash equivalents. Cash
and cash equivalents consist of cash on hand with banks, either in
commercial accounts, or overnight interest-bearing money market
accounts and at times may exceed federally insured limits. Cash and
cash equivalents are stated at cost, which approximates fair value
due to the short duration of their maturities.
Trade Accounts Receivable and Related Reserves
Kforce records trade accounts receivables at the invoiced amount,
net of reserves for allowance for doubtful accounts, fallouts, early
payment discounts and revenue adjustments based on historical
trends and estimates of potential future activity. The allowance for
doubtful accounts, which comprises a majority of our trade accounts
receivable reserves, is determined based on factors including recent
write-off and delinquency trends, a specific analysis of significant
receivable balances that are past due, the concentration of trade
accounts receivables among clients and higher-risk sectors, and
the current state of the U.S. economy. Trade accounts receivables
are written off after all reasonable collection efforts have been
exhausted. Trade accounts receivable reserves as a percentage of
gross trade receivables was 1.0% at December 31, 2017 and 2016.
Fixed Assets
Fixed assets are carried at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. The cost of leasehold
improvements is amortized using the straight-line method over the
lesser of the estimated useful lives of the assets or the terms of the
related leases, which generally range from three to five years. Upon
sale or disposition of our fixed assets, the cost and accumulated
depreciation are removed and any resulting gain or loss, net of
proceeds, is reflected within SG&A in the Consolidated Statements
of Operations and Comprehensive Income.
Leases
Leases for our field offices, which are located throughout the
U.S., range from three to five-year terms although a limited number
of leases contain short-term renewal provisions that range from
month-to-month to one year.
For leases that contain escalations of the minimum rent, we
recognize the related rent expense on a straight-line basis over
the lease term. We record any difference between the straight-line
rent amounts and amounts payable under the leases as a deferred
rent liability in Accounts payable and other accrued liabilities or
Other long-term liabilities, as appropriate, in the Consolidated
Balance Sheets.
The Company records incentives provided by landlords for
leasehold improvements in Accounts payable and other accrued
liabilities or Other long-term liabilities, as appropriate, in the
Consolidated Balance Sheets and records a corresponding reduction
in rent expense on a straight-line basis over the lease term.
Goodwill and Other Intangible Assets
Goodwill
Management has determined that the reporting units for the
goodwill analysis is consistent with our reporting segments. We
evaluate goodwill for impairment either through a qualitative
or quantitative approach annually, or more frequently if an
event occurs or circumstances change that indicate the carrying
value of a reporting unit may not be recoverable. If we perform
a quantitative assessment that indicates the carrying amount
of a reporting unit exceeds its fair market value, an impairment
loss is recognized to reduce the carrying amount to its fair market
value. Kforce determines the fair market value of each reporting
unit based on a weighting of the present value of projected future
cash flows (the “income approach”) and the use of comparative
market approaches under both the guideline company method
and guideline transaction method (collectively, the “market
approach”). Fair market value using the income approach is based
on Kforce’s estimated future cash flows on a discounted basis.
The market approach compares each reporting unit to other
comparable companies based on valuation multiples derived
from operational and transactional data to arrive at a fair value.
Factors requiring significant judgment include, among others,
the assumptions related to discount rates, forecasted operating
results, long-term growth rates, the determination of comparable
companies, and market multiples. Changes in economic and
operating conditions or changes in Kforce’s business strategies
that occur after the annual impairment analysis may impact these
assumptions and result in a future goodwill impairment charge,
which could be material to our consolidated financial statements.
Other Intangible Assets
Identifiable intangible assets arising from certain of Kforce’s
acquisitions include non-compete and employment agreements,
contractual relationships, client contracts, technology, and a
trade name and trademark. Our trade names and trademarks,
and derivatives thereof, and GS’s Data Confidence trademark are
important to our business. Our primary trade names and trademark
are registered with the U.S. Patent and Trademark Office.
For definite-lived intangible assets, amortization is computed
using the straight-line method over the period of expected benefit,
which ranges from one to fifteen years. The impairment evaluation
for indefinite-lived intangible assets, our trademark and trade
name, is conducted on an annual basis or more frequently if events
or changes in circumstances indicate that an asset may be impaired.
Impairment of Long-Lived Assets
Kforce reviews long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. Recoverability of long-lived
assets is measured by a comparison of the carrying amount of the
asset group to the future undiscounted net cash flows expected to
be generated by those assets. If an analysis indicates the carrying
amount of these long-lived assets exceeds the fair value, an
impairment loss is recognized to reduce the carrying amount to
its fair market value, as determined based on the present value of
projected future cash flows.
Capitalized Software
Kforce purchases, develops, and implements software to enhance
the performance of our technology infrastructure. Direct internal
costs, such as payroll and payroll-related costs, and external costs
incurred during the development stage are capitalized and classified
as capitalized software. Capitalized software development costs and
the associated accumulated amortization are classified as Other assets,
net in the accompanying Consolidated Balance Sheets. Amortization
is computed using the straight-line method over the estimated useful
lives of the software, which range from one to seven years.
Workers’ Compensation
Kforce retains the economic burden for the first $250 thousand
per occurrence in workers’ compensation claims except: (1) in states
that require participation in state-operated insurance funds and
(2) for Kforce Government Solutions, Inc. which is fully insured for
workers’ compensation claims. Workers’ compensation includes
ongoing health care and indemnity coverage for claims and may
be paid over numerous years following the date of injury. Workers’
compensation expense includes insurance premiums paid, claims
administration fees charged by Kforce’s workers’ compensation
administrator, premiums paid to state-operated insurance funds
and an estimate for Kforce’s liability for IBNR claims and for the
ongoing development of existing claims.
KFORCE INC. AND SUBSIDIARIES 29
Kforce estimates its workers’ compensation liability based
upon historical claims experience, actuarially determined loss
development factors, and qualitative considerations such as claims
management activities.
Health Insurance
Except for certain fully insured health insurance lines of coverage,
Kforce retains the risk of loss for each health insurance plan
participant up to $350 thousand in claims annually. Additionally,
for all claim amounts exceeding $350 thousand, Kforce retains the
risk of loss up to an aggregate annual loss of those claims of $700
thousand. For its partially self-insured lines of coverage, health
insurance costs are accrued using estimates to approximate the
liability for reported claims and IBNR claims, which are primarily
based upon an evaluation of historical claims experience, actuarially-
determined completion factors and a qualitative review of our
health insurance exposure including the extent of outstanding
claims and expected changes in health insurance costs.
Defined Benefit Pension Plans
Kforce recognizes the unfunded status of its defined benefit
pension plans as a liability in its Consolidated Balance Sheets. Because
our plans are unfunded as of December 31, 2017, actuarial gains and
losses may arise as a result of the actuarial experience of the plans, as
well as changes in actuarial assumptions in measuring the associated
obligation as of year-end, or an interim date if any re-measurement
is necessary. The net after-tax impact of unrecognized actuarial gains
and losses related to our defined benefit pensions plans is recorded in
accumulated other comprehensive income (loss) in our consolidated
financial statements.
Amortization of a net unrecognized gain or loss in accumulated
other comprehensive income (loss) is included as a component of
net periodic benefit cost if, as of the beginning of the year, that
net gain or loss exceeds 10% of the projected benefit obligation. If
amortization is required, the minimum amortization shall be that
excess divided by the average remaining service period of active
plan participants.
Earnings per Share
Basic earnings per share is computed as net income divided by
the weighted average number of common shares outstanding
(“WASO”) during the period. WASO excludes unvested shares of
restricted stock. Diluted earnings per share is computed by dividing
net income by diluted WASO. Diluted WASO includes the dilutive
effect of stock options and other potentially dilutive securities
such as unvested shares of restricted stock using the treasury stock
method, except where the effect of including potential common
shares would be anti-dilutive.
For the years ended December 31, 2017, 2016 and 2015, there
were 364 thousand, 175 thousand, and 280 thousand common
stock equivalents, respectively, included in the diluted WASO. For
the years ended December 31, 2017, 2016 and 2015, there were 527
thousand, 32 thousand and 1 thousand, respectively, of anti-dilutive
common stock equivalents.
Treasury Stock
Kforce’s Board may authorize share repurchases of Kforce’s
common stock. Shares repurchased under Board authorizations
are held in treasury for general corporate purposes, including
issuances under the 2009 Employee Stock Purchase Plan. Treasury
shares are accounted for under the cost method and reported
as a reduction of stockholders’ equity in the accompanying
consolidated financial statements.
30 KFORCE INC. AND SUBSIDIARIES
Derivative Instrument
Kforce’s interest rate swap derivative instrument is recorded
at fair value on the Consolidated Balance Sheets. The derivative
instrument has been designated as a cash flow hedge; the effective
portion of the gain or loss on the derivative instrument is recorded
as a component of Accumulated other comprehensive income
(loss), net of tax, and reclassified into earnings when the hedged
item affects earnings and into the line item of the hedged item. Any
ineffective portion of the gain or loss is recognized immediately into
Other expense, net on the Consolidated Statements of Operations
and Comprehensive Income. Cash flows from the derivative
instrument are classified in the Consolidated Statements of Cash
Flows in the same category as the hedged item.
Fair Value Measurements
Kforce uses fair value measurements in areas that include, but are
not limited to: the impairment testing of goodwill, other intangible
assets and other long-lived assets; stock-based compensation;
interest rate swap and a contingent consideration liability. The
carrying values of cash and cash equivalents, trade accounts
receivable, other current assets and accounts payable, and other
liabilities approximate fair value because of the short-term nature
of these instruments. Using available market information and
appropriate valuation methodologies, Kforce has determined
the estimated fair value measurements; however, considerable
judgment is required in interpreting data to develop the estimates
of fair value.
New Accounting Standards
Recently Adopted Accounting Standards
In March 2017, the FASB issued authoritative guidance requiring
that an employer disaggregate the service cost component from the
other components of net periodic benefit cost for defined benefit
pension plans. The amendments also provide explicit guidance
on how to present the service cost component and the other
components of net periodic benefit cost in the income statement.
The guidance is to be applied for annual periods beginning after
December 15, 2017, including interim periods within those annual
periods, and early adoption is permitted. The guidance should be
applied retrospectively for the presentation of the service cost
component and the other components of net periodic benefit cost
in the income statements. We elected to early adopt this guidance
as of January 1, 2017 due to the ease of implementation. The
impact of early adoption resulted in a retrospective adjustment to
the Consolidated Statements of Operations and Comprehensive
Income to reclass the interest cost component of net periodic
benefit cost from Selling, general and administrative expenses
to Other expense, net. The amount of the reclassification was
approximately $0.5 million, $0.5 million and $0.4 million for the
years ended December 31, 2017, 2016 and 2015, respectively.
In January 2017, the FASB issued authoritative guidance
simplifying the subsequent measurement of goodwill by
eliminating Step 2 from the goodwill impairment test. Under this
guidance, an entity should recognize an impairment charge for the
amount by which the carrying amount exceeds the reporting unit’s
fair value; however, the loss recognized should not exceed the total
amount of goodwill allocated to that reporting unit. The guidance is
to be applied for annual or any interim goodwill impairment tests in
fiscal years beginning after December 15, 2019 and early adoption
is permitted for interim or annual goodwill impairment tests
performed on testing dates after January 1, 2017. The guidance
requires companies to apply the requirements prospectively.
We elected to early adopt this guidance as of January 1,
2017. The adoption of this guidance did not have an impact on the
Firm’s consolidated financial statements.
In March 2016, the FASB issued authoritative guidance regarding
the accounting for share-based payment transactions, including
income tax consequences, classification of awards as either equity
or liability, and classification in the statement of cash flows. This
guidance was effective for us on January 1, 2017. The impact of this
guidance resulted in the following:
• All excess tax benefits and deficiencies will be recognized as
income tax benefit or expense in the income statement. Prior
to the effective date, they were recognized as a change to
additional paid-in capital. The Firm applied this amendment
prospectively. For the year ended December 31, 2017, the Firm
recorded approximately $0.8 million of excess tax benefits
as a reduction to income tax expense in the accompanying
Consolidated Statements of Operations and Comprehensive
Income. This resulted in a reduction to our effective tax rate
of 1.2% and an increase to our diluted earnings per share of
$0.03 for the year ended December 31, 2017. This accounting
standard guidance is likely to create volatility in the Firm’s
effective tax rate in the future, though the impact is uncertain
and based upon future stock price changes.
• Excess tax benefits and deficiencies will be classified as an
operating activity in the statement of cash flows. Prior to the
effective date, they were included in financing activities in
the statement of cash flows. The Firm elected to apply this
amendment retrospectively. This change increased our net cash
provided by operating activities by $0.8 million, $0.4 million
and $0.6 million for the years ended December 31, 2017, 2016
and 2015, respectively, in the accompanying Consolidated
Statements of Cash Flows.
• An entity is allowed to make a policy election as to whether
it will include an estimate for awards expected to be forfeited
or whether it will account for forfeitures as incurred. The Firm
elected to change its policy on accounting for forfeitures and to
recognize as incurred. This policy election is to be applied using
a modified retrospective approach with a cumulative-effect
adjustment to retained earnings as of the effective date. The
impact to the beginning balance of retained earnings was $0.5
million, which is net of taxes of $0.3 million, on January 1, 2017.
In November 2015, the FASB issued authoritative guidance
requiring that deferred tax assets and liabilities be classified as
noncurrent in a classified statement of financial position. This
guidance was effective for us on January 1, 2017. The Firm elected
to apply this guidance retrospectively. As a result, $4.8 million of
current deferred tax assets, net was reclassified to noncurrent
deferred tax assets, net as of December 31, 2016.
Accounting Standards Not Yet Adopted
In August 2017, the FASB issued authoritative guidance targeting
improvements to accounting for hedging activities by simplifying
the rules around hedge accounting and improving the disclosure
requirements. The guidance is to be applied for annual periods
beginning after December 15, 2018, including interim periods
within those annual periods, and early adoption is permitted in
any interim period. The hedge accounting guidance should be
implemented using a modified retrospective approach for any
hedges that exist on the date of adoption, while the presentation
and disclosure requirements must be applied prospectively. Kforce
is currently evaluating the potential impact on the consolidated
financial statements.
In June 2016, the FASB issued authoritative guidance on
accounting for credit losses on financial instruments, including
trade receivables. The guidance requires the application of a
current expected credit loss model, which measures credit losses
based on relevant information about past events, including
historical experience, current conditions, and reasonable and
supportable forecasts. The guidance is to be applied for annual
periods beginning after December 15, 2019, and interim periods
within those annual periods, and early adoption is permitted no
sooner than annual periods beginning after December 15, 2018.
The guidance requires companies to apply the requirements using
a modified retrospective approach. Kforce is currently evaluating
the potential impact on the consolidated financial statements.
In February 2016, the FASB issued authoritative guidance
regarding the accounting for leases. The guidance is to be applied
for annual periods beginning after December 15, 2018, and
interim periods within those annual periods, and early adoption
is permitted. The guidance requires companies to apply the
requirements retrospectively to all prior periods presented,
including interim periods. Kforce elected not to adopt this standard
early. The Firm has made progress with assessing contractual
arrangements that may be impacted by the new standard. Kforce
anticipates that the adoption of this standard will have a significant
impact to its consolidated balance sheet as it will result in recording
substantially all operating leases as a right-to-use asset and lease
obligation. Kforce continues to assess all potential impacts of the
standard, especially with respect to our disclosures.
In May 2014, the FASB issued authoritative guidance regarding
revenue from contracts with customers, which specifies that
revenue should be recognized when promised goods or services
are transferred to customers in an amount that reflects the
consideration which the company expects to be entitled in exchange
for those goods or services. In August 2015, the FASB issued
authoritative guidance deferring the effective date of the new
revenue standard by one year for all entities. The one-year deferral
results in the guidance being effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15,
2017 and entities are not permitted to adopt the standard earlier
than the original effective date. Since May 2014, the FASB has
issued additional and amended authoritative guidance regarding
revenue from contracts with customers to clarify and improve the
understanding of the implementation guidance. The guidance
permits companies to either apply the requirements retrospectively
to all prior periods presented, or apply the requirements in the
year of adoption, through a cumulative adjustment. We have
selected the modified retrospective transition method. We have
completed our assessment and have concluded that it will not
have a material impact on the timing of our revenue recognition as
substantially all of our contracts with customers will continue to be
recognized over time as services are rendered. Upon adoption, we
will recognize the cumulative effect of adopting this guidance as
an adjustment to our opening balance of retained earnings, net of
tax, primarily related to certain GS contracts; this adjustment will
be approximately $0.2 million. We will also reclassify the allowance
for Direct Hire fallouts from trade accounts receivable to a contract
liability on the consolidated balance sheets. Additionally, there will
be an increase in the level of disclosure around our arrangements
and resulting revenue recognition.
KFORCE INC. AND SUBSIDIARIES 31
The 2017 effective tax rate was unfavorably impacted due to the
revaluation of our net deferred tax assets as a result of TCJA. The
2016 effective tax rate was unfavorably impacted by certain one-time
non-cash adjustments. The 2015 effective tax rate was unfavorably
impacted by a change in the overall mix of income in the various state
jurisdictions and the increase in particular uncertain tax positions.
Deferred tax assets and liabilities are composed of the following
(in thousands):
December 31,
2017
2016
Deferred tax assets:
Accounts receivable reserves
Accrued liabilities
Deferred compensation obligation
Stock-based compensation
Pension and post-retirement benefit plans
Goodwill and intangible assets
Foreign tax credit
Other
$ 611
1,953
5,423
598
3,767
526
1,632 —
289
$ 812
3,400
9,206
2,196
6,029
3,869
230
Deferred tax assets
Deferred tax liabilities:
Prepaid expenses
Fixed assets
Other
Deferred tax liabilities
Valuation allowance
14,799
25,742
(251)
(1,482)
(17)
(1,750)
(1,733)
(260)
(1,593)
(355)
(2,208)
(85)
Deferred tax assets, net
$11,316
$23,449
At December 31, 2017, Kforce had approximately $6.1 million of
state tax net operating losses (“NOLs”) which will be carried forward
to be offset against future state taxable income. The state tax NOLs
expire in varying amounts through 2033.
In evaluating the realizability of Kforce’s deferred tax assets,
management assesses whether it is more likely than not that
some portion, or all, of the deferred tax assets, will be realized.
Management considers, among other things, the ability to generate
future taxable income (including reversals of deferred tax liabilities)
during the periods in which the related temporary differences will
become deductible. The increase in the valuation allowance during
the year ended December 31, 2017 was related to the foreign tax
credit, which we expect may not be realizable as a result of reduction
in our foreign income.
Kforce is periodically subject to IRS audits, as well as state and
other local income tax audits for various tax years. During 2017 and
2016, there were no on-going IRS examinations. Although Kforce
has not experienced any material liabilities in the past due to
income tax audits, Kforce can make no assurances concerning any
future income tax audits.
2. FIXED ASSETS
The following table presents major classifications of fixed assets
and related useful lives (in thousands):
December 31,
Land
Building and improvements
Furniture and equipment
Computer equipment
Leasehold improvements
Useful Life
5-40 years
5-20 years
3-5 years
3-5 years
Less accumulated depreciation
2017
2016
$ 5,892 $ 5,892
25,701
17,084
11,003
13,345
73,025
(29,880)
25,733
17,285
9,231
13,424
71,565
(31,885)
Total Fixed assets, net
$ 39,680 $ 43,145
Computer equipment as of December 31, 2017 and 2016 includes
equipment acquired under capital leases of $3.5 million and
$4.0 million, respectively, and related accumulated depreciation of
$2.1 million and $2.3 million, respectively. Depreciation expense,
which includes capital leases, during the years ended December 31,
2017, 2016 and 2015 was $6.9 million, $6.7 million, and $6.7
million, respectively.
3. INCOME TAXES
The Tax Cuts and Jobs Act was enacted in December 2017,
which will reduce the U.S. federal corporate tax rate from 35.0% to
21.0% beginning in 2018. As a result, we revalued our net deferred
income tax assets and recorded $5.4 million of additional Income
tax expense in the Consolidated Statement of Operations and
Comprehensive Income.
The provision for income taxes from continuing operations
consists of the following (in thousands):
Years Ended December 31,
Current tax expense:
Federal
State
Deferred tax expense (1)
2017
2016
2015
$15,060 $16,677 $22,265
4,632
1,951
3,244
12,505
3,829
2,676
Total Income tax expense
$30,809 $23,182 $28,848
(1) Includes the impact of TCJA.
The provision for income taxes from continuing operations
shown above varied from the statutory federal income tax rate for
those periods as follows:
Years Ended December 31,
2017
2016
2015
Federal income tax rate
State income taxes,
net of Federal tax effect
Non-deductible compensation
and meals and entertainment
Tax credits
Valuation allowance on foreign
tax credit
Enactment of TCJA
Other
Effective tax rate
35.0%
35.0%
35.0%
3.8
6.8
6.1
0.7
(2.2)
2.5
9.1
(0.8)
1.2
(2.1)
—
—
0.5
0.7
(1.0)
—
—
(0.5)
48.1%
41.4%
40.3%
32 KFORCE INC. AND SUBSIDIARIES
Uncertain Income Tax Positions
The following table presents a reconciliation of the beginning and ending balance of unrecognized tax benefits for the years ended (in thousands):
December 31,
Unrecognized tax benefits, beginning
Additions for prior year tax positions
Additions for current year tax positions
Reductions for tax positions of prior years
Lapse of statute of limitations
Settlements
Unrecognized tax benefits, ending
2017
$1,115
50
29
—
(67)
—
$1,127
2016
$ 788
454
—
(25)
(102)
—
$1,115
2015
$278
625
—
(8)
(25)
(82)
$788
As of December 31, 2017, the amount of unrecognized tax benefit that would impact the effective tax rate, if recognized, is $0.7 million.
Kforce does not expect any significant changes to its uncertain tax positions in the next 12 months.
Kforce and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states. Kforce Global Solutions, Inc. files income
tax returns in the Philippines. With a few exceptions, Kforce is no longer subject to federal, state, local, or non-U.S. income tax examinations
by tax authorities for years before 2014.
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The following table presents the gross amount and accumulated impairment losses for each of our reporting units as of December 31,
2017, 2016 and 2015 (in thousands):
Goodwill, gross amount
Accumulated impairment losses
Goodwill, carrying value
Technology
$ 156,391
(139,357)
$ 17,034
Finance and
Accounting
Government
Solutions
Total
$ 19,766
(11,760)
$ 8,006
$104,596
(83,668)
$ 280,753
(234,785)
$ 20,928
$ 45,968
There was no impairment expense related to goodwill for each of the years ended December 31, 2017, 2016 and 2015.
Throughout 2017, we considered the qualitative and quantitative
factors associated with each of our reporting units and determined
that there was no indication that the carrying values of any of our
reporting units were likely impaired.
Kforce performed a quantitative analysis for each reporting unit
and compared the carrying value of Tech, FA and GS to the respective
estimated fair values as of December 31, 2017. Discounted cash flows,
which serve as the primary basis for the income approach, were based
on a discrete financial forecast developed by management. Cash
flows beyond the discrete forecast period of five years were estimated
using a terminal value calculation, which incorporated historical and
forecasted financial trends and also considered long-term earnings
growth rates for publicly-traded peer companies, as well as the risk-
free rate of return. The market approach consist of: (1) the guideline
company method and (2) the guideline transaction method. The
guideline company method applies pricing multiples derived from
publicly-traded guideline companies that are comparable to the
reporting unit to determine its value. The guideline transaction method
applies pricing multiples derived from recently completed acquisitions
that we believe are reasonably comparable to the reporting unit to
determine fair value. Kforce concluded there were no indications
of impairment for its reporting units during the December 31,
2017 annual impairment tests.
As of December 31, 2016 and 2015, for our GS reporting unit, we
performed a quantitative analysis and compared the carrying value
to the estimated fair value, using a similar approach as described
above noting no indications of impairment. As of December 31,
2016 and 2015, for our Tech and FA reporting units, we assessed
qualitative factors to determine whether the existence of events or
circumstances indicated that it was more likely than not that the
fair value of the reporting units was less than its carrying amount.
We concluded that it was more likely than not that the fair value of
the reporting units were more than its carrying amount.
Other Intangible Assets
Our other intangible assets balance includes an indefinite-lived
trademark of $2.2 million as of December 31, 2017 and 2016 and is
recorded in Intangible assets, net in the accompanying Consolidated
Balance Sheets. As of December 31, 2017 and 2016, our definite-
lived intangible assets balance of $1.1 million and $1.4 million,
respectively, included accumulated amortization of $27.5 million and
$27.2 million, respectively. There was no impairment expense related
to our other intangible assets during the years ended December 31,
2017, 2016 and 2015.
5. ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES
Accounts payable and other accrued liabilities consisted of the
following (in thousands):
December 31,
Accounts payable
Accrued liabilities
Total Accounts payable and other
accrued liabilities
2017
2016
$21,591
13,282
$20,321
16,909
$34,873
$37,230
Our accounts payable balance includes trade creditor and
independent contractor payables. Our accrued liabilities balance
includes the current portion of our deferred compensation plans
liability, accrued customer rebates and other accrued liabilities.
KFORCE INC. AND SUBSIDIARIES 33
6. ACCRUED PAYROLL COSTS
Accrued payroll costs consisted of the following (in thousands):
December 31,
Payroll and benefits
Payroll taxes
Health insurance liabilities
Workers’ compensation liabilities
Total Accrued payroll costs
7. EMPLOYEE BENEFIT PLANS
401(k) Savings Plans
2017
2016
$37,788
5,270
2,596
1,232
$37,409
2,640
2,790
1,298
$46,886
$44,137
The Firm maintains various qualified defined contribution 401(k)
retirement savings plans for eligible employees. Assets of these
plans are held in trust for the sole benefit of employees and/or their
beneficiaries. Employer matching contributions are discretionary
and are funded annually as approved by Kforce’s Board.
Kforce accrued matching 401(k) contributions of $1.6 million
and $1.5 million as of December 31, 2017 and 2016, respectively.
The plans held a combined 167 thousand and 201 thousand shares
of Kforce’s common stock as of December 31, 2017 and 2016,
respectively.
Employee Stock Purchase Plan
Kforce’s employee stock purchase plan allows all eligible employees
to enroll each quarter to purchase Kforce’s common stock at a 5%
discount from its market price on the last day of the quarter. Kforce
issued 25 thousand, 34 thousand, and 26 thousand shares of common
stock at an average purchase price of $20.65, $19.37, and $22.61 per
share during the years ended December 31, 2017, 2016 and 2015,
respectively. All shares purchased under the employee stock purchase
plan were settled using Kforce’s treasury stock.
Deferred Compensation Plans
The Firm maintains various non-qualified deferred compensation
plans, pursuant to which eligible management and highly
compensated key employees, as defined by IRS regulations, may
elect to defer all or part of their compensation to later years.
These amounts are classified in Accounts payable and other
accrued liabilities if payable within the next year or in Other long-
term liabilities if payable after the next year, upon retirement or
termination of employment in the accompanying Consolidated
Balance Sheets. At December 31, 2017 and 2016, amounts included
in Accounts payable and other accrued liabilities related to the
deferred compensation plans totaled $2.9 million and $2.7 million,
respectively. Amounts included in Other long-term liabilities related
to the deferred compensation plans totaled $28.9 million and $27.5
million as of December 31, 2017 and 2016, respectively. For the
years ended December 31, 2017, 2016 and 2015, we recognized
compensation expense for the plans of $722 thousand, $881
thousand and $401 thousand, respectively. Kforce maintains a Rabbi
Trust and holds life insurance policies on certain individuals to assist
in the funding of the deferred compensation liability. If necessary,
employee distributions are funded through proceeds from the sale
of assets held within our Rabbi Trust. The balance of the assets
within the Rabbi Trust, including the cash surrender value of the
Company-owned life insurance policies, was $31.4 million and
$27.3 million as of December 31, 2017 and 2016, respectively, and
is recorded in Other assets, net in the accompanying Consolidated
Balance Sheets. As of December 31, 2017, the life insurance policies
34 KFORCE INC. AND SUBSIDIARIES
had a cumulative face value of $213.1 million. Kforce had no realized
gains or losses attributable to investments in trading securities for
the years ended December 31, 2017, 2016 and 2015.
Supplemental Executive Retirement Plan
Kforce maintains a SERP for the benefit of certain executive
officers. The primary goals of the SERP are to create an additional
wealth accumulation opportunity, restore lost qualified pension
benefits due to government limitations and retain our covered
executive officers. The SERP is a non-qualified benefit plan and
does not include elective deferrals of covered executive officers’
compensation.
Normal retirement age under the SERP is defined as age 65;
however, certain conditions allow for early retirement as early
as age 55 or upon a change in control. Vesting under the plan is
defined as 100% upon a participant’s attainment of age 55 and 10
years of service and 0% prior to a participant’s attainment of age
55 and 10 years of service. Full vesting also occurs if a participant
with five years or more of service is involuntarily terminated by
Kforce without cause or upon death, disability or a change in
control. The SERP will be funded entirely by Kforce, and benefits are
taxable to the covered executive officer upon receipt and will be
deductible by Kforce when paid. Benefits payable under the SERP
upon the occurrence of a qualifying distribution event, as defined,
are targeted at 45% of the covered executive officers’ average salary
and bonus, as defined, from the three years in which the covered
executive officer earned the highest salary and bonus during the
last 10 years of employment, which is subject to adjustment for
retirement prior to the normal retirement age and the participant’s
vesting percentage. The benefits under the SERP are reduced for a
participant that has not reached age 62 with 10 years of service or
age 55 with 25 years of service with a percentage reduction up to
the normal retirement age.
Benefits under the SERP are based on the lump sum present
value but may be paid over the life of the covered executive officer
or 10-year annuity, as elected by the covered executive officer
upon commencement of participation in the SERP. None of the
benefits earned pursuant to the SERP are attributable to services
provided prior to the effective date of the plan. For purposes of the
measurement of the benefit obligation as of December 31, 2017,
Kforce has assumed that all participants will elect to take the lump
sum present value option based on historical trends.
Actuarial Assumptions
Due to the SERP being unfunded as of December 31, 2017 and
2016, it is not necessary for Kforce to determine the expected long-
term rate of return on plan assets. The following table presents the
weighted average actuarial assumptions used to determine the
actuarial present value of projected benefit obligations at:
December 31,
Discount rate
Rate of future compensation increase
2017
2016
3.25%
2.90%
4.00%
3.60%
The following table presents the weighted average actuarial as-
sumptions used to determine net periodic benefit cost for the years
ended:
December 31,
2017
2016
2015
Discount rate
4.00%
Rate of future compensation increase 3.60%
4.00%
4.00%
3.75%
4.00%
The discount rate was determined using the Moody’s Aa long-term
corporate bond yield as of the measurement date with a maturity
commensurate with the expected payout of the SERP obligation.
This rate is also compared against the Citigroup Pension Discount
Curve and Liability Index to ensure the rate used is reasonable and
may be adjusted accordingly. This index is widely used by companies
throughout the U.S. and is considered to be one of the preferred
standards for establishing a discount rate.
The assumed rate of future compensation increases is based on
a combination of factors, including the historical compensation
increases for its covered executive officers and future target
compensation levels for its covered executive officers taking into
account the covered executive officers’ assumed retirement date.
The periodic benefit cost is based on actuarial assumptions that
are reviewed on an annual basis; however, Kforce monitors these
assumptions on a periodic basis to ensure that they accurately reflect
current expectations of the cost of providing retirement benefits.
Net Periodic Benefit Cost
The following table presents the components of net periodic
benefit cost for the years ended (in thousands):
December 31,
Service cost
Interest cost
Net periodic benefit cost
2017
$319
537
$856
2016
$1,310
453
$1,763
2015
$1,323
383
$1,706
Changes in Benefit Obligation
The following table presents the changes in the projected benefit
obligation for the years ended (in thousands):
December 31,
Projected benefit obligation, beginning
Service cost
Interest cost
Actuarial experience and changes
2017
2016
$13,436
319
537
$11,337
1,310
453
in actuarial assumptions
117
336
Projected benefit obligation, ending
$14,409
$13,436
There were no payments made under the SERP during the years
ended December 31, 2017 and 2016, respectively. The projected
benefit obligation is recorded in Other long-term liabilities in the
accompanying Consolidated Balance Sheets. The accumulated
benefit obligation is the actuarial present value of all benefits
attributed to past service, excluding future salary increases. The
accumulated benefit obligation as of December 31, 2017 and 2016
was $14.3 million and $12.7 million, respectively.
Contributions
There is no requirement for Kforce to fund the SERP and, as a
result, no contributions have been made to the SERP through the
year ended December 31, 2017. Kforce does not currently anticipate
funding the SERP during the year ending December 31, 2018.
Estimated Future Benefit Payments
Undiscounted benefit payments by the SERP, which reflect the
anticipated future service of participants, expected to be paid are as
follows (in thousands):
2018
2019
2020
2021
2022
2023-2027
Thereafter
Projected Annual
Benefit Payments
$ —
—
—
12,788
—
—
4,282
8. CREDIT FACILITY
On May 25, 2017, the Firm entered into a credit agreement with
Wells Fargo Bank, National Association, as administrative agent,
Wells Fargo Securities, LLC, as lead arranger and bookrunner, Bank
of America, N.A., as syndication agent, Regions Bank and BMO Harris
Bank, N.A., as co-documentation agents, and the lenders referred
to therein (the “Credit Facility”). In connection with entering into
the Credit Facility, the Firm satisfied and terminated its previous
credit facility in its entirety. Under the Credit Facility, the Firm will
have a maximum borrowing capacity of $300.0 million, which may,
subject to certain conditions and the participation of the lenders,
be increased up to an aggregate additional amount of $150.0
million (the “Commitment”), which will be available to the Firm in
the form of revolving credit loans, swingline loans, and letters of
credit. Letters of credit and swingline loans under the Credit Facility
are subject to sublimits of $10.0 million. The maturity date of the
Credit Facility is May 25, 2022. Borrowings under the Credit Facility
are secured by substantially all of the tangible and intangible assets
of the Firm, excluding the Firm’s corporate headquarters and certain
other designated executed collateral.
Revolving credit loans under the Credit Facility will bear interest
at a rate equal to: (a) the Base Rate (as described below) plus the
Applicable Margin (as described below); or (b) the LIBOR Rate plus
the Applicable Margin. Swingline loans under the Credit Facility will
bear interest at a rate equal to the Base Rate plus the Applicable
Margin. The Base Rate is the highest of: (i) the Wells Fargo Bank,
National Association prime rate; (ii) the federal funds rate plus
0.50%; or (iii) one-month LIBOR plus 1.00%, and the LIBOR Rate is
reserve-adjusted LIBOR for the applicable interest period, but not
less than zero. The Applicable Margin is based on the Firm’s total
leverage ratio. The Applicable Margin for Base Rate loans ranges
from 0.25% to 0.75% and the Applicable Margin for LIBOR Rate
loans ranges from 1.25% to 1.75%. The Firm will pay a quarterly non-
refundable commitment fee equal to the Applicable Margin on the
average daily unused portion of the Commitment (swingline loans
do not constitute usage for this purpose). The Applicable Margin for
the commitment fee is based on the Firm’s total leverage ratio and
ranges between 0.20% and 0.35%.
KFORCE INC. AND SUBSIDIARIES 35
The Firm will continually be subject to certain affirmative and
negative covenants including (but not limited to), the maintenance
of a fixed charge coverage ratio of no less than 1.25 to 1.00 and
the maintenance of a total leverage ratio of no greater than
3.25 to 1.00. The numerator in the fixed charge coverage ratio is
defined pursuant to the Credit Facility as earnings before interest
expense, income taxes, depreciation and amortization, stock-based
compensation expense and other permitted items pursuant to our
Credit Facility (disclosed as “Consolidated EBITDA”), less cash paid for
capital expenditures, income taxes and dividends. The denominator
is defined as Kforce’s fixed charges such as interest expense and
principal payments paid or payable on outstanding debt other
than borrowings under the Credit Facility. The total leverage ratio
is defined pursuant to the Credit Facility as total indebtedness
divided by Consolidated EBITDA. Our ability to make distributions
or repurchases of equity securities could be limited if an event
of default has occurred. Furthermore, our ability to repurchase
equity securities could be limited if: (a) the total leverage ratio is
greater than 2.75 to 1.00; and (b) the Firm’s availability, inclusive
of unrestricted cash, is less than $25.0 million. At December 31,
2017, Kforce was not limited in making distributions and executing
repurchases of its equity securities.
As of December 31, 2017, $116.5 million was outstanding and
$180.3 million was available under the Credit Facility, subject to the
covenants described above. Kforce has $3.2 million of outstanding
letters of credit at December 31, 2017 which, pursuant to the Credit
Facility, reduce the availability. As of December 31, 2016, $111.5
million was outstanding under the previous credit facility.
9. DERIVATIVE INSTRUMENT AND HEDGING ACTIVITY
Kforce is exposed to interest rate risk as a result of our corporate
borrowing activities. The Firm uses an interest rate swap derivative
as a risk management tool to mitigate the potential impact of
interest rate risk on our financial results.
On April 21, 2017, Kforce entered into a forward-starting interest
rate swap agreement with Wells Fargo Bank, N.A. The Swap rate
is 1.81%, which is added to our interest rate margin to determine
the fixed rate that the Firm will pay to the counterparty during the
term of the Swap based on the notional amount of the Swap. The
effective date of the Swap is May 31, 2017 and the maturity date is
April 29, 2022. The notional amount of the Swap is $65.0 million for
the first three years and decreases to $25.0 million for years four and
five. The Swap is recorded in Other long-term liabilities within the
accompanying Consolidated Balance Sheets.
The Swap has been designated as a cash flow hedge and was effective
as of December 31, 2017. The change in the fair value of the Swap
was recorded as a component of Accumulated other comprehensive
income (loss), net of tax, in the Consolidated Statements of Operations
and Comprehensive Income. As of December 31, 2017, the fair value of
the Swap was a $0.5 million asset.
10. FAIR VALUE MEASUREMENTS
Kforce’s interest rate swap is measured at fair value using readily
observable inputs, such as the LIBOR interest rate. The inputs used
to calculate the fair value of the Swap derivative instrument are
considered to be Level 2 inputs. The Swap is recorded in Other assets,
net within the accompanying Consolidated Balance Sheets. Refer to
Note 9—“Derivative Instrument and Hedging Activity” in the Notes
to the Consolidated Financial Statements, included in this Annual
Report for a complete discussion of the Firm’s derivative instrument.
Kforce has a contingent consideration liability related to a
non-significant acquisition of a business within our GS reporting
segment, which is measured on a recurring basis and is recorded at
fair value, determined using the discounted cash flow method. The
inputs used to calculate the fair value of the contingent consideration
liability are considered to be Level 3 inputs due to the lack of
relevant market activity and significant management judgment.
An increase in future cash flows may result in a higher estimated
fair value while a decrease in future cash flows may result in a
lower estimated fair value of the contingent consideration liability.
Remeasurements to fair value are recorded in Other expense,
net within the Consolidated Statements of Operations and
Comprehensive Income. For the years ended December 31, 2017
and 2016, approximately $565 thousand and $42 thousand of
income, respectively, was recognized due to the remeasurement of
our contingent consideration liability. The contingent consideration
liability is recorded in Other long-term liabilities within the
Consolidated Balance Sheets and the estimated fair value as
of December 31, 2017 and 2016 was $191 thousand and $756
thousand, respectively.
Certain assets, in specific circumstances, are measured at fair
value on a non-recurring basis utilizing Level 3 inputs such as
goodwill, other intangible assets and other long-lived assets. For
these assets, measurement at fair value in periods subsequent to
their initial recognition would be applicable if one or more of these
assets were determined to be impaired.
36 KFORCE INC. AND SUBSIDIARIES
The estimated fair values as of December 31, 2017 and 2016 were as follows (in thousands):
Assets/(Liabilities) Measured at Fair Value:
As of December 31, 2017
Recurring basis:
Interest rate swap derivative instrument
Contingent consideration liability
As of December 31, 2016
Recurring basis:
Contingent consideration liability
Asset/
(Liability)
Quoted Prices in
Active Markets for
Identical Assets (Level 1)
Significant Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
$ 479
$(191)
$(756)
$—
$—
$—
$479
$ —
$ —
$ —
$(191)
$(756)
There were no transfers into or out of Level 1, 2 or 3 assets or liabilities during the years ended December 31, 2017 and 2016.
11. STOCK INCENTIVE PLANS
On April 18, 2017, the Kforce shareholders approved the 2017 Stock
Incentive Plan (“2017 Plan”). The 2017 Plan allows for the issuance
of stock options, stock appreciation rights, restricted stock (including
restricted stock awards (“RSAs”) and restricted stock units (“RSUs”))
and other stock-based awards. The aggregate number of shares of
common stock that are subject to awards under the 2017 Plan is
approximately 3.0 million shares. The 2017 Plan terminates on April 18,
2027. Prior to the effective date of the 2017 Plan, the Company
granted stock awards to eligible participants under our 2016 Stock
Incentive Plan, 2013 Stock Incentive Plan and 2006 Stock Incentive
Plan (collectively, the “Prior Plans”). No additional awards may be
granted pursuant to the Prior Plans; however, awards outstanding
as of the effective date will continue to vest in accordance with the
terms of the Prior Plans.
During the years ended December 31, 2017, 2016 and 2015, Kforce
recognized total stock-based compensation expense of $7.6 million,
$6.7 million, and $5.8 million, respectively. The related tax benefit for
the years ended December 31, 2017, 2016 and 2015 was $3.0 million,
$2.8 million, and $2.3 million, respectively.
Restricted Stock
Restricted stock (including RSAs and RSUs) are granted to
executives and management either: (1) for awards related to
Kforce’s annual long-term incentive (“LTI”) compensation program,
or (2) as part of a compensation package and in order to retain
directors, executives and management. The LTI award amounts
are generally based on total shareholder return performance goals,
which are established by Kforce’s Compensation Committee during
the first quarter of the year of performance. The LTI restricted stock
granted during the year ended December 31, 2017 will vest over
a period between three to five years, with equal vesting annually.
Other restricted stock granted during the year ended December 31,
2017 will vest over a period of between one to ten years, with equal
vesting annually.
RSAs contain the same voting rights as other common stock as
well as the right to forfeitable dividends in the form of additional
RSAs at the same rate as the cash dividend on common stock and
containing the same vesting provisions as the underlying award.
RSUs contain no voting rights, but have the right to forfeitable
dividend equivalents in the form of additional RSUs at the same
rate as the cash dividend on common stock and containing the
same vesting provisions as the underlying award. The distribution
of shares of common stock for each RSU, pursuant to the terms of
the Kforce Inc. Director’s Restricted Stock Unit Deferral Plan, can
be deferred to a date later than the vesting date if an appropriate
election was made. In the event of such deferral, vested RSUs have
the right to dividend equivalents.
KFORCE INC. AND SUBSIDIARIES 37
The following table presents the restricted stock activity for the years ended December 31, 2017, 2016 and 2015 (in thousands, except per
share amounts):
Outstanding as of December 31, 2014
Granted
Forfeited/Canceled
Vested
Outstanding as of December 31, 2015
Granted (1)
Forfeited/Canceled
Vested
Outstanding as of December 31, 2016
Granted
Forfeited/Canceled
Vested (2)
Outstanding as of December 31, 2017
Number of Restricted Stock
Weighted Average
Grant Date
Fair Value
Total Intrinsic
Value of Restricted
Stock Vested
982
556
(59)
(186)
1,293
1,048
(353)
(280)
1,708
427
(206)
(574)
1,355
$18.55
$24.01
$19.37
$18.28
$20.89
$22.46
$21.04
$20.67
$21.86
$24.03
$21.70
$21.60
$22.67
$ 4,580
$ 6,434
$13,668
(1) The increase in shares granted during the year ended December 31, 2016 was due to a change in the grant date practice for our annual LTI awards. Kforce has historically granted
these annual awards on the first business day of the year following the end of the performance period; however, for the performance period ending December 31, 2016 and
thereafter, the grant date was shifted to the last day of the performance period. This administrative change resulted in two annual grants being made during the year ended
December 31, 2016 (a grant on January 4, 2016 for the performance period ending December 31, 2015 and a grant on December 31, 2016 for the performance period ending
December 31, 2016).
(2) The increase in shares vested during the year ended December 31, 2017 was due to a shift in the vesting date of our outstanding annual LTI awards from January 2, 2018 and
January 4, 2018 to December 31, 2017 as a tax planning strategy.
The fair market value of restricted stock is determined based on the closing stock price of Kforce’s common stock at the date of grant, and
is amortized on a straight-line basis over the requisite service period.
As of December 31, 2017, total unrecognized stock-based compensation expense related to restricted stock was $27.6 million, which will
be recognized over a weighted average remaining period of 4.3 years.
12. COMMITMENTS AND CONTINGENCIES
Lease Commitments
Kforce leases office space and operating assets under operating and capital leases expiring at various dates, with some leases cancelable
upon 30 to 90 days’ notice and with some leases containing escalation in rent clauses. In addition to rental payments, certain leases require
payments for taxes, insurance and maintenance costs.
Future minimum lease payments, inclusive of accelerated lease payments, under non-cancelable capital and operating leases are
summarized as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
Total
Capital leases
Present value of payments
Interest
Total Capital lease payments
Operating leases
Facilities
Furniture and equipment
Total Operating lease payments
Total Lease payments
$ 1,140
219
$ 1,359
$ 9,331
7
$ 9,338
$10,697
$ 334
140
$ 474
$ 115
5
$ 120
$
$
5
—
5
$7,642 $4,764
7
$1,937
7
$7,649
$8,123
$4,771
$4,891
7
$1,944
$1,949
$ —
—
$ —
$772
7
$779
$779
$ —
—
$ —
$1,447
—
$1,447
$1,447
$ 1,594
364
$ 1,958
$25,893
35
$ 25,928
$27,886
The present value of the minimum lease payments for capital lease obligations has been classified in Other current liabilities and Long-term
debt—other in the accompanying Consolidated Balance Sheets, according to their respective maturities. Rental expense under operating leases
was $7.7 million, $7.7 million and $6.7 million for the years ended December 31, 2017, 2016 and 2015, respectively.
38 KFORCE INC. AND SUBSIDIARIES
Purchase Commitments
Kforce has various commitments to purchase goods and services
in the ordinary course of business. These commitments are primarily
related to software and online application licenses and hosting. As
of December 31, 2017, these purchase commitments amounted to
approximately $14.5 million and are expected to be paid as follows:
$8.6 million in 2018; $4.5 million in 2019; and $1.4 million in 2020.
Letters of Credit
Kforce provides letters of credit to certain vendors in lieu of
cash deposits. At December 31, 2017, Kforce had letters of credit
outstanding for workers’ compensation and other insurance
coverage totaling $2.9 million, and for facility lease deposits totaling
$0.3 million.
Litigation
We are involved in legal proceedings, claims, and administrative
matters that arise in the ordinary course of our business. We
have made accruals with respect to certain of these matters,
where appropriate, that are reflected in our consolidated financial
statements but are not, individually or in the aggregate, considered
material. For other matters for which an accrual has not been
made, we have not yet determined that a loss is probable or the
amount of loss cannot be reasonably estimated. While the ultimate
outcome of the matters cannot be determined, we currently do
not expect that these proceedings and claims, individually or in
the aggregate, will have a material effect on our financial position,
results of operations, or cash flows. The outcome of any litigation is
inherently uncertain, however, and if decided adversely to us, or if
we determine that settlement of particular litigation is appropriate,
we may be subject to liability that could have a material adverse
effect on our financial position, results of operations, or cash flows.
Kforce maintains liability insurance in amounts and with such
coverage and deductibles as management believes is reasonable.
The principal liability risks that Kforce insures against are workers’
compensation, personal injury, bodily injury, property damage,
directors’ and officers’ liability, errors and omissions, cyber liability,
employment practices liability and fidelity losses. There can be no
assurance that Kforce’s liability insurance will cover all events or that
the limits of coverage will be sufficient to fully cover all liabilities.
Accordingly, we disclose matters below for which a material loss is
reasonably possible.
On August 25, 2016, Kforce Flexible Solutions LLC (along with
co-defendant BMO Harris Bank) was served with a complaint
brought in the Northern District of Illinois, U.S. District Court, Eastern
District of Illinois; Shepard v. BMO Harris Bank N.A. et al., Case No.:
1:16-cv-08288. The plaintiff purports to bring claims on her own
behalf and on behalf of a putative class of telephone-dedicated
workers for alleged violations of the Fair Labor Standards Act, the
Illinois Minimum Wage Law, and the Illinois Wage Payment and
Collection Act based upon the defendants’ purported failure to pay
her and other class members all earned regular and overtime pay
for all time worked. More specifically, the plaintiff alleges that class
employees were required to perform unpaid work before and after
the start and end times of their shifts. She seeks unpaid back regular
and overtime wages, liquidated damages, statutory penalties, and
attorney fees and costs. On February 15, 2018, the judge granted
final approval of the parties’ agreed resolution and the case will
be dismissed following implementation of the parties’ settlement.
This matter was resolved without any material adverse effect on
our business, consolidated financial position, results of operations,
or cash flows.
Employment Agreements
Kforce has entered into employment agreements with certain
executives that provide for minimum compensation, salary and
continuation of certain benefits for a six-month to a three-year
period after their employment ends under certain circumstances.
Certain of the agreements also provide for a severance payment
of one to three times annual salary and one-half to three times
average annual bonus if such an agreement is terminated without
good cause by Kforce or for good reason by the executive. These
agreements contain certain post-employment restrictive covenants.
Kforce’s liability at December 31, 2017 would be approximately
$32.7 million if, following a change in control, all of the executives
under contract were terminated without good cause by the
employer or if the executives resigned for good reason and $12.7
million if, in the absence of a change in control, all of the executives
under contract were terminated by Kforce without good cause
or if the executives resigned for good reason. As of December 31,
2017, approximately $0.6 million of severance was accrued for two
former executives.
13. REPORTABLE SEGMENTS
Kforce’s reportable segments are as follows: (1) Tech; (2) FA; and
(3) GS. This determination is supported by, among other factors: the
nature of the segment’s operations, operating results are regularly
reviewed by the Firm’s chief operating decision maker (“CODM”), and
discrete financial information is presented to Kforce’s Board and our
CODM. Kforce also reports Flex and Direct Hire revenues separately by
segment, which has been incorporated into the table below.
Historically, our Tech segment has included the results of operations
for Global, a wholly-owned subsidiary located in Manila, Philippines.
During the year ended December 31, 2017, Kforce completed the sale
of Global’s assets. This sale did not meet the definition of discontinued
operations. Kforce recorded a $3.3 million gain on sale of Global’s assets,
which was recorded in Selling, general and administrative expenses
within the accompanying Consolidated Statements of Operations and
Comprehensive Income.
Historically, and for the year ended December 31, 2017, Kforce has
generated only sales and gross profit information on a segment basis.
We do not report total assets or income from continuing operations
separately by segment as our operations are largely combined.
KFORCE INC. AND SUBSIDIARIES 39
The following table provides information concerning the operations of our segments for the years ended December 31 (in thousands):
Tech
FA
GS
Total
2017
Net service revenues
Flex revenues
Direct Hire revenues
Total Net service revenues
Gross profit
Operating expenses
Income before income taxes
2016
Net service revenues
Flex revenues
Direct Hire revenues
Total Net service revenues
Gross profit
Operating expenses
Income before income taxes
2015
Net service revenues
Flex revenues
Direct Hire revenues
Total Net service revenues
Gross profit
Operating expenses
Income before income taxes
$887,675
19,836
$907,511
$257,118
$318,294
27,841
$346,135
$118,479
$104,294
—
$104,294
$ 32,459
$863,434
20,043
$883,477
$255,842
$307,245
30,356
$337,601
$120,551
$ 98,628
—
$ 98,628
$ 32,106
$873,609
22,333
$895,942
$261,721
$294,186
31,738
$325,924
$119,036
$ 97,372
—
$ 97,372
$ 33,357
$1,310,263
47,677
$1,357,940
$ 408,056
343,962
$ 64,094
$1,269,307
50,399
$1,319,706
$ 408,499
352,544
$ 55,955
$1,265,167
54,071
$1,319,238
$ 414,114
342,442
$ 71,672
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table provides quarterly information for the years ended December 31, 2017 and 2016 (in thousands, except per
share amounts):
Three Months Ended
2017
Net service revenues
Gross profit
Net income
Earnings per share—basic
Earnings per share—diluted
2016
Net service revenues
Gross profit
Net income
Earnings per share—basic
Earnings per share—diluted
March 31,
June 30,
September 30,
December 31,
$333,992
97,135
5,902
$0.23
$0.23
$322,201
97,189
3,650
$0.14
$0.14
$340,309
103,919
11,144
$0.44
$0.44
$335,047
106,282
10,864
$0.41
$0.41
$341,053
104,375
10,099
$0.40
$0.40
$336,460
105,380
9,020
$0.35
$0.34
$342,586
102,627
6,140
$0.25
$0.24
$325,998
99,648
9,239
$0.36
$0.36
15. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is as follows for the years ended December 31 (in thousands):
Cash paid during the year for:
Income taxes, net
Interest, net
Non-Cash Financing and Investing Transactions:
Receivable for sale of Global’s assets
Equipment acquired under capital leases
Unsettled repurchases of common stock
Employee stock purchase plan
Shares tendered in payment of exercise price of stock options
40 KFORCE INC. AND SUBSIDIARIES
2017
2016
2015
$24,330
$ 3,518
$ 1,979
$ 937
$ 898
$ 522
$ —
$21,324
$ 2,101
$ —
$ 1,153
$ 935
$ 669
$ 63
$25,395
$ 1,609
$ —
$ 1,470
$ 1,012
$ 578
$ —
CORPORATE INFORMATION
TRANSFER AGENT
Computershare Investor Services
P.O. Box 505000
Louisville, KY 40233-5000
www.computershare.com/investor
Shareholder services:
1 (877) 373-6374
FORM 10-K AVAILABLE
A copy of the Kforce Inc.’s Annual
Report on Form 10-K (excluding
exhibits thereto) is available to
any investor without charge upon
written request to:
Michael R. Blackman
Chief Corporate Development Officer
Kforce Inc.
1001 East Palm Avenue
Tampa, Florida 33605
Or call Investor Relations:
1 (813) 552-2927
ANNUAL MEETING
The annual meeting of shareholders
will be held on April 24, 2018 at
8:00 a.m. EST at Kforce Inc.
headquarters in Tampa, Florida.
WEBSITE INFORMATION
For a comprehensive profile of
Kforce Inc., visit the Firm’s website at:
www.kforce.com.
EXECUTIVE AND
SENIOR OFFICERS
David L. Dunkel
Chairman and
Chief Executive Officer
Joseph J. Liberatore
President
David M. Kelly
Chief Financial Officer
and Secretary
Kye L. Mitchell
Chief Operations Officer
Michael R. Blackman
Chief Corporate Development Officer
Robert W. Edmund
General Counsel and
Chief Talent Officer and
Assistant Secretary
Denis Edwards
Chief Information Officer
Andrew G. Thomas
Chief Field Services Officer
CORPORATE COUNSEL
Holland & Knight LLP
Tampa, Florida
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Tampa, Florida
BOARD OF DIRECTORS
David L. Dunkel
Chairman and
Chief Executive Officer,
Kforce Inc.
John N. Allred
President, A.R.G., Inc.
Richard M. Cocchiaro
Ann E. Dunwoody
President
First 2 Four, LLC
Mark F. Furlong
President and
Chief Executive Officer (Ret.),
BMO Harris Bank N.A.
Randall A. Mehl
President and
Chief Investment Officer,
Stewardship Capital Advisors, LLC
Elaine D. Rosen
Nonexecutive Chair of the Board,
Assurant, Inc.
Chair of the Board,
The Kresge Foundation
N. John Simmons
Chief Executive Officer,
Growth Advisors LLC
Ralph E. Struzziero
Consultant
Howard W. Sutter
Vice Chairman,
Kforce Inc.
A. Gordon Tunstall
President and
Chief Executive Officer,
Tunstall Consulting, Inc.
ARIZONAPhoenixCALIFORNIACampbell (San Jose)Costa Mesa Culver CityGlendaleLa Jolla (San Diego)San Francisco San Rafael San RamonWoodland HillsCOLORADOGreenwood Village (Denver)CONNECTICUTEast HartfordSheltonStamford DISTRICT OF COLUMBIAWashingtonFLORIDADoral (Miami)OrlandoSunrise (Ft. Lauderdale)TampaGEORGIAAtlanta (2)ILLINOISChicagoRolling MeadowsINDIANAIndianapolisKANSASOverland Park (Kansas City)KENTUCKYLouisvilleMARYLANDLinthicum (Baltimore)MASSACHUSETTSBostonBurlingtonWestboroughMICHIGANGrand RapidsSouthfield (Detroit)MINNESOTABloomington (Minneapolis)MISSOURISt. LouisNEW JERSEYParsippanyNEW YORKNew YorkNORTH CAROLINACharlotteMorrisville (Durham)OHIOCincinnatiDublin (Columbus)Independence (Cleveland) OREGONPortlandPENNSYLVANIAKing of Prussia (Philadelphia)PhiladelphiaPittsburghRHODE ISLANDProvidenceTEXASAddison (Dallas)Austin (2)Fort WorthHoustonSan Antonio (2)UTAHMurray (Salt Lake City)VIRGINIAFairfaxHampton RestonWASHINGTONBellevue (Seattle)WISCONSINMadisonMilwaukeeKFORCE—60 TOTAL OFFICES TO SERVE YOU.To find the location nearest you, visit our Website at www.kforce.com or call (800) 395-5575.Corporate Headquarters: 1001 East Palm Avenue, Tampa, Florida 33605, (813) 552-5000UNITED STATES