KFORCE—OVER 50 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) 552-5000
Annual
Report
2018
Greenwood Village (Denver)
La Jolla (San Diego)
UNITED STATES
ARIZONA
Phoenix
CALIFORNIA
Costa Mesa
Culver City
Glendale
Petaluma
San Francisco
San Ramon
COLORADO
CONNECTICUT
East Hartford
Shelton
Stamford
DISTRICT OF COLUMBIA
Washington
FLORIDA
Doral (Miami)
Jacksonville
Orlando
Sunrise (Ft. Lauderdale)
Tampa
GEORGIA
Atlanta (2)
ILLINOIS
Chicago
Rolling Meadows
KANSAS
Overland Park (Kansas City)
OREGON
Portland
PENNSYLVANIA
King of Prussia (Philadelphia)
MINNESOTA
UTAH
Bloomington (Minneapolis)
Murray (Salt Lake City)
Philadelphia
Pittsburgh
RHODE ISLAND
Providence
TEXAS
Addison (Dallas)
Austin (2)
Fort Worth
Houston
San Antonio (2)
VIRGINIA
Fairfax
Reston
WASHINGTON
Bellevue (Seattle)
WISCONSIN
Madison
Milwaukee
KENTUCKY
Louisville
MARYLAND
Linthicum (Baltimore)
MASSACHUSETTS
Boston
Burlington
Westborough
MICHIGAN
Grand Rapids
Southfield (Detroit)
MISSOURI
St. Louis
NEW JERSEY
Parsippany
NEW YORK
New York
NORTH CAROLINA
Charlotte
Morrisville (Durham)
OHIO
Cincinnati
Dublin (Columbus)
Independence (Cleveland)
Great results through strategic partnership and knowledge sharing.®
is a professional staffing services and solutions firm that specializes
in the areas of Technology, and Finance and Accounting. Each year, our network of over 50 offices
and two national recruiting centers provides opportunities for 34,000 highly skilled professionals
who work with over 4,000 clients, including 70% of the Fortune 100. Founded in 1962, our name
stands for KnowledgeForce® which describes the customer-centric Kforce Knowledge Process that
delivers high-touch, relationship-driven results backed by progressive technologies. At Kforce, our
promise is to deliver great results through strategic partnership and knowledge sharing.
TECHNOLOGY
FINANCE AND ACCOUNTING
GOVERNMENT SOLUTIONS
As the 5th largest technology staffing
firm in the U.S., we engage more
than 16,000 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 18,000 highly
skilled professionals annually
in
finance and accounting roles on a
temporary, consulting and direct-hire
basis. Our Finance and 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, 2018 for
additional information regarding forward
looking statements.
The total shareholder
return (“TSR”) on our
stock has been 892%,
outperforming the Russell
2000 Index, which has
returned 349% over the
same period.
900%
750%
600%
450%
300%
150%
0%
KFRC
Russell 2000
Kforce stock performance vs. Russell 2000 from 8/15/95 (IPO) to 12/31/18
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
Andrew G. Thomas
Chief Marketing Officer
CORPORATE COUNSEL
Holland & Knight LLP
Tampa, Florida
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Tampa, Florida
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 23, 2019 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.
Michael R. Blackman
Chief Corporate Development Officer
Chief Investment Officer,
Denis Edwards
Stewardship Capital Advisors, LLC
Chief Information Officer
CORPORATE INFORMATION
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
Elaine D. Rosen
Nonexecutive Chair of the Board,
Assurant, Inc.
Chair of the Board,
The Kresge Foundation
N. John Simmons
COO/CFO
DeMert Brands, Inc.
Ralph E. Struzziero
Consultant
Howard W. Sutter
Vice Chairman,
Kforce Inc.
A. Gordon Tunstall
President and
Chief Executive Officer,
Tunstall Consulting, Inc.
TO OUR FELLOW SHAREHOLDERS, CLIENTS, CONSULTANTS AND EMPLOYEES:
As we reflect on 2018 and the overall strong results we
delivered, we are immensely proud of what our team
has accomplished. During the year we made significant progress in
building our business. Our largest business, Tech Flex, is now growing
at greater than twice the market rate. We have deepened client
relationships, and, in many cases, we have become a trusted advisor
in helping companies meet their ever-growing technology needs.
Total revenue of $1.42 billion in 2018 grew 4.0% on a billing day
basis year-over-year. We were also able to expand operating
margins by 70 basis points and generate earnings per share of
$2.30, as compared to $1.30 in 2017. We expect profitability to
continue to improve as we grow and are firmly on track to reach
our next milestone of 7.5% operating margins when quarterly
revenues reach $400 million. Shareholders continue to benefit
from this strong performance as total shareholder return of 24.7%
in 2018 was the best in our peer group.
Our strong cash flows in the year and positive outlook allowed
us not only to continue to repurchase stock, but to also increase
our quarterly dividend midway through the year to 18 cents per
share. All told, we returned $31 million to our shareholders through
repurchases and dividends while also reducing debt by $45 million.
Our healthy cash flows, minimal capex requirements, low debt
levels and $300 million Credit Facility collectively provide flexibility
to execute quickly on strategic or tuck-in acquisitions or other
ventures and strategic partnerships while continuing to return
significant capital to our shareholders through both a healthy
dividend and share repurchases.
Revenue by Segment
• Revenues for our largest business, Tech Flex, of $971.3 million
represented 68.5% of our total revenue. We experienced strong
results throughout 2018 with 9.0% year-over-year revenue growth
on a billing day basis. We continued to benefit from positive trends
in the length of our average assignment, improving bill rates and
hours worked per consultant. We believe this success is driven by
our ability to identify and deliver high caliber, qualified and skilled
IT talent and a growing trend for clients to retain scarce talent for
longer periods.
• Revenues for our FA Flex business of $286.9 million represented
20.2% of our total revenue. FA Flex revenues decreased 10.2% on
a billing day basis in 2018 over 2017. We continue to reposition
this business and place greater emphasis on higher bill rate
opportunities within skill sets less susceptible to disruptions from
technology enhancements.
• Revenues for our GS business of $114.4 million represented 8.1%
of our total revenue. GS revenues increased 9.3% on a billing
day basis in 2018 compared to 2017. 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. Despite the instability in our political
environment, our GS management team has done an admirable job
building a strong, qualified pipeline of new business pursuits and is
positioned for significant growth. GS derived 58% of revenues from
work as a prime contractor in 2018 compared to 53% a year ago.
• Direct Hire revenues of $45.7 million represented 3.2% of our total
revenue. Direct Hire revenues decreased 4.6% on a billing day basis
in 2018 over 2017. We provide direct hire services to our clients
in both Tech and FA. Direct Hire remains a small but important
part of our business that allows us to meet the talent needs of our
clients through whatever means they prefer, whether on a flexible
or permanent basis.
Our Customers
Fortune 1000 companies continue to be the largest consumers of
flexible technology talent. Our revenue growth in 2018 was largely
a result of our broader diversification efforts beyond our largest
clients and deeper into other Fortune 1000 customers where we have
established relationships. This focus on significant users of flexible
staffing services has better enabled us to understand the technology
issues and craft solutions for these sophisticated and substantial
consumers of our services.
In both the $30+ billion market for Technology staffing and the
$100+ billion market for IT solutions, where staffing companies are
increasingly gaining a foothold, there are limited providers with the
infrastructure to not only provide quality and timely talent at scale,
but to also meet increasingly stringent compliance requirements. Our
capabilities represent significant competitive advantages in today’s
war for talent. It is people serving people.
KFORCE INC. AND SUBSIDIARIES 1
Our People
The stabilization of our team after several years of significant change,
in combination with our technology and process investments, have
led to improved productivity of our revenue-generating talent, which
has improved greater than 10% each of the past three years. The
size of our associate population was roughly unchanged in 2018 by
design and we expect headcount levels to remain relatively constant
in the near term. As we refine our model, we continue to identify
opportunities for improving productivity, and therefore have not
made material additions to associate headcount beyond those areas
where productivity levels warrant additions as we believe significant
capacity exists to continue to grow revenue at our targeted levels.
Technology Investments
Changing technologies are impacting staffing as new tools become
available and non-traditional competitors enter the industry. At
Kforce, our strategy is to embrace technologies that will enable
our associates to focus on serving our customers with trusted
relationships. We believe that technology will facilitate enhanced
productivity and improved customer service in the sophisticated
and complex world of professional and technical staffing. Technology
investments during 2018 included continued enhancements to our
CRM system and our Business Intelligence platform. A key technology
initiative in 2019 will be the initial rollout of our Talent Relationship
Management system, which we expect to go live late in the year.
We have also continued to incorporate other technologies into
our processes which could further enhance our capabilities. We
expect the pace of change from a business model and technology
standpoint to continue and we believe that we, like virtually every
organization, need to maintain high levels of technology investment
for the foreseeable future.
Looking Ahead
The demand environment continues to be very constructive and our
outlook for 2019 is quite positive. With respect to the macroeconomic
environment, significant market volatility and political uncertainty
have persisted. Contrary to the concern that we might be late in the
cycle however, the strength in recent employment reports point
to the increasing need for skilled talent. Trends in our business as
well as others in our space support the notion that secular drivers
in technology will transcend traditional cyclical patterns as business
models are transformed. Non-traditional competitors are entering
new end markets; thus, putting increased pressure on companies
to invest in innovation and evolve. Big data, artificial intelligence
and machine learning continue to be in high demand, as well as
cloud computing, cybersecurity, mobility and digital marketing.
Consequently, we foresee 2019 to be a year where we will continue
to grow our core Tech Flex business at well above market rates and
drive further improvements in profitability.
Stewardship
Stewardship and Community is an important core value to Kforce,
and our Great People continue to give back by supporting local
charities, organizations, and people in need by contributing through
time, talent, and treasure. In 2018, our Kforce employees spent more
than 10,000 hours supporting over 150 various charities nationwide.
Additionally, our Day of Giving program expanded across all Kforce
offices to allow our people the opportunity to dedicate time during
the workday to give back to their communities. We could not be
prouder of our people and how they keep the spirit of Stewardship
and Community alive.
Thank you for your interest in and support of Kforce. The results that
we are experiencing are the result of a lot of hard work, and tough
decisions, by our team and I am grateful for their tenacity. While we
have much more to do, I would like to say thank you to each and every
member of our field and corporate teams, and to our consultants and
our clients, for allowing us the privilege of serving you.
David L. Dunkel
Chairman and
Chief Executive Officer
Joseph J. Liberatore
President
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 the “Consolidated Financial Statements.”
Years Ended December 31,
(In thousands, except per share amounts)
Revenue
Gross profit
Selling, general and administrative expenses
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
2018(1)
2017(1)
2016(2)
2015
2014(3)
$1,418,353
418,608
329,126
7,831
4,498
77,153
19,173
57,980
$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
—
57,980
$
—
$ 33,285
—
$ 32,773
—
$ 42,824
61,517
$ 90,915
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
$2.34
$2.30
$2.34
$2.30
24,738
25,251
$0.60
$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
As of December 31,
(In thousands)
Working capital
Total assets
Total outstanding borrowings on credit facility
Total long-term liabilities
Stockholders’ equity
2018
2017
2016
2015
2014
$ 158,104
$ 379,908
$
71,800
$ 121,219
$ 168,331
$ 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
(1) The Tax Cuts and Jobs Act (“TCJA”) was enacted in December 2017, which reduced the U.S. federal corporate tax rate from 35.0% to 21.0% 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 expenses (“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 year ended December 31, 2014.
KFORCE INC. AND SUBSIDIARIES 3
STOCK PRICE PERFORMANCE
The following graph compares the cumulative five-year total return on our common stock, our 2018 Industry Peer Group and the
NASDAQ Stock Market (U.S.) Index using the value of an investment of $100 on December 31, 2013 with dividends fully reinvested.
All returns are weighted based on market capitalization at the end of each discrete measurement period. Historical stock
prices of our common stock are not necessarily indicative of future stock price performance.
$175
$150
$125
$100
$75
2013
2014
2015
2016
2017
2018
Kforce Inc.
NASDAQ Stock Market (Composite)
2018 Industry Peer Group
Index
Kforce Inc.
NASDAQ Stock Market (Composite)
2018 Industry Peer Group (1)
2013
$100.0
100.0
100.0
2014
$120.2
113.4
102.3
2015
$128.3
119.9
106.4
2016
$120.1
128.9
113.0
2017
$134.3
165.3
145.7
2018
$167.4
158.9
114.1
(1) 2018 Industry Peer Group (no changes from 2017):
ASGN Incorporated
Computer Task Group, Inc.
Kelly Services, Inc.
ManpowerGroup, Inc.
Resources Connection, Inc.
Robert Half International Inc.
TrueBlue Inc.
In determining the industry peer group, we focus on selecting publicly-traded professional staffing companies 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 2018 indicated
that Kforce is one of the 10 largest publicly-traded specialty staffing firms in the U.S.
In addition to the specific staffing industry in which we operate, other primary criteria for this 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 vary considerably.
4 KFORCE INC. AND SUBSIDIARIES
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Holders of Common Stock
Our common stock trades on the NASDAQ using the ticker symbol “KFRC.” As of February 21, 2019, there were approximately 150 holders
of record.
Purchases of Equity Securities by the Issuer
On October 26, 2018, the Board approved an increase in our stock repurchase authorization bringing the then available authorization to
$100.0 million. The following table presents information with respect to our repurchases of Kforce common stock during the three months
ended December 31, 2018:
Period
October 1, 2018 to October 31, 2018
November 1, 2018 to November 30, 2018
December 1, 2018 to December 31, 2018
Total Number of
Shares Purchased
(1) (2)
—
26,107
317,087
Average Price
Paid Per Share
$ —
$31.57
$29.81
Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans or Programs
—
19,048
216,708
Approximate Dollar
Value of Shares
That May Yet Be
Purchased Under the
Plans or Programs
$100,000,000
$ 99,399,824
$ 92,940,594
Total
343,194
$29.95
235,756
$ 92,940,594
(1) Includes 7,059 shares of stock received upon vesting of restricted stock to satisfy tax withholding requirements for the period November 1, 2018 to November 30, 2018.
(2) Includes 100,379 shares of stock received upon vesting of restricted stock to satisfy tax withholding requirements for the period December 1, 2018 to December 31, 2018.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In addition to the inherent operational risks, Kforce is exposed to certain market risks, primarily related to changes in interest rates.
As of December 31, 2018, we had $71.8 million outstanding under our credit facility. Refer to Note 10—“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, 2018 would have an increase to annual interest expense of less than $0.2 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
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 with approximately
60 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 and geographies as well
as companies of all sizes with a particular focus on Fortune 1000 and
similarly-sized companies. We also provide services and solutions as a
prime contractor and subcontractor to the U.S. Federal Government (the
“Federal Government”) as well as state and local governments. We believe
that our portfolio of service offerings is focused in areas of expected
growth and are a key contributor to our long-term financial stability. Our
10 largest clients represented approximately 25% of revenue and no single
client accounted for more than 5% of total revenue for the year ended
December 31, 2018.
Substantially all of our revenues are derived from U.S. domestic
operations. The asset sale of Kforce Global Solutions, Inc., (“Global”) a
wholly-owned subsidiary located in the Philippines, was completed in
September 2017. This sale did not meet the definition of discontinued
operations. Global was included in our Tech segment and contributed
approximately 1% of revenue in 2017 and 2016.
Our quarterly operating results can be affected by:
• the number of billing days in a particular quarter;
• the seasonality of 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 revenue for
each of our segments for the years ended December 31, 2018, 2017
and 2016:
2018
8.1%
GS
2017
7.7%
GS
2016
7.5%
GS
22.1%
FA
25.5%
FA
69.8%
Tech
25.6%
FA
66.8%
Tech
66.9%
Tech
For additional segment financial data see Note 2—“Reportable
Segments” in the Notes to Consolidated Financial Statements, included in
this Annual Report.
Tech Segment
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 and insurance services and also to Federal government
integrators. Revenue for our Tech segment increased 9.1% to $990.1
million in 2018 on a year-over-year basis. The average bill rate for our Tech
segment in 2018 was approximately $73 per hour.
The September 2018 report published by Staffing Industry Analysts
(“SIA”) stated that temporary technology staffing is expected to experience
growth of 3% in 2019. Digital transformation, as a general trend, is driving
organizations across all industries to increase their technology investments
as competition and the speed of change intensifies. Nontraditional
competitors are also entering new end markets; thus, putting increased
pressure on companies to invest in innovation and the evolution of
their business models. We believe these secular drivers will transcend
traditional cyclical patterns as our clients’ business models adjust. At the
macro level, demand is also being driven by an ever-changing and complex
regulatory and employment law environment, which increases the overall
cost of employment for many 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.
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. Revenue for our FA segment
decreased 9.3% to $313.8 million in 2018 on a year-over-year basis. The
average bill rate for our FA segment in 2018 was approximately $35 per
hour. The September 2018 report published by SIA stated that finance
and accounting temporary staffing is expected to experience growth of
4% in 2019.
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. GS 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
could be expected to negatively impact GS revenue. Revenue for our GS
segment increased 9.7% to $114.4 million in 2018. Our GS segment also
includes a product business specialized in manufacturing and delivering
trauma-training manikins, which accounted for approximately 14% of
total GS revenue in 2018. 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 U.S. government contracts and
subcontracts for which funding has been provided, excluding renewal
option years. Our backlog was $47.4 million as of December 31, 2018 as
compared to $59.3 million as of December 31, 2017.
Flex Revenue
Flex revenue represents approximately 96% of total revenue 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 and
databases to identify consultants who are actively seeking employment.
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 generating
repeat business with our clients and fosters a better experience for our
consultants, which has a direct correlation to their redeployment.
The key drivers of Flex revenue are the number of consultant assignments
and billable hours, the bill rate per hour and, to a limited extent, the
amount of billable expenses incurred by Kforce. Our Flex gross profit is
determined by deducting related costs of employment for consultants,
including compensation, payroll taxes, certain fringe benefits and
subcontractor costs from Flex revenue. Associate and field management
compensation, payroll taxes and other fringe benefits are included
in SG&A, along with other customary costs such as administrative
and corporate costs. The Flex business model involves attempting to
maximize the number of billable hours and bill rates, while managing
consultant pay rates and benefit costs, as well as compensation and
benefits for our associates.
Direct Hire Revenue
Our Direct Hire business involves locating qualified individuals
(“candidates”) for permanent placement with our clients. Direct Hire
revenue represents less than 4% of total revenue over the last three fiscal
years; although it is a smaller portion of our business, it continues to be an
important capability in ensuring that we can meet the talent needs of our
clients through whatever means they prefer. 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.
The key drivers of Direct Hire revenue are the number of placements
and the associated placement fee. Direct Hire revenue also includes
conversion revenue, which may occur when a consultant initially assigned
to a client on a temporary basis is later converted to a permanent
placement for a fee. Direct Hire revenue is 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 revenue increases gross profit by the full amount of the
fee. Direct Hire associate commissions, compensation and benefits are
included in SG&A.
KFORCE INC. AND SUBSIDIARIES 7
Industry Overview
The professional 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 2018 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 2018, based on data published by the
Bureau of Labor Statistics and SIA. The percentage of temporary staffing
to total employment (penetration rate) and unemployment rate was 2.1%
and 3.9%, respectively, in December 2018. Total non-farm employment
was up 1.8% year-over-year as of December 2018, and temporary help
employment was up 3.3% year-over-year. In addition, the college-level
unemployment rate, which we believe serves as a proxy for professional
employment and therefore aligns well with the consultant and candidate
population that Kforce most typically serves, was 2.1% in December
2018. 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 demand environment
in which we are operating.
According to a SIA in September 2018, the technology temporary
staffing industry and finance and accounting temporary staffing industry
are expected to generate projected revenues of $32.0 billion and $8.5
billion, respectively, in 2019 and based on these projected revenues,
our current 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 objectives are driving long-term shareholder value by
achieving above-market revenue growth, making prudent investments
to enhance efficiency and effectiveness within our operating model and
significantly improving levels of operating profitability. We believe the
following strategies will help us achieve our objectives.
Improving Productivity of our Talent. We believe that it is critical
to provide our associates with high quality tools to effectively and
efficiently perform their roles, to better evaluate business opportunities
and to advance the value we bring to our clients and consultants. We
continue to enhance our sales methodologies and processes in ways we
believe will allow us to better evaluate and shape business opportunities
with our clients as well as train our sales associates on our consistent
and uniform methodology.
During 2018, we completed the deployment of a new time and
expense application for our consultants and clients as well as a new
expense application for our associates. In addition, we continue to
make enhancements to our business and data intelligence capabilities
as well as our customer relationship management system. We also
began investing in a new talent relationship management system that
we expect will better leverage our delivery strategies and processes
and improve our capabilities. 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 and the scalability of our organization.
Enhancing our Client Relationships. We strive to differentiate ourselves
by working collaboratively with our clients to better 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, which increases the intimacy with
our clients and improves our ability to offer higher value and a broader
array of services and support to our clients. 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 in revenue growth.
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 (“MD&A”)
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 2018.
• Results of Operations—An analysis of Kforce’s consolidated
results of operations for the three years presented in the
consolidated financial statements. 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 our 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.
• Net income for the year ended December 31, 2018 increased
74.2% to $58.0 million from $33.3 million in 2017 and diluted
earnings per share for the year ended December 31, 2018
increased to $2.30 from $1.30 per share in 2017, primarily
driven by the factors noted above as well as the reduction in our
effective tax rate due to the enactment of the TCJA.
• During 2018, Kforce repurchased 553 thousand shares of common
stock on the open market at a total cost of approximately $15.7
million. On October 26, 2018, the Board approved an increase in
our stock repurchase authorization bringing the then available
authorization to $100.0 million.
• In the second half of 2018, the Board approved a 50% increase
to the quarterly dividend, bringing it to $0.18 per share, up
from $0.12 per share in the first half of 2018. The Firm declared
and paid dividends totaling $0.60 per share during the year
ended December 31, 2018, resulting in a total cash payout of
$14.9 million.
• The total amount outstanding under our Credit Facility
decreased $44.7 million to $71.8 million as of December 31,
2018 as compared to $116.5 million as of December 31, 2017.
• Cash provided by operating activities was $87.7 million during
the year ended December 31, 2018 compared to $29.3 million
for 2017 primarily due to increasing levels of profitability and
improved collections of our accounts receivable.
RESULTS OF OPERATIONS
In 2018, we continued to make progress on our strategic
EXECUTIVE SUMMARY
initiatives including:
The following is an executive summary of what Kforce believes
are highlights for 2018, which should be considered in the context
of the additional discussions herein and in conjunction with the
consolidated financial statements and notes thereto.
• Revenue increased 4.4% to $1.42 billion in 2018 from $1.36
billion in 2017. Revenue increased 9.1% and 9.7% for Tech and
GS, respectively, and decreased 9.3% for FA.
• Flex revenue increased 4.5% to $1.36 billion in 2018 from $1.30
billion in 2017. Flex revenue increased 9.4% and 6.5% for Tech
and GS, respectively, and decreased 9.9% for FA.
• Direct Hire revenue decreased 4.2% to $45.7 million in 2018 from
$47.7 million in 2017.
• Flex gross profit margin decreased 40 basis points to 26.8% in
2018 from 27.2% in 2017. Flex gross profit margin increased
10 basis points for FA and decreased 10 basis points and 430
basis points for Tech and GS, respectively. Our GS business is
operating in a cost competitive environment and, as such, has
experienced reduced profitability in certain of its more recently
awarded contracts.
• SG&A expenses as a percentage of revenue for the year ended
December 31, 2018 decreased to 23.2% from 24.4% in 2017.
The 120 basis point decrease was primarily driven by increased
leverage as a result of enhancements to our performance-
based compensation plans; improved associate productivity;
reduced costs as a result of previous realignment activities; and
a continued focus on expense discipline.
• 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 scalability
of our organization. We completed the deployment of a new
time and expense application for our consultants and clients as
well as a new expense application for our associates. In addition,
we continue to make enhancements to our business and data
intelligence capabilities as well as our customer relationship
management system. We expect these initiatives to benefit us
in 2019 and beyond.
• Improving our alignment of revenue-generating talent to the
markets, products, industries and clients that present the
greatest opportunity for profitable revenue growth.
• Executing a Kforce brand refresh to reinforce our core values with
a consistent message and identity.
To align the discussion of our Operating Results with Note 3—
“Revenue” in the Notes to the Consolidated Financial Statements,
included in this Annual Report, we have disaggregated our GS
product business and modified the presentation to exclude it
from Flex revenue and Flex gross profit. Prior periods have been
adjusted to align with the current presentation.
KFORCE INC. AND SUBSIDIARIES 9
The following table presents certain items in our Consolidated Statements of Operations and Comprehensive Income as a percentage of
revenue for the years ended:
December 31,
Revenue by segment:
Tech
FA
GS
Total Revenue
Revenue by type:
Flex
Direct Hire
Product
Total Revenue
Gross profit
Selling, general and administrative expenses
Depreciation and amortization
Income from operations
Income before income taxes
Net income
2018
2017
2016
69.8%
22.1
8.1
100.0%
95.6%
3.2
1.2
100.0%
29.5%
23.2%
0.6%
5.8%
5.4%
4.1%
66.8%
25.5
7.7
100.0%
95.6%
3.5
0.9
100.0%
30.0%
24.4%
0.6%
5.1%
4.7%
2.5%
66.9%
25.6
7.5
100.0%
95.0%
3.8
1.2
100.0%
31.0%
25.8%
0.7%
4.5%
4.2%
2.5%
Revenue. The following table presents revenue by type for each segment and percentage change from the prior period for the years ended
December 31 (in thousands):
2018
Increase
(Decrease)
2017
Increase
(Decrease)
2016
$ 971,310
18,779
$ 990,089
$ 286,939
26,909
$ 313,848
$ 98,214
16,202
$ 114,416
$1,356,463
45,688
16,202
$1,418,353
9.4%
(5.3)%
9.1%
(9.9)%
(3.3)%
(9.3)%
6.5%
34.4%
9.7% $
4.5%
(4.2)%
34.4%
4.4%
$ 887,675
19,836
$ 907,511
$ 318,294
27,841
$ 346,135
$ 92,241
12,053
104,294
$1,298,210
47,677
12,053
$1,357,940
2.8%
(1.0)%
2.7%
$ 863,434
20,043
$ 883,477
3.6%
(8.3)%
2.5%
$ 307,245
30,356
$ 337,601
11.9%
(25.6)%
$ 82,427
16,201
5.7%
$ 98,628
3.6%
(5.4)%
(25.6)%
$1,253,106
50,399
16,201
2.9%
$1,319,706
Tech
Flex revenue
Direct Hire revenue
Total Tech revenue
FA
Flex revenue
Direct Hire revenue
Total FA revenue
GS
Flex revenue
Product revenue
Total GS revenue
Total Flex revenue
Total Direct Hire revenue
Total Product revenue
Total Revenue
10 KFORCE INC. AND SUBSIDIARIES
Our quarterly operating results are affected by the number of billing days in a quarter. The following quarterly information presents the
year-over-year revenue growth rates, on a billing day basis, for the last five quarters:
Billing days
Tech Flex
FA Flex
GS Flex
Total Flex
Total Firm
Year-Over-Year Revenue Growth Rates
(Per Billing Day)
Q4 2018
Q3 2018
Q2 2018
Q1 2018
Q4 2017
62
9.0%
(11.7)%
(13.3)%
2.3%
2.8%
63
10.3%
(11.8)%
(0.6)%
4.2%
4.2%
64
9.8%
(9.4)%
18.2%
5.6%
5.4%
64
6.7%
(7.9)%
24.5%
4.2%
3.7%
61
5.4 %
0.3 %
27.9 %
5.5 %
5.1 %
Flex Revenue. The key drivers of Flex revenue are the number of
consultants on assignment and billable hours, the bill rate per hour
and, to a limited extent, the amount of billable expenses incurred by
Kforce.
Flex revenue for our largest segment, Tech, increased 9.4% during
the year ended December 31, 2018 as compared to 2017 and increased
2.8% in 2017 from 2016. We believe the secular drivers of technology
spend remain intact with many companies becoming increasingly
dependent on the efficiencies provided by technology and the need
for innovation to support business strategies and sustain relevancy
in today’s rapidly changing marketplace. Our belief in the strength in
the demand environment within Tech Flex has not changed; thus, we
expected continued growth in 2019 in this segment.
Our FA segment experienced a decrease in Flex revenue of 9.9%
during the year ended December 31, 2018 as compared to 2017
and increased 3.6% in 2017 from 2016. The year-over-year decrease
in 2018 from 2017 was primarily due to reduced volume of lower
bill rate assignments as we begin to shift our focus towards higher
skillset opportunities. In 2019, we expect FA Flex revenue to remain
stable or slightly decrease year-over-year.
Our GS segment experienced an increase in Flex revenue of 6.5%
during the year ended December 31, 2018 as compared to 2017 and
increased 11.9% in 2017 from 2016. The year-over-year increase in
2018 from 2017 was powered by high growth in the first half of
2018, primarily a result of two new prime contract wins secured
in the third quarter of 2017. Flex revenue for GS was lower than
our expectations in the second half of 2018 due to anticipated new
business awards not materializing as quickly as anticipated and
billable headcount attrition on lower margin contracts. In October
2018, GS was awarded a subcontract having an estimated contract
value of $150 million to $200 million. In November 2018, the award
to the prime contractor was protested by two unsuccessful bidders.
On February 21, 2019, we received notification that the protest was
sustained and, as such, are working with the prime contractor to
determine appropriate next steps. We expect revenues in our GS
segment to grow in 2019 on a year-over-year basis.
As the GS segment primarily provides integrated business
solutions as compared to staffing services, key drivers for the change
in Flex revenue and Flex hours are not presented in the tables below.
The following table presents the key drivers for the change in Flex revenue for our Tech and FA segments over the prior period
(in thousands):
Year Ended December 31,
Key Drivers—Increase (Decrease)
Volume—hours billed
Bill rate
Billable expenses
Total change in Flex revenue
2018 vs. 2017
2017 vs. 2016
Tech
FA
Tech
FA
$18,284
62,036
3,315
$83,635
$(44,912)
13,298
259
$(31,355)
$ 9,710
14,563
(32)
$24,241
$ 3,915
7,053
81
$11,049
KFORCE INC. AND SUBSIDIARIES 11
These key drivers were impacted by the sale of Global’s assets, which occurred in the third quarter of 2017. During 2017, Global contributed
approximately 4% of the total hours billed but only 1% of the revenue for Tech Flex. The volume previously contributed by Global has been
replaced by organic growth in the remainder of our portfolio at significantly higher bill rates.
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
2018
13,145
8,241
21,386
Increase
(Decrease)
2.1%
(14.1)%
(4.8)%
2017
12,878
9,595
22,473
Increase
(Decrease)
1.1%
1.3%
1.2%
2016
12,735
9,474
22,209
Direct Hire Revenue. The key drivers of Direct Hire revenue are the number of placements and the associated placement fee. Direct Hire
revenue also includes conversion revenue, which may occur when a consultant initially assigned to a client on a temporary basis is later
converted to a permanent placement for a fee. Our GS segment does not make permanent placements.
Direct Hire revenue decreased 4.2% during the year ended December 31, 2018 as compared to 2017 and decreased 5.4% in 2017 from 2016.
These decreases are primarily the result of management’s strategy to make selective investments only where client needs exist.
The following table presents the key drivers for the change in Direct Hire revenue over the prior period (in thousands):
Year Ended December 31,
Key Drivers—Increase (Decrease)
Volume—number of placements
Placement fee
Total change in Direct Hire revenue
2018 vs. 2017
Tech
FA
$(1,743)
686
$(1,057)
$(3,280)
2,348
$ (932)
2017 vs. 2016
Tech
$(861)
654
$(207)
FA
$(2,118)
(397)
$(2,515)
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
2018
1,039
2,077
3,116
Increase
(Decrease)
(8.8)%
(11.8)%
(10.8)%
2017
1,139
2,355
3,494
Increase
(Decrease)
(4.4)%
(7.0)%
(6.1)%
2016
1,191
2,531
3,722
12 KFORCE INC. AND SUBSIDIARIES
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
2018
$18,070
$12,957
$14,662
Increase
(Decrease)
3.8%
9.6%
7.4%
2017
$17,410
$11,826
$13,646
Increase
(Decrease)
3.4%
(1.4)%
0.8%
2016
$16,836
$11,994
$13,543
Gross Profit. Gross profit is determined by deducting direct costs (primarily consultant compensation, payroll taxes, payroll-related insurance
and certain fringe benefits, as well as subcontractor costs) from total revenue. In addition, there are no consultant payroll costs associated
with Direct Hire placements; thus, all Direct Hire revenue increases 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 revenue) for each segment and percentage
change over the prior period for the years ended December 31:
Tech
FA
GS
Total gross profit percentage
2018
28.0%
34.8%
28.1%
29.5%
Increase
(Decrease)
(1.1)%
1.8%
(9.6)%
(1.7)%
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%
Total gross profit percentage decreased 50 basis points for the year ended December 31, 2018 as compared to 2017.
• The 30 basis point decrease for Tech was due to a lower mix of Direct Hire revenue and a slight decline in Flex gross profit percentage.
• The 60 basis point increase for FA was due to a higher mix of Direct Hire revenue and a slight increase in Flex gross profit percentage.
• The 300 basis point decrease for GS was due to a large decrease in Flex gross profit, offset by a higher mix of Product revenue to Flex revenue.
The change in total gross profit percentage for 2017 as compared to 2016 was primarily the result of a lower mix of Direct Hire revenues to
total revenues as well as declines in our Flex gross profit percentage.
Flex gross profit percentage (Flex gross profit as a percentage of Flex revenue) 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.
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
2018
26.6%
28.6%
22.7%
26.8%
Increase
(Decrease)
(0.4)%
0.4%
(15.9)%
(1.5)%
2017
26.7%
28.5%
27.0%
27.2%
Increase
(Decrease)
(2.2)%
(3.1)%
2.7%
(1.8)%
2016
27.3%
29.4%
26.3%
27.7%
The 40 basis point decrease in Flex gross profit percentage for the year ended December 31, 2018 as compared to 2017 was primarily
driven by the decrease for GS. Tech and FA remained fairly stable year-over-year. GS Flex gross profit margin decreased 430 basis points
primarily due to compression in bill and pay spreads as well as higher benefit costs. GS business is operating in a cost competitive
environment and, as such, has experienced reduced profitability in certain of its more recently awarded contracts.
The decrease in Flex gross profit percentage of 50 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, as well as the impact of Hurricanes Harvey and Irma.
KFORCE INC. AND SUBSIDIARIES 13
The following table presents the key drivers for the change in Flex gross profit for our Tech and FA segments over the prior period
(in thousands):
Year Ended December 31,
Key Drivers—Increase (Decrease)
Volume—hours billed
Bill rate
Total change in Flex gross profit
Kforce continues to focus on training our revenue-generating
associates on effective pricing and optimizing the spread between bill
rates and pay rates. We believe this will serve to obtain the optimal
volume, rate, effort and duration of assignment, while ultimately
maximizing the benefit for our clients, our consultants and Kforce.
2018 vs. 2017
2017 vs. 2016
Tech
FA
Tech
FA
$22,356
(1,029)
$21,327
$(8,929)
481
$(8,448)
$ 6,620
(5,137)
$ 1,483
$ 3,244
(2,801)
$ 443
SG&A Expenses. Total compensation, commissions, payroll taxes and
benefit costs as a percentage of SG&A represented 83.5%, 84.8%,
and 84.0% of SG&A for the years ended December 31, 2018, 2017
and 2016, respectively. Commissions and other bonus incentives for
our revenue-generating talent 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 revenue.
The following table presents certain components of SG&A as a percentage of total revenue for the years ended December 31
(in thousands):
2018 % of Revenue
2017 % of Revenue
2016
% of Revenue
Compensation, commissions,
payroll taxes and benefits costs
Other (1)
Total SG&A
$274,767
54,359
$329,126
19.4%
3.8%
23.2%
$280,721
50,451
$331,172
20.7%
3.7%
24.4%
$286,261
54,481
$340,742
21.7%
4.1%
25.8%
(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 revenue decreased 120 basis points in
2018 compared to 2017, primarily driven by increased leverage as
a result of enhancements to our performance-based compensation
plans; improved associate productivity; lower revenue-generating
headcount; reduced costs as a result of previous realignment
activities; and a continued focus on expense discipline. Additionally,
during 2017, Kforce recorded a $3.3 million gain on the sale of
Global’s assets, which was partially offset by a $1.0 million disaster
relief contribution to support recovery efforts related to Hurricanes
Harvey and Irma.
SG&A as a percentage of revenue 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.
14 KFORCE INC. AND SUBSIDIARIES
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 (includes capital leases)
Capitalized software amortization
Intangible asset amortization
Total Depreciation and amortization
2018
$6,303
1,183
345
$7,831
Increase
(Decrease)
(9.2)%
21.8%
—%
(5.1)%
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
Other Expense, Net. Other expense, net was $4.5 million in
2018, $4.5 million in 2017 and $3.1 million in 2016, and consisted
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, 2018, was 24.9%. Our effective tax rate for 2018
was positively impacted by the TCJA. For the year ended December 31,
2017, our effective tax rate was 48.1%, which was unfavorably
impacted by the revaluation of our net deferred tax assets as a result
of the TCJA. 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.
NON-GAAP FINANCIAL MEASURES
Free Cash Flow. “Free Cash Flow”, a non-GAAP financial measure,
is defined by Kforce as net cash provided by 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
Proceeds from sale of Global’s assets
Change in debt
Repurchases of common stock
Cash dividends
Other
Change in cash and cash equivalents
2018
$ 57,980
22,643
7,100
87,723
(5,170)
82,553
1,000
(44,723)
(22,187)
(14,871)
(2,039)
2017
$ 33,285
29,134
(33,080)
29,339
(5,846)
23,493
1,000
4,976
(14,622)
(12,144)
(3,806)
2016
$ 32,773
21,093
(14,043)
39,823
(12,420)
27,403
—
31,075
(46,013)
(12,447)
(33)
$ (267)
$ (1,103)
$
(15)
KFORCE INC. AND SUBSIDIARIES 15
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 because it is a non-cash expense, we
expect to continue to incur stock-based compensation in the future
and 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
2018
$57,980
8,265
8,797
4,455
19,173
$98,670
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
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
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, 2018, Kforce had $158.1 million in working
capital compared to $161.7 million at December 31, 2017.
Cash Flows
We are principally focused on achieving an appropriate balance
of cash flow across several areas of opportunity such as: generating
positive cash flow from operating activities; returning capital to our
shareholders through our quarterly dividends and common stock
repurchase program; maintaining appropriate leverage under our
Credit Facility; investing in our infrastructure to allow sustainable
growth via capital expenditures; and maintaining sufficient liquidity
to complete acquisitions or other strategic investments.
The following table presents a summary of our net cash flows
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 consultant and associate compensation. When comparing cash
flows from operating activities, the increase in cash provided by operating
activities during the year ended December 31, 2018, as compared to
2017 was primarily due to increased levels of profitability and improved
collections of our accounts receivable as well as $11.0 million related to
the decreased effective tax rate as a result of the enactment of the TCJA
and the receipt of a $6.8 million income tax refund. The decrease in cash
provided by operating activities during the year ended December 31,
2017 as compared to 2016 was primarily due to an increase in accounts
receivable, which was primarily driven by the revenue growth in our
business, the timing of collections and continued pressure from certain
larger clients for extended payment terms.
from operating, investing and financing activities (in thousands):
Investing Activities
Years Ended December 31,
2018
2017
2016
$ 87,723
(4,170)
(83,820)
$ 29,339
(4,846)
(25,596)
$ 39,823
(12,420)
(27,418)
Capital expenditures for the years ended December 31, 2018, 2017
and 2016, which exclude equipment acquired under capital leases,
were $5.2 million, $5.8 million and $12.4 million, respectively. 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.
$ (267)
$ (1,103)
$ (15)
Financing Activities
The increase in cash used for financing activities in 2018 compared to
2017 was primarily driven by a reduction in our Credit Facility balance
as well as an increase in cash used for common stock repurchases
and dividends.
The decrease in cash used for financing activities in 2017 as compared
to 2016 was primarily due to a reduction in our Credit Facility balance,
offset by fewer common stock repurchases in 2017 than 2016.
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Change in cash and
cash equivalents
16 KFORCE INC. AND SUBSIDIARIES
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
2018
2017
2016
$ 16,069
$ 12,276
$ 44,109
6,118
2,346
1,904
$22,187
$14,622
$46,013
repurchases
$ 3,323
$ 935
$ 1,012
During the years ended December 31, 2018, 2017 and 2016,
Kforce declared and paid dividends of $14.9 million ($0.60 per share),
$12.1 million ($0.48 per share), and $12.4 million ($0.48 per share),
respectively. During the year ended December 31, 2018, the Board
approved a 50% increase to our quarterly dividend, bringing the
payout to $0.18 per share in the second half of 2018, as compared
to a quarterly dividend of $0.12 per share for the first half of 2018.
During the years ended December 31, 2017 and 2016, Kforce
declared and paid a quarterly dividend of $0.12 per share for all
shares outstanding. 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 as
well as the ability to pay dividends under applicable law.
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.
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”). Under the Credit Facility, the Firm
has 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 is 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. As of December 31, 2018, $71.8
million was outstanding and $225.0 million was available, subject
to the covenants described below and as of December 31, 2017,
$116.5 million was outstanding.
The Firm is 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, 2018, Kforce was not limited in making
distributions and executing repurchases of our equity securities.
Refer to Note 10—“Credit Facility” in the Notes to Consolidated
Financial Statements, included in this Annual Report for a complete
discussion of our credit facility.
Kforce entered into a forward-starting interest rate swap
agreement (the “Swap”) to mitigate the risk of rising interest
rates and the Swap has been designated as a cash flow hedge. As
of December 31, 2018 and 2017, the fair value of the Swap asset
was $0.9 million and $0.5 million, respectively. Refer to Note 11—
“Derivative Instrument and Hedging Activity” in the Notes to
Consolidated Financial Statements, included in this Annual Report
for a complete discussion of our interest rate swap.
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):
2018 (1)
2017
Shares
$ Shares $
Open market
repurchases
553
$15,727
526
$12,239
(1) On October 26, 2018, our Board approved an increase in our stock repurchase
authorization bringing the then available authorization to $100.0 million.
As of December 31, 2018 and 2017, $92.9 million and $38.5
million, respectively, remained available for further repurchases
under the Board-authorized common stock repurchase program.
KFORCE INC. AND SUBSIDIARIES 17
Off-Balance Sheet Arrangements
Kforce provides letters of credit to certain vendors in lieu of cash deposits. At December 31, 2018, Kforce had letters of credit outstanding
for workers’ compensation and other insurance coverage totaling $2.8 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.
Contractual Obligations and Commitments
The following table presents our expected future contractual obligations as of December 31, 2018 (in thousands):
Credit facility (1)
Operating lease obligations
Capital lease obligations
Purchase obligations (2)
Notes and interest payable (3)
Deferred compensation plans liability (4)
Supplemental Executive Retirement Plan (5)
Liability for unrecognized tax positions (6)
Total
Less than
1 year
$ 2,380
6,994
764
10,619
1,005
1,791
—
—
$23,553
Payments due by period
1-3 Years
3-5 Years
$ 5,187
9,908
177
5,393
1,206
4,827
13,351
—
$40,049
$73,132
3,887
3
281
—
4,016
—
—
$81,319
More than
5 years
$ —
1,199
—
—
—
20,072
4,409
—
$25,680
Total
$ 80,699
21,988
944
16,293
2,211
30,706
17,760
—
$170,601
(1) Our credit facility matures May 25, 2022. Our weighted average interest rate as of December 31, 2018 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.
(2) Purchase obligations include agreements to purchase goods and services that are enforceable, legally binding and specify all significant terms.
(3) Our notes payable as of December 31, 2018 are classified in Other current liabilities if payable within the next year or in Long-term debt—other if payable after the next year in
the accompanying Consolidated Balance Sheets. The interest rate on the notes range from 2.58% to 2.80% and expire between November 2020 and October 2021.
(4) 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.
(5) 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, 2018. Kforce does not currently anticipate funding our SERP during 2019. Kforce has included the total undiscounted projected benefit payments, as determined
at December 31, 2018, in the table above.
(6) Kforce’s liability for unrecognized tax positions as of December 31, 2018 was $0.9 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.
Kforce has no material unrecorded commitments, losses,
contingencies or guarantees associated with any related parties
or unconsolidated entities.
CRITICAL ACCOUNTING ESTIMATES
Our significant accounting policies are discussed in Note 1—
“Summary of Significant Accounting Policies” in the Notes to
Consolidated Financial Statements, included in this Anual Report. Our
consolidated financial statements are prepared in accordance with
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. 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. We have not made
any material changes in our accounting methodologies used from
the prior years.
18 KFORCE INC. AND SUBSIDIARIES
Allowance for Doubtful Accounts
Goodwill Impairment
Goodwill is tested at the reporting unit level which is generally
an operating segment, or one level below the operating segment
level, where a business operates and for which discrete financial
information is available and reviewed by segment management.
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. 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.
When performing a quantitative assessment, we determine the
fair value of our reporting units using widely accepted valuation
techniques, including the discounted cash flow, guideline transaction
and guideline company methods. 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. When performing a qualitative assessment, we assess
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 unit was less than its carrying amount.
For all of our segments (Tech, FA and GS) reporting units, Kforce
assessed the qualitative factors of each reporting unit to determine
if it was more likely than not that the fair value of the reporting
unit was less than its carrying amount. Based on the qualitative
assessments, management determined that it was not more likely
than not that the fair values of the reporting units were less than
the carrying values. A deterioration in any of the assumptions could
result in an impairment charge in the future.
See Note 6—“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.
NEW ACCOUNTING STANDARDS
Refer to 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.
Management performs an ongoing analysis of factors in
establishing its allowance for doubtful accounts 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.
Accounting for Income Taxes
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.
We are 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.
Refer to Note 5—“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, 2018.
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 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.
Defined Benefit Pension Plan
The SERP is a defined benefit pension plan that benefits certain
named executive officers. The SERP was not funded as of December 31,
2018 or 2017. 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.
Refer to Note 9—“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.
KFORCE INC. AND SUBSIDIARIES 19
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 the Board 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, 2018. 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, 2018, 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.
20 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, 2018 and
2017, 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, 2018, 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, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December
31, 2018, 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, 2018, 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 22, 2019
We have served as Kforce’s auditor since 2000.
KFORCE INC. AND SUBSIDIARIES 21
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
Years Ended December 31,
Revenue
Direct costs
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 income (loss):
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
2018
$1,418,353
999,745
418,608
329,126
7,831
81,651
4,498
77,153
19,173
57,980
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
881
315
(373)
289
(134)
—
$ 59,176
$ 33,201
$ 32,639
$2.34
$2.30
$1.32
$1.30
$1.26
$1.25
Weighted average shares outstanding—basic
24,738
25,222
26,099
Weighted average shares outstanding—diluted
25,251
25,586
26,274
Dividends declared per share
$0.60
$0.48
$0.48
The accompanying notes are an integral part of these consolidated financial statements.
22 KFORCE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
ASSETS
Current assets:
Cash and cash equivalents
Trade receivables, net of allowances of $2,800 and $2,333, 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 14)
Stockholders’ equity:
Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding
Common stock, $0.01 par; 250,000 shares authorized, 71,856 and 71,494 issued and
outstanding, respectively
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings
Treasury stock, at cost; 45,822 and 45,167 shares, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
2018
2017
$ 112 $
234,895
319
13,136
248,462
35,818
36,957
9,751
2,952
45,968
$ 379,908
$ 38,606
45,262
1,632
4,858
90,358
71,800
1,359
48,060
211,577
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
—
—
719
447,337
1,296
237,308
(518,329)
168,331
$ 379,908
715
437,394
100
195,143
(499,075)
134,277
$ 384,304
KFORCE INC. AND SUBSIDIARIES 23
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
Balance, December 31, 2015
Net income
Issuance for stock-based compensation and dividend equivalents, net of forfeitures
Exercise of stock options
Stock-based compensation expense
Income tax benefit from stock-based compensation
Employee stock purchase plan
Dividends ($0.48 per share)
Defined benefit pension plans, net of tax benefit of $89
Repurchases of common stock
Balance, December 31, 2016
Net income
Cumulative effect of new accounting standard (Note 13)
Issuance for stock-based compensation and dividend equivalents, net of forfeitures
Exercise of stock options
Stock-based compensation expense
Employee stock purchase plan
Dividends ($0.48 per share)
Defined benefit pension plans, net of tax benefit of $207
Change in fair value of interest rate swap, net of tax of $189
Repurchases of common stock
Common Stock
Shares Amount
70,558
—
695
15
—
—
—
—
—
—
71,268
—
—
221
5
—
—
—
—
—
—
$705
—
8
—
—
—
—
—
—
—
713
—
—
2
—
—
—
—
—
—
—
Balance, December 31, 2017
71,494
715
Net income
Cumulative effect of new accounting standard (Note 1), net of tax of $63
Issuance for stock-based compensation and dividend equivalents, net of forfeitures
Exercise of stock options
Stock-based compensation expense
Employee stock purchase plan
Dividends ($0.60 per share)
Defined benefit pension plan, net of tax of $314
Change in fair value of interest rate swap, net of tax of $107
Repurchases of common stock
—
—
357
5
—
—
—
—
—
—
—
—
4
—
—
—
—
—
—
—
Balance, December 31, 2018
71,856
$719
The accompanying notes are an integral part of these consolidated financial statements.
24 KFORCE INC. AND SUBSIDIARIES
Additional
Paid-In
Capital
Accumulated Other
Comprehensive
Income (Loss)
$420,276
—
447
172
6,705
307
305
—
—
—
428,212
—
769
494
72
7,600
247
—
—
—
—
437,394
—
—
762
46
8,797
338
—
—
—
—
$ 318
—
—
—
—
—
—
—
(134)
—
184
—
—
—
—
—
—
—
(373)
289
—
100
—
—
—
—
—
—
—
881
315
—
Retained
Earnings
$155,096
32,773
(455)
—
—
—
—
(12,447)
—
—
174,967
33,285
(469)
(496)
—
—
—
(12,144)
—
—
—
195,143
57,980
(179)
(766)
—
—
—
(14,870)
—
—
—
Treasury Stock
Shares Amount
Total
Stockholders’
Equity
42,130
—
—
3
—
—
(34)
—
—
2,370
44,469
—
—
—
—
—
(25)
—
—
—
723
$(436,768)
—
—
(63)
—
—
364
—
—
(45,873)
(482,340)
—
—
—
—
—
275
—
—
—
(17,010)
45,167
(499,075)
—
—
—
1
—
(19)
—
—
—
673
—
—
—
(46)
—
211
—
—
—
(19,419)
$139,627
32,773
—
109
6,705
307
669
(12,447)
(134)
(45,873)
121,736
33,285
300
—
72
7,600
522
(12,144)
(373)
289
(17,010)
134,277
57,980
(179)
—
—
8,797
549
(14,870)
881
315
(19,419)
$447,337
$1,296
$237,308
45,822
$(518,329)
$168,331
KFORCE INC. AND SUBSIDIARIES 25
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:
2018
2017
2016
$ 57,980
$ 33,285
$ 32,773
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
Other
(Increase) decrease in operating assets
Trade receivables, net
Income tax refund receivable
Prepaid expenses and other current assets
Other assets, net
Increase (decrease) in operating liabilities
Accounts payable and other accrued 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
Cash used in investing activities
Cash flows from financing activities:
Proceeds from credit facility
Payments on credit facility
Payments on other financing arrangements
Repurchases of common stock
Cash dividends
Payments of loan financing fees
Proceeds from exercise of stock options, net of shares tendered in payment of exercise
Proceeds from other financing arrangements
Cash used in financing activities
Change in cash and cash equivalents
Cash and cash equivalents at beginning of year
989
1,820
8,265
8,797
1,821
563
—
388
(10,851)
6,797
(2,050)
994
3,932
1,350
4,858
2,070
87,723
(5,170)
1,000
(4,170)
450,400
(495,123)
(2,039)
(22,187)
(14,871)
—
—
—
(83,820)
12,243
1,031
8,508
7,600
937
510
(3,148)
1,453
(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)
(14,622)
(12,144)
(1,730)
72
—
(25,596)
2,007
976
8,796
6,705
1,733
597
—
279
(8,403)
354
(1,631)
(495)
(1,920)
(1,320)
(489)
(139)
39,823
(12,420)
—
(12,420)
937,083
(906,008)
(1,830)
(46,013)
(12,447)
(158)
172
1,783
(27,418)
(267)
379
(1,103)
1,482
(15)
1,497
Cash and cash equivalents at end of year
$ 112
$ 379
$ 1,482
The accompanying notes are an integral part of these consolidated financial statements.
26 KFORCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in
conformity with GAAP and the rules of the SEC.
Principles of Consolidation
The consolidated financial statements include the accounts
of Kforce Inc. and it 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 consolidated financial statements in
conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the 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; income taxes; self-
insured liabilities for workers’ compensation and health insurance;
obligations for pension plans and goodwill 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
All of our revenue and trade receivables are generated from
contracts with customers and substantially all of our revenues
are derived from U.S. domestic operations. The following section
describes the accounting policies that we believe have significant
judgment, or changes in judgment, as a result of adopting Topic 606.
Revenue is recognized when control of the promised goods or
services is transferred to our customers at an amount that reflects
the consideration to which we expect to be entitled to in exchange
for those goods or services. Revenue is recorded net of sales or
other transaction taxes collected from clients and remitted to
taxing authorities.
For substantially all of our revenue transactions, we have
determined that gross reporting of revenues as a principal versus
net as an agent is the appropriate accounting treatment because
Kforce: (i) is primarily responsible for fulfilling the promise to provide
the specified good or service to the customer, (ii) has discretion in
selecting and assigning the temporary workers to particular jobs
and establishing the bill rate, and (iii) bears the risk and rewards of
the transaction, including credit risk if the customer fails to pay for
services performed.
Flex Revenue
Flex revenue is recognized over time as temporary staffing services
are provided by our consultants at the contractually established
bill rates, net of applicable variable consideration. Reimbursements
of travel and out-of-pocket expenses (“billable expenses”) are also
recorded within Flex revenue when incurred and the equivalent
amount of expense is recorded in Direct costs in the Consolidated
Statements of Operations and Comprehensive Income.
Certain temporary staffing services are provided under time-
and-material and fixed-price arrangements. For time-and-materials
contracts, we recognize revenue in the amount of consideration to
which we have the right to invoice when it corresponds directly to
the services transferred to the customer satisfied over time. For fixed-
price contracts, which are most frequently utilized in our GS segment,
revenue is recognized over time using the input method based on
costs incurred as a proportion of estimated total costs. Incurred costs
represent work performed, which corresponds with, and thereby
best depicts, the transfer of control to the customer. Management
uses significant judgments when estimating the total labor hours
expected to complete the contract performance obligation.
Direct Hire Revenue
Direct Hire revenue is recognized at the agreed upon rate at
the point in time when the performance obligation is considered
complete. Our policy requires the following criteria to be met in
order for the performance obligation to be considered complete:
(i) the candidate accepted the position; (ii) the candidate resigned
from their current employer; and (iii) the agreed upon start date
falls within the following month. Since the client has accepted the
candidate and can direct the use of and obtains the significant risk
and rewards of the placement, we consider this point as the transfer
of control to our client.
Product Revenue
Revenue for our product business, which accounts for
approximately 1% of total revenue for each of the years ended
December 31, 2018, 2017 and 2016, is recognized after the transfer
of control to the customer, which typically occurs upon delivery.
Variable Consideration
Transaction prices for Flex revenue include variable consideration,
such as customer rebates and discounts. Management evaluates the
facts and circumstances of each contract to estimate the variable
consideration using the most likely amount method which utilizes
management’s expectation of the volume of services to be provided
over the applicable period. Direct Hire revenue is recorded net of a
fallout reserve. Direct Hire fallouts occur when a candidate does not
remain employed with the client through the respective contingency
period (typically 90 days or less). Management uses the expected
value method to estimate the fallout reserve based on a combination
of past experience and current trends. Variable consideration reduces
revenue, but may be constrained to the extent that it is probable a
significant reversal will not occur. These balances are recorded in
Accounts payable and other accrued liabilities in the Consolidated
Balance Sheets.
Under Topic 605, the Direct Hire fallout reserve was recorded as a
Trade receivables allowance and under Topic 606, it is recorded within
Accounts payable and other accrued liabilities in the Consolidated
Balance Sheets. As of December 31, 2018 and 2017, the Direct Hire
fallout reserve was $0.6 million and $0.5 million, respectively.
KFORCE INC. AND SUBSIDIARIES 27
Payment Terms
Income Taxes
Income taxes are recorded using the asset and liability approach
for deferred tax assets and liabilities and the expected future tax
consequences of differences between carrying amounts and the
tax basis of assets and liabilities. A valuation allowance is recorded
unless it is more likely than not that the deferred tax asset can be
utilized to offset future taxes. Effective January 1, 2017, 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 taken or expected to be
taken in our tax returns and records a liability for uncertain tax
positions. We recognize 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. The Company recognizes interest and
penalties related to uncertain tax positions in income tax expense
in the accompanying Consolidated Statements of Operations and
Comprehensive Income.
Cash and Cash Equivalents
All highly liquid investments with original maturity dates of
three months or less at the time of purchase are classified 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 because of the short-term nature of
these instruments.
Trade Receivables and Related Reserves
Trade receivables are recorded net of allowance for doubtful
accounts. The allowance for doubtful accounts 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 receivables among clients and higher-risk
sectors, and the current state of the U.S. economy. Trade 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, 2018 and 2017.
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. 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.
Our payment terms and conditions vary by arrangement,
although terms are typically less than 90 days. Generally, the
timing between the satisfaction of the performance obligation and
the payment is not significant and we do not currently have any
significant financing components.
Unsatisfied Performance Obligations
We do not disclose the value of unsatisfied performance obligations
for contracts if either the original expected length is one year or less
or if revenue is recognized at the amount to which we have the right
to invoice for services performed.
Contract Balances
We record accounts receivable when our right to consideration
becomes unconditional. Other than our trade receivable balance, we
do not have any material contract assets as of January 1, 2018 and
December 31, 2018.
We record a contract liability when we receive consideration from a
customer prior to transferring goods or services to the customer or if
we have an unconditional right and services have been performed. We
recognize the contract liability as revenue after we have transferred
control of the goods or services to the customer. Contract liabilities
are recorded within Accounts payable and other accrued liabilities if
expected to be recognized in less than one year and Other long-term
liabilities, if over one year, in the Consolidated Balance Sheets. We do
not have any material contract liabilities as of January 1, 2018 and
December 31, 2018.
Cost of Services
Direct costs are composed of all related costs of employment for
consultants, including compensation, payroll taxes, certain fringe
benefits and subcontractor costs. Direct costs exclude depreciation
and amortization expense (except for the product business), which
is presented on a separate line in the accompanying Consolidated
Statements of Operations and Comprehensive Income.
Associate and field management compensation, payroll taxes and
fringe benefits are included in selling, general and administrative
expenses (“SG&A”), along with other customary costs such as
administrative and corporate costs.
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. Commissions are accrued at an
amount equal to the percent of total expected commissions payable
to total revenue or gross profit for the commission-plan period, as
applicable. We generally expense sales commissions and any other
incremental costs of obtaining a contract as incurred because the
amortization period is typically less than one year.
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, the Firm
changed its accounting policy regarding forfeitures and elected to
recognize as incurred.
28 KFORCE INC. AND SUBSIDIARIES
Leases
Leases for our field offices, which are located throughout the U.S.,
range from three to seven-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 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 GS’s
Data Confidence trademark. Our trade names and trademarks, and
derivatives thereof, including GS’s Data Confidence trademark, are
important to our business and 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 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
Long-lived assets are reviewed 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.
Management 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.
KFORCE INC. AND SUBSIDIARIES 29
Defined Benefit Pension Plans
Fair Value Measurements
The unfunded status of its defined benefit pension plan is recorded
as a liability in its Consolidated Balance Sheets. Because our plan is
unfunded as of December 31, 2018, actuarial gains and losses may
arise as a result of the actuarial experience of the plan, 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 pension plan 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. The
interest cost component of the net periodic benefit cost is included
in Other expense, net in the Consolidated Statements of Operations
and Comprehensive Income.
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 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, 2018, 2017 and 2016, there
were 513 thousand, 364 thousand, and 175 thousand common
stock equivalents, respectively, included in the diluted WASO. For
the years ended December 31, 2018, 2017 and 2016, there were
nil, 527 thousand and 32 thousand, respectively, of anti-dilutive
common stock equivalents.
Treasury Stock
The Board may authorize share repurchases of our 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.
Derivative Instrument
Our interest rate swap derivative instrument has been
designated as a cash flow hedge and is recorded at fair value on
the Consolidated Balance Sheets. 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 is defined as the price that would be received to sell
an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly
transaction between market participants at the measurement
date. The fair value hierarchy uses a framework which requires
categorizing assets and liabilities into one of three levels based on
the inputs used in valuing the asset or liability.
• Level 1 inputs are unadjusted, quoted market prices in active
markets for identical assets or liabilities.
• Level 2 inputs are observable inputs other than quoted prices
included in Level 1, such as quoted prices for similar assets or
liabilities in active markets or quoted prices for identical assets
or liabilities in inactive markets.
• Level 3 inputs include unobservable inputs that are supported by
little, infrequent or no market activity and reflect management’s
own assumptions about inputs used in pricing the asset
or liability.
Level 1 provides the most reliable measure of fair value, while
Level 3 generally requires significant management judgment. Assets
and liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement.
Fair value measurements include, but are not limited to: the
impairment testing of goodwill, other intangible assets and other
long-lived assets; stock-based compensation; the interest rate
swap and contingent consideration liability. The carrying values of
cash and cash equivalents, trade receivables, other current assets
and accounts payable and other accrued liabilities approximate
fair value because of the short-term nature of these instruments.
Using available market information and appropriate valuation
methodologies, Management 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 May 2014, the FASB issued authoritative guidance regarding
revenue from contracts with customers, which specifies that
revenue should be recognized when control of the promised goods
or services is transferred to our customers at an amount that reflects
the consideration to which we expect to be entitled to in exchange
for those goods or services. Topic 606 is effective for annual and
interim reporting periods beginning after December 15, 2017. We
adopted Topic 606 using the modified retrospective transition
method for all contracts that were not completed as of January 1,
2018. The cumulative impact of adopting Topic 606 was recorded
as a reduction to the opening balance of retained earnings of $0.2
million, net of tax, as of January 1, 2018 with the offset recorded
as a contract liability. The adjustment is related to a change in the
revenue recognition pattern for the performance obligations under
certain GS contracts including standard warranty revenues related
to our product business and a contract that provides our customer
with a material right to a future discount. As of and for the year
ended December 31, 2018, the consolidated financial statements
were not materially impacted as a result of the application of
Topic 606 compared to Topic 605. The comparative information
continues to be reported under the accounting standards in effect
for the period presented.
30 KFORCE INC. AND SUBSIDIARIES
Accounting Standards Not Yet Adopted
In August 2018, the FASB issued authoritative guidance regarding
customer’s accounting for implementation costs incurred in
a cloud computing arrangement that is a service contract.
These amendments align the requirements for capitalizing
implementation costs incurred in a hosting arrangement that
is a service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use
software, and defer these costs over the noncancelable term of the
cloud computing arrangements plus any option renewal periods
that are reasonably certain to be exercised. This amendment
also requires entities to present cash flows, capitalized costs and
amortization expense in the same financial statement line items
as the service costs incurred for such hosting arrangements. The
guidance is effective for fiscal periods beginning after December 15,
2019 with retrospective application or prospective to all
implementation costs incurred after the date of adoption. We
plan to early adopt this standard in the first quarter of 2019 and
expect certain presentation changes, which are not expected to be
material to the consolidated financial statements.
In August 2018, the FASB issued authoritative guidance
regarding changes to the disclosure requirement for defined
benefit plans including additions and deletions to certain disclosure
requirements for employers that sponsor defined benefit pension
or other post-retirement plans. The guidance is effective for fiscal
periods beginning after December 15, 2020. The adoption of this
guidance will modify our disclosures and is not expected to have a
material effect on our consolidated financial statements.
In August 2018, the FASB issued authoritative guidance regarding
changes to the disclosure requirements for fair value measurement.
The amendments on changes in unrealized gains and losses,
the weighted average and range of significant unobservable
inputs used to develop Level 3 fair value measurements, and the
narrative description of measurement uncertainty should be
applied prospectively for only the most recent interim or annual
period presented in the initial fiscal year of adoption. All other
amendments should be applied retrospectively to all periods
presented upon their effective date. The guidance is effective for
fiscal periods beginning after December 15, 2019. The adoption of
this guidance will modify our disclosures and is not expected to
have a material effect on our consolidated financial statements.
In February 2018, the FASB issued authoritative guidance regarding
the reclassification of certain stranded tax effects from accumulated
other comprehensive income to retained earnings as a result of
the change in tax rates related to the Tax Cuts and Jobs Act. The
guidance is effective for fiscal periods beginning after December 15,
2018 and should be applied either in the period of adoption or
retrospectively. Kforce will adopt this standard using the period
of adoption method with an adjustment of approximately $168
thousand to retained earnings on January 1, 2019.
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 effective for annual
periods beginning after December 15, 2018. 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 will adopt this standard in the first quarter of
2019; it will modify our disclosures but is not expected to have a
material effect on our 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 effective for annual periods beginning
after December 15, 2019. The guidance requires companies to apply
the requirements using a modified retrospective approach. We
are currently evaluating the potential impact on our consolidated
financial statements, especially with respect to our disclosures.
In February 2016, the FASB issued authoritative guidance
regarding the accounting for leases, and has since issued
subsequent updates to the initial guidance. The amended
guidance requires the recognition of assets and liabilities for
operating leases with terms longer than 12 months. The guidance
is effective for annual periods beginning after December 15, 2018.
We will adopt this standard in the first quarter of 2019 utilizing
the optional transition method in the period of adoption without
retrospective application to comparative periods. We anticipate
recording approximately $17.6 million and $21.0 million in right-
of-use assets and lease liabilities, respectively, on our consolidated
balance sheets on January 1, 2019. We will take advantage of the
package of practical expedients permitted in the new standard
as well as the practical expedients for short term leases and not
separating lease and nonlease components.
2. REPORTABLE SEGMENTS
Kforce’s reportable segments are as follows: (1) Tech; (2) FA;
and (3) GS. Historically, and for the year ended December 31, 2018,
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.
For the years ended December 31, 2017 and 2016, our Tech
segment 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 for the year ended
December 31, 2017.
KFORCE INC. AND SUBSIDIARIES 31
The following table provides information concerning the operations of our segments for the years ended December 31
(in thousands):
2018
Revenue
Gross profit
Operating and other expenses
Income before income taxes
2017
Revenue
Gross profit
Operating and other expenses
Income before income taxes
2016
Revenue
Gross profit
Operating and other expenses
Income before income taxes
3. REVENUE
Tech
FA
GS
Total
$990,089
$277,388
$313,848
$109,099
$114,416
$ 32,121
$907,511
$257,118
$346,135
$118,479
$104,294
$ 32,459
$883,477
$255,842
$337,601
$120,551
$ 98,628
$ 32,106
$1,418,353
$ 418,608
341,455
$ 77,153
$1,357,940
$ 408,056
343,962
$ 64,094
$1,319,706
$ 408,499
352,544
$ 55,955
Disaggregation of Revenue
The following table provides information about disaggregated revenue by segment and revenue type for the years ended December 31,
2018, 2017 and 2016 (in thousands):
2018
Revenue by type:
Flex revenue
Direct Hire revenue
Product revenue
Total Revenue
2017
Revenue by type:
Flex revenue
Direct Hire revenue
Product revenue
Total Revenue
2016
Revenue by type:
Flex revenue
Direct Hire revenue
Product revenue
Total Revenue
Tech
FA
GS
Total
$971,310
18,779
—
$ 990,089
$887,675
19,836
—
$907,511
$863,434
20,043
—
$883,477
$286,939
26,909
—
$ 313,848
$318,294
27,841
—
$346,135
$307,245
30,356
—
$337,601
$ 98,214
—
16,202
$1,356,463
45,688
16,202
$114,416
$1,418,353
$ 92,241
—
12,053
$1,298,210
47,677
12,053
$104,294
$1,357,940
$ 82,427
—
16,201
$1,253,106
50,399
16,201
$ 98,628
$1,319,706
GS Flex revenue includes 41.9% and 34.3% of revenue recognized from fixed-price contracts for the years ended December 31, 2018 and
2017, respectively.
32 KFORCE INC. AND SUBSIDIARIES
4. 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
3-40 years
1-20 years
1-5 years
3-7 years
Less accumulated depreciation
2018
2017
$ 5,892 $ 5,892
25,733
17,285
9,231
13,424
71,565
(31,885)
25,755
17,467
6,289
12,497
67,900
(32,082)
Total Fixed assets, net
$ 35,818 $ 39,680
Computer equipment as of December 31, 2018 and 2017 includes
equipment acquired under capital leases of $2.3 million and
$3.5 million, respectively, and related accumulated depreciation of
$1.4 million and $2.1 million, respectively. Depreciation expense,
which includes capital leases, during the years ended December 31,
2018, 2017 and 2016 was $6.3 million, $6.9 million, and $6.7 million,
respectively.
5. INCOME TAXES
The Tax Cuts and Jobs Act was enacted in December 2017, which
reduced the U.S. federal corporate tax rate from 35.0% to 21.0%
effective January 1, 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 for the year ended December 31, 2017.
The provision for income taxes from continuing operations
consists of the following (in thousands):
Years Ended December 31,
2018
2017
2016
Current tax expense:
Federal
State
Deferred tax expense (1)
$12,730 $15,060 $16,677
3,829
2,676
3,244
12,505
5,454
989
Total Income tax expense
$19,173 $30,809 $23,182
(1) Includes the impact of TCJA for the year ended December 31, 2017.
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,
2018
2017
2016
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
21.0%
35.0%
35.0%
5.7
3.8
6.8
1.0
(2.2)
—
—
(0.6)
0.7
(2.2)
2.5
9.1
(0.8)
1.2
(2.1)
—
—
0.5
24.9%
48.1%
41.4%
The 2018 effective tax rate was favorably impacted by the TCJA.
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.
Deferred tax assets and liabilities are composed of the following
(in thousands):
December 31,
2018
2017
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
$ 738
1,825
5,545
723
3,471
—
1,630
344
$ 611
1,953
5,423
598
3,767
526
1,632
289
Deferred tax assets
Deferred tax liabilities:
Prepaid expenses
Fixed assets
Goodwill and intangible assets
Other
Deferred tax liabilities
Valuation allowance
14,276
14,799
(190)
(1,277)
(1,057)
(254)
(2,778)
(1,747)
(251)
(1,482)
—
(17)
(1,750)
(1,733)
Deferred tax assets, net
$ 9,751
$11,316
At December 31, 2018, Kforce had approximately $3.4 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 2037.
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 valuation allowance includes a 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 2018,
the IRS commenced an audit for the tax year ended December 31,
2016. No adjustments have been proposed to date. During 2018,
the Company also received a notice of examination by the North
Carolina Department of Revenue for the years ended December 31,
2016, 2015 and 2014. No adjustments have been proposed to date.
The Company has not received a notice of examination by any other
jurisdictions for any other tax year open under statute. 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.
KFORCE INC. AND SUBSIDIARIES 33
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
Lapse of statute of limitations
Reductions for tax positions of prior years
Unrecognized tax benefits, ending
2018
$1,127
41
—
(248)
(14)
$ 906
2017
$1,115
50
29
(67)
—
$1,127
2016
$ 788
454
—
(102)
(25)
$1,115
As of December 31, 2018, 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. Global 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 2016.
6. 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,
2018, 2017 and 2016 (in thousands):
Goodwill, gross amount
Accumulated impairment losses
Goodwill, carrying value
There was no impairment expense related to goodwill for each of
the years ended December 31, 2018, 2017 and 2016.
Throughout 2018, 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.
Management performed its annual impairment assessment of
the carrying value of goodwill as of December 31, 2018. For each
of our 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 these reporting units was more
than their carrying amounts at December 31, 2018.
Kforce performed a quantitative analysis for each reporting unit
and compared the carrying value for each 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
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
risk-free rate of return. The market approach consists 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 for the year ended December 31, 2017.
As of December 31, 2016, for our Technology and Finance and
Accounting 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. Based on
the qualitative assessments, management determined that it was
not more likely than not that the fair values of the reporting units
were less than the carrying values. As of December 31, 2016, for our
Government Solutions 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.
34 KFORCE INC. AND SUBSIDIARIES
Other Intangible Assets
Employee Stock Purchase Plan
Our other intangible assets balance includes an indefinite-lived
trademark of $2.2 million as of December 31, 2018 and 2017 and is
recorded in Intangible assets, net in the accompanying Consolidated
Balance Sheets. As of December 31, 2018 and 2017, our definite-
lived intangible assets balance of $0.7 million and $1.1 million,
respectively, included accumulated amortization of $27.9 million and
$27.5 million, respectively. There was no impairment expense related
to our other intangible assets during the years ended December 31,
2018, 2017 and 2016.
7. 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
2018
2017
$22,900
15,706
$21,591
13,282
$38,606
$34,873
Our accounts payable balance includes vendor and independent
contractor payables. Our accrued liabilities balance includes the
current portion of our deferred compensation plans liability,
contract liabilities from contracts with customers (such as customer
rebates), and other accrued liabilities.
8. 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
9. EMPLOYEE BENEFIT PLANS
401(k) Savings Plans
2018
2017
$39,690
1,842
2,714
1,016
$37,788
5,270
2,596
1,232
$45,262
$46,886
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 the Board.
Kforce accrued matching 401(k) contributions of $1.8 million
and $1.6 million as of December 31, 2018 and 2017, respectively.
The plans held a combined 146 thousand and 167 thousand shares
of Kforce’s common stock as of December 31, 2018 and 2017,
respectively.
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 19 thousand, 25 thousand, and 34 thousand shares of common
stock at an average purchase price of $28.93, $20.65, and $19.37 per
share during the years ended December 31, 2018, 2017 and 2016,
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, 2018 and 2017, amounts related
to the deferred compensation plans included in Accounts payable
and other accrued liabilities were $1.8 million and $2.9 million,
respectively, and $28.9 million was included in Other long-term
liabilities at December 31, 2018 and 2017 in the Consolidated
Balance Sheets. For the years ended December 31, 2018, 2017 and
2016, we recognized compensation expense for the plans of $876
thousand, $722 thousand and $881 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 the
Rabbi Trust. The balance of the assets within the Rabbi Trust,
including the cash surrender value of the Company-owned life
insurance policies, was $29.1 million and $31.4 million as of
December 31, 2018 and 2017, respectively, and is recorded in Other
assets, net in the accompanying Consolidated Balance Sheets. As
of December 31, 2018, the life insurance policies 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, 2018, 2017 and 2016.
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
KFORCE INC. AND SUBSIDIARIES 35
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
2018
$1,353
468
$1,821
2017
$319
537
$856
2016
$1,310
453
$1,763
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
2018
2017
$14,409
1,353
468
$13,436
319
537
in actuarial assumptions
(1,195)
117
Projected benefit obligation, ending
$15,035
$14,409
There were no payments made under the SERP during the years
ended December 31, 2018 and 2017, 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, 2018 and 2017
was $15.0 million and $14.3 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, 2018. Kforce does not currently anticipate
funding the SERP during the year ending December 31, 2019.
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 during the years ended December 31 (in thousands):
2019
2020
2021
2022
2023
2024-2027
Thereafter
Projected Annual
Benefit Payments
$ —
—
13,351
—
—
—
4,409
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, 2018,
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, 2018 and
2017, 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
2018
2017
4.00%
2.90%
3.25%
2.90%
The following table presents the weighted average actuarial
assumptions used to determine net periodic benefit cost for the
years ended:
December 31,
2018
2017
2016
Discount rate
3.25%
Rate of future compensation increase 2.90%
4.00%
3.60%
4.00%
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, management monitors these
36 KFORCE INC. AND SUBSIDIARIES
10. 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”). Under the Credit Facility, the Firm
has 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 is 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 bears 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
bears 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%.
The Firm is 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, 2018, Kforce was not limited in making
distributions and executing repurchases of our equity securities.
As of December 31, 2018 and 2017, $71.8 million and $116.5
million was outstanding, respectively. Kforce had $3.2 million of
outstanding letters of credit at December 31, 2018 and 2017 which,
pursuant to the Credit Facility, reduces the availability.
11. 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 rising
interest rates on variable rate debt.
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 Swap was effective
May 31, 2017 and matures 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 has been designated as a cash flow hedge and was effective
as of December 31, 2018. 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, 2018 and 2017, the fair
value of the Swap asset was $0.9 million and $0.5 million, respectively,
and is recorded in Other assets, net within the accompanying
Consolidated Balance Sheets.
12. FAIR VALUE MEASUREMENTS
Kforce’s interest rate swap is measured at fair value using
readily observable inputs, such as the LIBOR interest rate, which
are considered to be Level 2 inputs. Refer to Note 11—“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.
Our contingent consideration liability relates to a non-significant
business acquisition within our GS reporting segment, which is
measured on a recurring basis and recorded at fair value 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, 2018 and 2017, approximately $4 thousand
and $565 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, 2018 and 2017 was $187 thousand
and $191 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.
KFORCE INC. AND SUBSIDIARIES 37
The following table sets forth by level, within the fair value hierarchy, estimated fair values on a recurring basis at December 31, 2018 and
2017 were as follows (in thousands):
Assets/(Liabilities) Measured at Fair Value:
At December 31, 2018
Recurring basis:
Interest rate swap derivative instrument
Contingent consideration liability
At December 31, 2017
Recurring basis:
Interest rate swap derivative instrument
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)
$ 900
$(187)
$ 479
$(191)
$—
$—
$—
$—
$900
$ —
$479
$ —
$ —
$(187)
$ —
$(191)
There were no transfers into or out of Level 1, 2 or 3 assets or liabilities during the years ended December 31, 2018 and 2017.
13. 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 and 2013 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.
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. 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 was 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.
During the years ended December 31, 2018, 2017 and 2016, stock-
based compensation expense was $8.8 million, $7.6 million, and
$6.7 million, respectively. The related tax benefit for the years ended
December 31, 2018, 2017 and 2016 was $2.2 million, $3.0 million, and
$2.8 million, respectively.
Restricted Stock
Restricted stock (including RSAs and RSUs) are granted to
executives and management either: for awards related to Kforce’s
annual long-term incentive (“LTI”) compensation program, or as part
of a compensation package in order to retain directors, executives
and management. The LTI award amounts are generally based on
total shareholder return performance goals. The LTI restricted stock
granted during the year ended December 31, 2018 will vest ratably
over a period between three to four years. Other restricted stock
granted during the year ended December 31, 2018 will vest ratably
over a period of between one to ten years.
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.
38 KFORCE INC. AND SUBSIDIARIES
The following table presents the restricted stock activity for the years ended December 31, 2018, 2017 and 2016 (in thousands, except per
share amounts):
Outstanding at December 31, 2015
Granted (1)
Forfeited/Canceled
Vested
Outstanding at December 31, 2016
Granted
Forfeited/Canceled
Vested (2)
Outstanding at December 31, 2017
Granted
Forfeited/Canceled
Vested
Outstanding at December 31, 2018
Number of Restricted Stock
Weighted Average
Grant Date
Fair Value
Total Intrinsic
Value of Restricted
Stock Vested
1,293
1,048
(353)
(280)
1,708
427
(206)
(574)
1,355
447
(90)
(392)
1,320
$20.89
$22.46
$21.04
$20.67
$21.86
$24.03
$21.70
$21.60
$22.67
$29.72
$22.81
$23.03
$18.19
$ 6,434
$13,668
$11,935
(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, 2018, total unrecognized stock-based compensation
expense related to restricted stock was $29.6 million, which will be recognized over a weighted average remaining period of 3.9 years.
14. 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):
Capital leases
Present value of payments
Interest
Total Capital lease payments
Operating lease payments
Total Lease payments
2019
2020
2021
2022
2023
Thereafter
Total
$ 721
43
$ 764
$6,994
$7,758
$ 154
4
$ 158
$6,177
$6,335
$ 18
1
$ 19
$3,731
$3,750
$
$
3
—
3
$2,142
$2,145
$ —
—
$ —
$1,745
$1,745
$ —
—
$ —
$1,199
$1,199
$ 896
48
$ 944
$21,988
$22,932
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 for each of the years ended December 31, 2018, 2017 and 2016.
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, 2018, these purchase commitments amounted to
approximately $16.3 million and are expected to be paid as follows: $10.6 million in 2019; $3.2 million in 2020; $2.2 million in 2021; and
$0.3 million in 2022.
KFORCE INC. AND SUBSIDIARIES 39
Letters of Credit
Kforce provides letters of credit to certain vendors in lieu of cash
deposits. At December 31, 2018, Kforce had letters of credit outstanding
for workers’ compensation and other insurance coverage totaling
$2.8 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. Legal costs incurred in connection
with loss contingencies are expensed as incurred.
Employment Agreements
Kforce has 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 ranging from 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 subject to certain post-
employment restrictive covenants. At December 31, 2018, our liability
would be approximately $32.6 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 $14.1 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.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table provides quarterly information for the years ended December 31, 2018 and 2017 (in thousands, except per share amounts):
Three Months Ended
2018
Revenue
Gross profit
Net income
Earnings per share—basic
Earnings per share—diluted
2017
Revenue
Gross profit
Net income
Earnings per share—basic
Earnings per share—diluted
March 31,
June 30,
September 30,
December 31,
$346,293
100,188
9,175
$0.37
$0.37
$333,992
97,135
5,902
$0.23
$0.23
$358,624
107,483
16,272
$0.66
$0.65
$340,309
103,919
11,144
$0.44
$0.44
$355,452
104,381
16,177
$0.65
$0.64
$341,053
104,375
10,099
$0.40
$0.40
$357,984
106,556
16,356
$0.66
$0.65
$342,586
102,627
6,140
$0.25
$0.24
16. SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides information regarding supplemental cash flows for the years ended December 31 (in thousands):
Cash paid during the year for:
Income taxes
Interest, net
Non-Cash Financing and Investing Transactions:
Unsettled repurchases of common stock
Employee stock purchase plan
Equipment acquired under capital leases
Receivable for sale of Global’s assets
Shares tendered in payment of exercise price of stock options
2018
2017
2016
$13,442
$ 3,814
$ 556
$ 549
$ —
$ —
$ —
$24,330
$ 3,518
$ 898
$ 522
$ 937
$ 1,979
$ —
$21,324
$ 2,101
$ 935
$ 669
$ 1,153
$ —
$ 63
During the year ended December 31, 2018, cash provided by operating activities included the receipt of an income tax refund in the amount
of $6.8 million. Our effective tax rate for the year ended December 31, 2018 was positively impacted by the TCJA.
40 KFORCE INC. AND SUBSIDIARIES
is a professional staffing services and solutions firm that specializes
in the areas of Technology, and Finance and Accounting. Each year, our network of over 50 offices
and two national recruiting centers provides opportunities for 34,000 highly skilled professionals
who work with over 4,000 clients, including 70% of the Fortune 100. Founded in 1962, our name
stands for KnowledgeForce® which describes the customer-centric Kforce Knowledge Process that
delivers high-touch, relationship-driven results backed by progressive technologies. At Kforce, our
promise is to deliver great results through strategic partnership and knowledge sharing.
TECHNOLOGY
FINANCE AND ACCOUNTING
GOVERNMENT SOLUTIONS
As the 5th largest technology staffing
As the 4th
largest finance and
Kforce Government Solutions, a wholly-
firm in the U.S., we engage more
accounting staffing firm in the U.S.,
owned subsidiary of Kforce, is a
than 16,000 consultants annually
we engage more than 18,000 highly
government contracting services and
in technology roles on a temporary,
skilled professionals annually
in
solutions provider that has offered a
consulting and direct-hire basis. Our
finance and accounting roles on a
comprehensive portfolio of solutions
Technology professionals range from
temporary, consulting and direct-hire
to a wide range of Federal and Defense
project managers to developers to
basis. Our Finance and Accounting
agencies since 1970. Headquartered in
data and network architects and
professionals range from strategic
Fairfax, VA with offices in San Antonio,
technicians:
and operational to transactional and
TX and Tampa, FL:
• PROJECT MANAGEMENT AND
BUSINESS ANALYSIS offers a full
suite of functional professionals
to support the full scope of your
professional administration:
• OPERATIONAL AND TECHNICAL
professionals perform day-to-
day accounting and staff-level
• GS offers a full range of solutions in
the areas of Healthcare Informatics,
Financial Management and
Accounting, Enterprise Technology,
initiative.
analysis, which includes directing,
Engineering and Intelligence.
• 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.
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.
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, 2018 for
additional information regarding forward
looking statements.
The total shareholder
return (“TSR”) on our
stock has been 892%,
outperforming the Russell
2000 Index, which has
returned 349% over the
same period.
900%
750%
600%
450%
300%
150%
0%
KFRC
Russell 2000
Kforce stock performance vs. Russell 2000 from 8/15/95 (IPO) to 12/31/18
CORPORATE INFORMATION
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
Andrew G. Thomas
Chief Marketing Officer
Michael R. Blackman
Chief Corporate Development Officer
Denis Edwards
Chief Information Officer
CORPORATE COUNSEL
Holland & Knight LLP
Tampa, Florida
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 23, 2019 at
8:00 a.m. EST at Kforce Inc.
headquarters in Tampa, Florida.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Tampa, Florida
WEBSITE INFORMATION
For a comprehensive profile of
Kforce Inc., visit the Firm’s website at:
www.kforce.com.
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
COO/CFO
DeMert Brands, Inc.
Ralph E. Struzziero
Consultant
Howard W. Sutter
Vice Chairman,
Kforce Inc.
A. Gordon Tunstall
President and
Chief Executive Officer,
Tunstall Consulting, Inc.
KFORCE—OVER 50 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) 552-5000
Annual
Report
2018
UNITED STATES
ARIZONA
Phoenix
CALIFORNIA
Costa Mesa
Culver City
Glendale
La Jolla (San Diego)
Petaluma
San Francisco
San Ramon
COLORADO
Greenwood Village (Denver)
CONNECTICUT
East Hartford
Shelton
Stamford
DISTRICT OF COLUMBIA
Washington
FLORIDA
Doral (Miami)
Jacksonville
Orlando
Sunrise (Ft. Lauderdale)
Tampa
GEORGIA
Atlanta (2)
ILLINOIS
Chicago
Rolling Meadows
KANSAS
Overland Park (Kansas City)
OREGON
Portland
KENTUCKY
Louisville
MARYLAND
Linthicum (Baltimore)
MASSACHUSETTS
Boston
Burlington
Westborough
MICHIGAN
Grand Rapids
Southfield (Detroit)
PENNSYLVANIA
King of Prussia (Philadelphia)
Philadelphia
Pittsburgh
RHODE ISLAND
Providence
TEXAS
Addison (Dallas)
Austin (2)
Fort Worth
Houston
San Antonio (2)
MINNESOTA
Bloomington (Minneapolis)
UTAH
Murray (Salt Lake City)
VIRGINIA
Fairfax
Reston
WASHINGTON
Bellevue (Seattle)
WISCONSIN
Madison
Milwaukee
MISSOURI
St. Louis
NEW JERSEY
Parsippany
NEW YORK
New York
NORTH CAROLINA
Charlotte
Morrisville (Durham)
OHIO
Cincinnati
Dublin (Columbus)
Independence (Cleveland)
Great results through strategic partnership and knowledge sharing.®