x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2015
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FLORIDA | 59-3264661 | |
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The NASDAQ Stock Market LLC (NASDAQ Global Select Market) |
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Portions of Proxy Statement for the Annual Meeting of Shareholders scheduled to be held April | Part III |
2015 Item 1. Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 10. Item 11. Item 12. Item 13. Item 14. Item 15. 2014 excludes our former Health Information Management ("HIM") segment, which we sold in 2014): continue. and Direct Hire services, which contributes to our objective of providing integrated solutions for all of our clients’ human capital needs. greatest opportunity. 2016. government solutions provider. However, within temporary staffing, the working capital requirements can be a barrier to entry, because most consultants are paid weekly and customers may take 30 to 45 days or more to pay. thousands of smaller organizations compete to varying degrees at local levels. Several similar companies – global, national, and local – compete in foreign markets. Our peer group for 2015, which is comprised of some of our largest competitors, included: CDI Corp., Computer Task Group Inc., Kelly Services, Inc., Manpower Inc., On Assignment, Inc., Resources Connection, Inc., Robert Half International Inc., and TrueBlue Inc. 2013. report. global impact on the United States could have a material adverse effect on our business, financial condition, and results of operations. For example, changes to government regulations, including changes to statutory hourly wage and overtime regulations, could adversely affect the Firm's results of operations by increasing its costs. clients. We must continually evaluate and upgrade our base of available qualified personnel to keep pace with changing client needs and emerging technologies. We expect significant competition for individuals with proven technical or professional skills for the foreseeable future. The supply of available candidates has been constrained for the past few years. If qualified personnel are as the financial services industry, and declines in the credit worthiness of our customers. See Note 1 – “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements for further details. harmed.2013Item 1.3 Item 1A. Item 1B. 10Item 2. Item 3. Item 4. Item 1B.18Item 2.18Item 3.18Item 4.18224142Item 9A. 74Item 9B. Item 9A.74Item 9B.747575757575 containscontain certain statements that are, or may be deemed to be, forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are made in reliance upon the protections provided by such acts for forward-looking statements. Such statements may include, but may not be limited to, projections of revenue, income, losses, cash flows, capital expenditures, future prospects, our beliefs regarding potential government actions, anticipated costs and benefits of proposed (or future) acquisitions, integration of acquisitions, transition of divestitures, plans for future operations, capabilities of business operations, effects of interest rate variations, our ability to obtain financing and favorable terms, financing needs or plans, plans relating to services of Kforce, estimates concerning the effects of litigation or other disputes, estimates concerning our ability to collect on our accounts receivable, expectations of the overall economic outlook, the effects of organizational realignment, developments within the staffing sector including, but not limited to, the penetration rate (the percentage of temporary staffing to total employment) and growth in temporary staffing, a reduction in the supply of candidates for temporary employment or the Firm's ability to attract candidates, the success of the Firm in attracting and retaining revenue-generating talent, estimates concerning goodwill impairment, as well as assumptions as to any of the foregoing and all statements that are not based on historical fact but rather reflect our current expectations concerning future results and events. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the Risk Factors and MD&A sections. In addition, when used in this discussion, the terms “anticipate,” “estimate,” “assume,” “expect,” “intend,” “plan,” “believe,” “will,” “may,” “could,” “should”, “could” and variations thereof and similar expressions are intended to identify forward-looking statements.fourthree operating segments: Technology (“Tech”), Finance and Accounting (“FA”), Health Information Management (“HIM”) and Government Solutions (“GS”). Our Tech segment includes the results of Kforce Global Solutions, Inc. (“Global”), a wholly-owned subsidiary, which has an office in the Philippines. HIM andThe GS segments aresegment is organized and managed by specialty because of the unique operating characteristics of eachthe business.2012(the chart for 2013 and 2011:2013 2012 2011 programmersarchitecture and developers, senior-leveldevelopment, project managers, systems analysts,management, enterprise data management, business intelligence, e-commerce, technology infrastructure, network architecture and e-business and networking technicians.security. Revenues for our Tech segment increased 6.3% to $895.9 million for the year ended December 31, 2015 as compared to $842.5 million for the year ended December 31, 2014. The average bill rate for our Tech segment for 20132015 was approximately $65$67 per hour. Our Tech segment provides service to clients in a variety of industries with a strong footprint in healthcare,the communications, financial services, insurance services and government integrators.sectors. A recentSeptember 2015 report published by Staffing Industry Analysts (“SIA”) provides an expectationstated that temporary technology staffing couldis expected to experience growth of 7%6% in 2014.2016 and should represent one of the highest growth sectors within staffing. We believe the continued highprimary drivers of this growth is due toand the continuing use of temporary staffing as a solution during uncertain economic cycles are the increasingincreasingly strict regulatory environment and cost of employment, both of which are driving the systemic use of temporary staffing, particularly in project-based work such as technology, and anthe increasing influence of technology in business driving up the overall demand for Tech talent.talent in areas like mobility, cloud-based computing and data security. SIA also acknowledges that notable skill shortages in certain technology skill sets will continue, which we believe will result in strong future growth in our Tech segment.administrative,administration, credit and collections, audit services, and systems and controls analysis and documentation. Our FA segment provides service to clients in a variety of industries with a strong footprint in the healthcare, financial services organizations and government integrators.sectors. Revenues for our FA segment increased 17.7% to $325.9 million for the year ended December 31, 2015 as compared to $276.8 million for the year ended December 31, 2014. The average bill rate for our FA segment for 20132015 was approximately $32$33 per hour. A recent report published byIn its September 2015 update, SIA indicatedstated that the market for temporary finance/finance and accounting workstaffing is expected to expand 5%experience growth of 6% during 2014.HIMOur HIM segment provides temporary staffing services to our clients, which primarily consist2016.Techservices and FA professionalssolutions to the Federal Government as both a prime contractor and a subcontractor.subcontractor in the fields of information technology and finance and accounting. The GS contracts are concentrated onamong customers that we believe are less likely to be impacted by sequestration threats and budget constraints, such as healthcare.the U.S. Department of Veteran Affairs. GS offers integrated business solutions to its customers in areas such as: information technology, healthcare informatics, data and knowledge management, research and development, audit readiness, financial management and accounting, among other areas. Revenues for our GS segment decreased 0.7% to $97.4 million for the year ended December 31, 2015 as compared to $98.1 million for the year ended December 31, 2014. The services portion of our GS segment accounted for approximately 84% of its total revenues in 2015. Our GS segment also includes a product-based business specialized in manufacturing and delivering trauma-training manikins. The product portion of our GS segment accounted for approximately 16% of its total revenues in 2015. Substantially all GS services are supplied to the Federal Government through field offices located in the Washington, D.C. metropolitan area, San Antonio, Texas and Austin, Texas. During the fourth quarter of 2013, Kforce management made a strategic business decision with regard to the GS segment to focus its service offerings and efforts on prime integrated business solution services. As a result of this change in focus, management plans to reallocate existing investments in the business and redirect the business development team to concentrate on a more specific and, in our opinion, a higher quality revenue stream. These plans will ultimately result in the transition away from certain existing revenue streams, specific revenue-generating contracts and opportunities in the business development life cycle that do not fit within the revised strategic scope of service offerings, including pure staff augmentation as well as product sales. The change in strategy, coupled with the lengthy contract procurement cycle within the government sector of approximately 18 months for solution-based services, is expected to have a negative impact on near-term growth prospects of the GS segment and, as a result, we believe GS will experience a moderate reduction in revenues and profitability over the next few years.Search”Direct Hire”). For each of the three years ended December 31, 2015, 2014 and 2013, 2012, and 2011, SearchFlex represented 4.2%, 4.4% and 4.3%approximately 96% of total Kforce revenue,revenues, respectively.from our associates’ networks,Kforce.com, from social media networks and from passive candidatescandidate marketing, where we identify individuals who are currently employed and not actively seeking another position. These consultants can be directly employed by Kforce, independent contractors or foreign nationals sponsored by Kforce. Our success is dependent upon our internal employees’ (“associates”) ability to: (1) acknowledge, understand and acknowledgeparticipate in creating solutions for our clients’ needs; (2) determine and understand the capabilities of the consultants being recruited; and (3) deliver and manage the client-consultant relationship to the satisfaction of both our clients and our consultants. We believe proper execution by our associates and our consultants directly impacts the longevity of the assignments, increases the likelihood of being able to generate repeat business with our clients and fosters a better experience for our consultants, which has a direct correlation to their redeployment.revenue isrevenues are driven by the number of total hours billed and establishedpre-established bill rates. Flex gross profit is determined by deducting consultant pay, benefits and other related costs from Flex revenues. Flex associateAssociate commissions, related taxes and other compensation and benefits, as well as field management compensation are included in Selling, Generalselling, general and Administrativeadministrative expenses (“SG&A”), along with other customary costs such as administrative and corporate compensation. The Flex business model involves attempting to maximize the number of billable consultant hours and bill rates, while managing consultant pay rates and benefit costs, as well as compensation and benefits for our core associates. Flex revenuerevenues also includes solutions provided throughrevenues for our GS segment. These revenues involve providing longer-term contract services to the customer primarily on a time-and-materials basis but also on a fixed-price and cost-plus basis.SearchSearchDirect Hire business (formerly referred to as “Search”) is a significantly smaller, yet important, part of our business that involves locating qualified individuals (“candidates”) for permanent placement with our clients. We primarily perform these searches on a contingency basis; thus, fees are only earned if the candidates are ultimately hired by our clients. The typical fee structure for search fees is based upon a percentage of the placed individual’sindividual's annual compensation in their first year of employment, which is known or can be estimated at the time of placement. We recruit permanent employees from the job boards, from our associates’ networks, social media networks and from passive candidates we identify whousing methods that are currently employed and not actively seeking another position.consistent with Flex. Also, there are occasions where consultants are initially assigned to a client on a Flex basis and later are converted to a permanent placement, for which we may also receive a Search fee (referred to as “conversion revenue”). We target clients and recruits for both Flex and Search services, which contributes to our objectivevariescan vary by contract, it is typically 90 days or less. This allowance for fallouts is estimated based upon historical experience with SearchDirect Hire placements that did not complete the contingency period. There are no consultant payroll costs associated with SearchDirect Hire placements, thus, all SearchDirect Hire revenues increase gross profit by the full amount of the fee. SearchDirect Hire associate commissions, compensation and benefits are included in SG&A.key elementsincrease in revenue-generating talent from 2014 to 2015 was 9.5% and from 2013 to 2014 was 6.3%. New associates typically take six to twelve months to ramp to a minimum acceptable standard and this increase in productivity generally continues for up to four years. Our hiring focus over the last two years prior to the fourth quarter of 2015 has been disproportionately focused on delivery resources. In the fourth quarter of 2015, we accelerated growth in our Tech Flex sales talent and currently expect an appropriately balanced investment in talent to continue in 2016. We expect the investments in late 2015 and 2016 to result in re-accelerated revenue growth, particularly in Tech Flex, during 2016. Going forward, the Firm expects to continue to hire additional revenue generators in those lines of business, strategy includegeographies and industries that we believe present the following:We believe we have developed long-term relationships with our clients by repeatedly providing solutions to their specialty staffing requirements. We strive to differentiate ourselves by working closely with our clients to understand their needs and maximize their return on human capital. In addition, Kforce’s ability to offer flexible staffing solutions, coupled with our permanent placement capability, offers the client a broad spectrum of specialty staffing services. We believe this ability enables Kforce to emphasize consultative rather than transactional client relationships, and therefore facilitates further client penetration and the expansion of our share of our clients’ staffing needs.We believe our consultants are a significant component in delivering value to our clients. We are focused on efficient and effective consultant care processes, such as onboarding, frequent and ongoing communication and programs to redeploy our consultants in a timely fashion. We strive to increase 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.Invest in Headcount of Revenue Generators. Given the current and expected future demand in the marketplace for the services provided by Kforce and our most tenured associates’ performance continuing to remain near peak levels, the Firm made significant investments starting in Q4 2012 and throughout 2013 in the hiring of associates that are responsible for generating revenue. The increase in revenue generator headcount from Q4 2012 to Q4 2013 was 10.3%. New associates typically take six to nine months to begin performing at expected levels. Accordingly, we expect that the investment in 2013 will result in more revenue growth during 2014. Going forward, the Firm expects to continue to hire additional revenue generators in those lines of business, geographies and industries that we believe present the greatest opportunity.Retain our Great People. significant focus of Kforce is on the retention of our tenured and top performing associates. We ended fiscal 2013 with a highly tenured management team, field sales team and back office employees, which we believe will continue to enhance our ability to achieve future profitable growth.Optimize Operating Margins. The optimization of operating margins remains the ultimate goal for Kforce as we strive to deliver profitable revenue growth. We believe our revenue-focused alignment and streamlined infrastructure will allow us to meet the needs of our clients and consultants in the most cost effective manner possible.Narrow the Focus for Our GS Segment. The Firm has made a strategic business decision with regard to the GS segment to focus its service offerings and efforts on prime integrated business solution services. The strategy going forward will include a renewed focus on the prime solutions aspects of this business, and less emphasis on other aspects of the portfolio, including pure staff augmentation as well as product sales.Invest in Large Client Relationships. Acontinued focus of Kforce is cultivating relationships with premier partners and strategic clients, both in terms of annual revenues and geographic dispersion. In order to achieve greater penetration within each of our largest accounts, we work to foster an understanding of our client’sclients’ needs holistically while building a consultative partnership rather than a transactional client relationship. We are increasingly concentrated on bringing our core employees closer to the customer, and with that in mind we have integrated our largest accounts leadership team into our field leadership team, enhancing our alignment to serve these clients. We believe that this strategy will allow us to more effectively drive expansion in our share of our clients’ staffing needs, as well as capturing additional overall market share.FocusValue-Add Services.human capital. Finding the right match for both our clients and consultants is our ultimate priority. The placement of our highly skilled consultants requires operational and technical skill to effectively recruit and evaluate personnel, match them to client needs, and manage the resulting relationships. We believe the proper placements of consultants with the right clients will serve to balance the desire for optimal volume, rate, effort and duration of assignment, while ultimately maximizing the benefit for our clients, consultants and the Firm. In addition, Kforce’s ability to offer flexible staffing solutions, coupled with our permanent placement capability, offers the client a broad spectrum of specialty staffing services. We believe this ability enables Kforce to emphasize consultative rather than transactional client relationships, and therefore facilitates further client penetration and the expansion of our share of our clients’ staffing needs.Tech, FA, HIMour segments and GSstaffing services to the areas of highest anticipated demand to adapt to the ever-changing landscape within the staffing industry. We believe our historical focus in these markets, combined with our staff’sassociates’ operating expertise, provides us with a competitive advantage.centralized NRC, which is strategically located in both Tampa, Florida and Phoenix, Arizona, offers us a competitive advantage.advantage and supports delivery needs in each of our operating segments. The NRC is particularly effective at increasing the quality and speed of delivery services to our clients with demands for high volume staffing. The NRC identifies and interviews active candidates from nationally contracted job boards, Kforce.com, as well as other sources, then forwards qualified candidates to Kforce field offices to be matched to available positions. The NRC has continuedWe continue to evolve throughout 2013, and supports all of our operating segments. There continues to besee a significant demand for its resources. We continueour NRC resources and anticipate a continuation of that trend.streamliningfurther evolved the NRC’s focus to more specific industries, customer segments and skill sets to create leverage. A continued focus for 20142016 will be to enhance the performance of the NRC in meeting demand, and enhance our efforts to support future growth by building a pipeline of qualified candidates, as well as evolving its international talent solution strategy. The Firm will continue to utilize the NRC as a training ground for field sales asand expect that top performers in the NRC with a strong knowledge of the delivery system will move into field salesfield-based roles. Additionally, during 2014 we are working on a plan to create greater efficiency in serving our West Coast clients by reallocating a portion of the NRC resources to a facility on the West Coast.A significant focus for Kforce is to more effectively leverage the functionality built over the last several years with its front-end and back office technology infrastructure. We believe our back office system software provides a competitive advantage through the enhancement of the efficiency and performance of our sales and delivery functions. We will continue to selectively improve our front-end systems and our back office systems, including our ERP and time collection and billing systems, in areas that we believe will generate additional operating leverage. DuringIn 2014, Kforce will be adoptingadopted and implementingimplemented an Agile software development methodology (whereby requirements and solutions evolve through cross-functional teams), and undergoingunderwent an organizationorganizational transformation in orderwith a goal to maximize the responsiveness and velocitytimeliness by which value is delivered through our technology investments.Encourage Employee Achievement. We leveraged our Agile development methodology during 2015 to make incremental and valuable improvements to our front-end and back office systems. As we look into the future, we expect to continue improving our technology infrastructure and surrounding processes to generate additional operating leverage as we grow, enhance flexibility in meeting our clients' increasing needs and improve the effectiveness of our associates.promoting and maintaining a quality-focused, energetic, results-oriented culture. Our field associates and corporate personnel are given incentives (which include competitions with significant prizes and internal recognition,reducing expenses. We increased the quarterly dividend amount by 9% to $0.12 in additionDecember 2015 to bonuses)keep the annual yield at approximately 2%. Kforce expects to encourage achievement of Kforce’s corporate goals and high levels of service. The Firm has continued to utilize AMP! (a.k.a. Actions Maximizing Performance), a metrics-based system,continue these initiatives in order to provide associates with current and historical performance measures relative to their Kforce peers. We believe this system fuels healthy competition and assists associates in reaching their maximum performance levels.21%26% of revenues and no single customer accounted for more than 3%6% of revenues for the year ended December 31, 2013.2015. 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. We believe Kforce is one of the 10 largest publicly-traded specialty staffing firms in the United States. According to a recent report published by the SIA 105in July 2015, 122 companies reported at least $100 million in U.S. staffing revenues in 2012 and2014 with these 105 companies representrepresenting an estimated 54.1%55.9% of the total market. Competition in a particular market can come from many different companies, both large and small. We believe, however, that our geographic presence, diversified service offerings, NRC, focus on consistent service and delivery and effective job order prioritization all provide a competitive advantage, particularly with clients that have operations in multiple geographic markets. In addition, we believe that our diversified portfolio of service offerings isare primarily concentrated in areas with significant growth opportunities in both the short and long term. substantial additional U.S. workers and, conversely, an economic slowdown results in a contraction in demand for additional U.S. workers. From an economic standpoint, temporary employment figures and trends are important indicators of staffing demand, which improvedcontinued to be positive during 2013 at a greater rate than 20122015, based on data published by the Bureau of Labor Statistics (“BLS”). Total temporary employment increased 9.6%3.3% year-over-year and the penetration rate (the percentage of temporary staffing to total employment) increased 8.4% from December 2012 to December 2013, bringing the rate toremained near record levels at 2.06% in December 2013, an all-time high.2015. While the macro-employment picture remains uncertain, it has continuously improved, with the unemployment rate at 6.7%5.0% as of December 2013,2015, and non-farm payroll expanding an average of 182,000221,000 jobs per month in 2013.2015. Also, the college-level unemployment rate, which we believe serves as a proxy for professional employment and is more closely aligned with the Firm’s business strategy, was at a low 3.3%2.5% in December 2013.2015. Further, we believe that the unemployment rate in the specialties we serve is lower than the published averages, which we believe speaks to the demand environment in which we are operating. Management believes that uncertainty in the overall U.S. economic outlook related to the political landscape, potential tax changes, geo-political risk and impact of health care reform, willmay continue to fuel growth in temporary staffing as employers may be reluctant to increase full-time hiring. Additionally, we believe the increasing costs and government regulation of employment may be driving a systematicsecular shift to an increased use of temporary staff as a percentage of total workforce, which is creating reduced cyclicality inworkforce. Given the business. Ifnear record levels of the penetration rate, of temporary staffing continues to experience growth in the coming years, we believe that our Flex revenues canmay grow significantly even in a relatively modest growth macro-economic environment. ManagementKforce remains optimistic about the growth prospects of the temporary staffing industry, the penetration rate, and in particular, our revenue portfolio. Of course,portfolio; however, the economic environment includes considerable uncertainty and volatility and therefore no reliable predictions can be made about the general economy, the staffing industry as a whole, or specialty staffing in particular.a recent staffingan industry forecast published by SIA in September 2015, the U.S. temporary staffing industry generated estimated revenues of $82.0$99.4 billion in 2010, $92.5 billion in 2011, and $99.0 billion in 2012; with projected revenues of $103.92012, $103.7 billion in 2013 and $108.9$109.2 billion in 2014.2014, and has projected revenues of $116.4 billion in 2015 and $123.0 billion in 2016. Based on projected revenues of $103.9$116.4 billion for the U.S. temporary staffing industry, this would put the Firm’s overall market share at approximately 1%. Therefore, our previously discussed business strategies are sharply focused around expanding our share of the U.S. temporary staffing market and further penetrating our existing clients’ staffing needs.years,significant initiatives including: (1) executing a realignment plan to streamline our GS segment’s operations have been adversely impacted byleadership and revenue-enabling personnel in an effort to better align a higher percentage of roles closer to the (i) continued uncertaintycustomer; (2) increasing our focus on consultant care processes and communications to redeploy our consultants in a timely fashion; (3) increasing revenue-generating talent to capitalize on targeted growth opportunities; (4) further defining and monitoring our client portfolio to ensure appropriate focus and prioritization; (5) further optimizing our NRC team in support of funding levelsour field operations; (6) upgrading our corporate systems; (7) focusing on process improvements; and (8) divesting of various Federal Government programs and agencies, (ii) uncertain macro-economic and political environment, and (iii) unexpected significant delays in the start-up of already executed and funded projects,HIM, which we believe were due to acute shortages of acquisition and contracting personnel within certain Federal Government agencies. During the third quarter of 2013, the Federal Government did not passconsidered a substantial funding bill, which resulted in a 16-day government shutdown. The shutdown ended on October 16, 2013 when the U.S. Congress agreed to a deal that extended funding for government services until January 15, 2014 and extended the debt ceiling through February 7, 2014. On January 15, 2014, Congress passed a budget for fiscal year 2014. GS management remains cautiously optimistic as it cannot predict the outcome of past, current and future efforts to reduce federal spending and whether these efforts will materially impact the future budgets of federal agencies that are clients of our GS segment.Technology InfrastructureA significant focus for Kforce is to more effectively leverage its technology infrastructure.non-core business. We believe our back office systems provide a competitive advantage through the enhancement of the efficiencyrealigned field operations and performance ofrevenue-enabling operations models are keys to our sales and delivery functions. We continue to focus on the improvement of our front-end systems and our back office systems, including the refinement of our sales and delivery automation strategy. During 2013, we leveraged the existing system and invested in upgrades.We expect to selectively invest in our infrastructure in 2014 and beyond, especially where we believe it will provide for a sufficient return on capital and support the future growth and profitability. We also believe that our portfolio of service offerings, which are almost exclusively in the U.S. and are focused in key areas of expected growth in Tech and FA, are a key contributor to our business.long-term financial stability. We are particularly focused on technologies that will makebelieve the divestiture of HIM provides us easierthe opportunity to do business withfurther dedicate our resources to exclusively providing technology and delight our clientsfinance and consultants, such as mobile applications. Also during 2014, Kforce will be adoptingaccounting talent in the commercial and implementing an Agile software development methodology, and undergoing an organization transformation in order to maximize the responsiveness and velocity by which value is deliveredgovernment markets through our technology investments.Trade Namesstaffing organization and TrademarkThe Kforce trade names, and derivatives thereof, and GS’s “Data Confidence” trademark is important toGovernment Solutions, Inc., our business. Our primary trade names and trademark are registered with the United States Patent and Trademark Office. In the 2013 Temporary Workers Survey published by SIA, Kforce was ranked third in a name recognition survey, and ranked first among IT temporary workers.(i)(1) regulation of the employer/employee relationship between a firm and its staff;staff, such as wage and hour regulations, tax withholding and reporting, social security and other retirement, anti-discrimination, employee benefits and workers’ compensation regulations; (ii)(2) registration, licensing, recordkeeping and reporting requirements and (iii)(3) substantive limitations on their operations. Staffing firms are governed by laws regulating the employer/employee relationship. Within temporary staffing, the working capital requirements are one of the more significant barriers to entry, because most employees are paid weekly and customers may take 30 to 45 days or more to pay. We face substantial competition from large national firms and local specialty staffing firms. The local firms are typically operator-owned, and each market generally has one or more significant competitors. We also face competition from national clerical and light industrial staffing firms, and national and regional accounting firms that also offer certain specialty staffing services.3%4% of total service revenues, and these fees are usually recorded by staffing firms as a cost of services, thereby compressing profit margins. While Kforce does not currently provide MSP or VMSVMO services directly to its clients, our strategy is to work with specific MSPs, VMOs and VMS providers to enable us to extend our Flex staffing services to the widest customer base possible within the sectors we serve.As stated previously, there are 105 staffing firms with more than $100 million in U.S. staffing revenues in operation and thousands of smaller organizations compete to varying degrees at local levels, according to a recent SIA report. Several similar companies – global, national, and local – compete in foreign markets. Our peer group for 2013, which is comprised of some of our largest competitors, included: CDI Corp., CIBER, Inc., Computer Task Group Inc., Manpower Inc., On Assignment, Inc., Resources Connection, Inc., Robert Half International Inc., and TrueBlue Inc.there can be no assurance that we will remain competitive.operatingreporting segments are significantly impacted by the increase in the number of holidays and vacation days taken during the fourth quarter of the calendar year. In addition, we experience an increase in direct costs of services and a corresponding decrease in gross profit in the first fiscal quarter of each year, as a result of certain annual U.S. state and federal employment tax resets that occur at the beginning of each year.arewere located in the United States for the three years ended December 31, 2013.2015. One of our subsidiaries, Global, provides outsourcing services internationally through an office in Manila, Philippines. Our international operations comprised approximatelyless than 2% of net service revenues for each of the three years ended December 31, 2013, 20122015, 2014 and 2011.four operatingthree reporting segments: Tech, FA HIM and GS. For segment financial data see Note 1716 – “Reportable Segments” in the Notes to the Consolidated Financial Statements.2013,2015, Kforce employed approximately 2,600more than 2,800 associates and had approximately 11,900more than 11,600 consultants on assignment (“Flexible Consultants”) providing flexible staffing services and solutions to our clients. Approximately 90%85% of the Flexible Consultants are employed directly by Kforce (“Flexible Employees”); the balance consists of individuals who are employed by other entities (“Independent Contractors”) that provide their employees as subcontractors to Kforce for assignment to itsKforce's clients. As the employer, Kforce is responsible for the operating employees’ and Flexible Employees’ payrolls and the employer’s share of applicable social security taxes (“FICA”), federal and state unemployment taxes, workers’ compensation insurance, and other direct labor costs relating to our employees. We offer access to various health, life and disability insurance programs and other benefits for operating employees and Flexible Employees. We have no collective bargaining agreements covering any of our operating employees or Flexible Employees, have never experienced any material labor disruption, and are unaware of any current efforts or plans to organize any of our employees.In addition, the SEC’s website is http://www.sec.gov. The SEC makes available on its website, free of charge, reports, proxy and information statements, and other information regarding issuers, such as us, that file electronically with the SEC. The SEC’s website is http://www.sec.gov. Information provided on the SEC’s website is not part of this Annual Report on Form 10-K.Item 1A.Risk Factors.other businesses. Many of these individuals have access to client information systems and confidential information.our clients. An inherent risk of such activity includes possible claims of errors and omissions; intentional misconduct; release, misuse or misappropriation of client intellectual property, confidential information, funds, or other property; cyber security breaches affecting our clients and/or us; discrimination and harassment claims; wrongful termination; violations of employment rights related to employment screening or privacy issues; classification of workers as employees or independent contractors; violations of wage and hour requirements; employment of illegal aliens; criminal activity; torts; or other claims. Such claims may result in negative publicity, injunctive relief, criminal investigations and/or charges, civil litigation, payment by Kforce of monetary damages or fines, or other material adverse effects on our business. To reduce our exposure, we maintain policies and guidelines to promote compliance with laws, rules and regulations applicable to our business. We also maintain insurance coverage for professional malpractice liability, fidelity, employment practices liability, and general liability in amounts and with deductibles that we believe areis appropriate for our operations. OurHowever, the failure of any of our personnel to observe our policies and guidelines could result in negative publicity, injunctive relief, criminal investigation and/or charges, payments of monetary damages or fines, or other material adverse effects on our business. In addition, our insurance coverage however, may not cover all potential claims against us, may require us to meet a deductible or may not continue to be available to us at a reasonable cost. In this regard, we face various employment-related risks not covered by insurance, such as wage and hour laws and employment tax responsibility. U.S. Courts in recent years have been receiving large numbers of wage and hour class action claims alleging misclassification of overtime eligible workers and/or failure to pay overtime-eligible workers for all hours worked.there appearsthese occurrences may give rise to litigation, which could be time-consuming and expensive. To reduce our exposure, we maintain policies, procedures and insurance coverage for types and amounts we believe are appropriate in light of the aforementioned exposures. There can be no assurance that the corporate policies and practices we have in place to help reduce our exposure to these risks will be effective or that we will not experience losses as a result of these risks. In addition, our insurance coverage may not cover all potential claims against us, may require us to meet a deductible or may not continue to be available to us at a heightened statereasonable cost.federal scrutinyemployment conditions.independent contractor relationships,economic activity and employment in the United States. Based upon previous economic cycles experienced by Kforce, we believe that times of sustained economic recovery generally stimulate demand for additional U.S. workers and, conversely, an economic slowdown results in a contraction in demand for additional U.S. workers. Even without uncertainty and volatility, it is difficult for us to forecast future demand for our services due to the inherent difficulties in forecasting the strength of economic cycles, and the short-term nature of many of our agreements, other than in our GS segment. As economic activity slows, companies may defer projects for which could adversely affect us given that wethey utilize a significant numberour services or reduce their use of independent contractors to perform our services. An adverse determination of the independent contractor status of these firmstemporary employees before laying off full-time employees. In addition, an economic downturn could result in a reduction in the temporary staffing penetration rate, an increase in the unemployment rate and a deceleration of growth in the segments in which we and our clients operate. We may also experience more competitive pricing pressures during periods of economic downturn. Approximately 98% of our revenue is generated by our business operations in the United States. Any substantial taxeconomic downturn in the United States or other liabilities.employer-employeeemployer/employee relationship could have a material adverse effect on Kforce.personalpersonally identifiable information of our associates and personal health informationconsultants create risks that may harm our business.flexible employeesconsultants and their dependantsdependents including, without limitation, full names, social security numbers, addresses, birth dates, and payroll-related information. We also have access to, receive and use personal health information in the ordinary course of our HIM businesses. We use commercially available information security technologies to protect such information in digital format. We also use security and business controls to limit access to such information. However, employees or third parties (including third parties with substantially greater resources than our own; for example, foreign governments) may be able to circumvent these measures and acquire or misuse such information, resulting in breaches of privacy, and errors in the storage, use or transmission of such information may result in breaches of privacy.information. Privacy breaches may require notification and other remedies, which can be costly, and which may have other serious adverse consequences for our business, including regulatory penalties and fines, claims for breach of contract, claims for damages, adverse publicity, reduced demand for our services by clients and/or flexFlex employment candidates, harm to our reputation, and regulatory oversight by state or federal agencies.In 2009, theThe United States Citizenship and Immigration Service (“USCIS”) significantly increased its scrutiny ofcontinues to closely scrutinize companies seeking to sponsor, renew or transfer H-1B status, including Kforce and Kforce’s subcontractors. On January 8, 2010, the USCISsubcontractors and has issued internal guidance to its field offices that appears to narrow the eligibility criteria for H-1B status in the context of staffing services. In addition to USCIS restrictions, certain aspects of the H-1B program are also subject to regulation and review by the U.S. Department of Labor and U.S. Department of State, which have recently increased enforcement activities in the program. A narrow interpretation and vigorous enforcement, or legislative action relating to immigration, including legislation intended to reform existing immigration law, could adversely affect our ability to obtain foreign national labor and/or renew existing foreign national consultants on assignment, and could subject us to fines, penalties and sanctions. There can be no assurance that we will be able to keep or replace all foreign nationals currently on assignment, or continue to hire foreign national talent at the same rates as in the past.maintain sufficient cash flow or borrowing capacity to support operations.On September 20, 2011, recruit and retain qualified personnel.entered into a Third Amended and Restated Credit Agreement with a syndicate led by Bank of America, N.A., which was amended on March 30, 2012 and December 27, 2013 (as amended to date,depends upon the “Credit Facility”). The Firm executed a Second Amendment and Joinder on December 27, 2013, increasing the original borrowing capacity up from $100 million to $135 million by executing the accordion feature under the Credit Facility. Kforce has a remaining accordion option of $15 million. The maximum borrowings available to Kforce under the Credit Facility are limited to: (a) a revolving credit facility of up to $135 million (the “Revolving Loan Amount”) and (b) a $15 million sub-limit included in the Credit Facility for letters of credit.Kforce’s liquidity may be adversely impacted by covenants in our Credit Facility. Borrowing availability under the Credit Facility is limited to the remainder of (a) the lesser of (i) $135 million minus the four week average aggregate weekly payroll of employees assigned to work for customers, or (ii) 85% of the net amount of eligible accounts receivable, plus 80% of the net amount of eligible unbilled accounts receivable, plus 80% of the net amount of eligible employee placement accounts, minus certain minimum availability reserves, and in either case, minus (b) the aggregate outstanding amount under the Credit Facility. Under the Credit Facility, Kforce is subject to certain affirmative and negative covenants including (but not limited to) the maintenance of a fixed charge coverage ratio of at least 1.00 to 1.00 if the Firm’s availability under the Credit Facility is less than the greater of 10% of the aggregate amount of the commitment of all of the lenders under the Credit Facility and $11.0 million. Kforce had availability under the Credit Facility of $43.2 million as of December 31, 2013; therefore, the minimum fixed charge coverage ratio was not applicable. Kforce believes that it will be able to maintain the minimum availability requirement; however, in the event that Kforce is unable to do so, Kforce may fail the minimum fixed charge coverage ratio, which would constitute an event of default.At no time during the existence of the Credit Facility, or anyabilities of its predecessors (i.e.,staff to attract and retain personnel, particularly technical, professional, and cleared government services personnel, who possess the Credit Agreement, the First Amendedskills and Restated Credit Agreement and the Second Amended and Restated Credit Agreement) have we failedexperience necessary to meet the minimum availability and fixed charge coverage ratio requirements. If we did not comply with these financial covenants, such a breach of the Credit Facility could adversely affect our liquidity and financial condition and could result, among other things, in the acceleration of all amounts borrowed under the Credit Facility. See the “Liquidity and Capital Resources” portion of the MD&A in this annual report.Kforce’s temporary staffing business could be adversely impacted by the health care reform.The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 that were both signed into law in March 2010 could have an adverse effect on Kforce by increasing the cost of providing temporary staffing services. The provisions of these Acts went into effect in 2014. While we believe the costs associated with the law should have less impact on Kforce than many other staffing companies due to the level and scope of benefits we already offer, a delay in or inability to increase bill rates charged to our customers could result in a reductionrequirements of our Flex gross profit.exposed to intangible asset risk which could result in future impairment.A significant and sustained decline in our stock price and market capitalization, a significant decline in our (or in one or more of our reporting units’) expected future cash flows, a significant adverse change in the business climate, slower growth rates, or changes in our business strategy have resulted, and could result in the future, in the need to perform an impairment analysis. If we were to conclude that a future write down of our goodwill or other intangible assets is necessary it could result in material charges that are adverse to our operating results and financial position. See Note 6 – “Goodwill and Other Intangible Assets” to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” for further details, including the details regarding the goodwill impairment losses within our GS reporting unit.Significant legal actions could subject Kforce to substantial uninsured liabilities.Professional service providers are subject to legal actions alleging malpractice, breach of contract and other legal theories. These actions may involve large claims and significant defense costs. We may also be subject to claims alleging violations of federal or state labor laws. In addition, we may be subject to claims related to torts, intentional acts, or crimes committed by our full-time employees or temporary staffing personnel. In some instances, we are contractually obligated to indemnify clients against such risks. A failure to observe the applicable standard of care, relevant Kforce or client policies and guidelines, or applicable federal, state, or local laws, rules, and regulations could result in negative publicity, payment of fines, significant damage awards, or settlement expense. To reduce our exposure, we maintain insurance coverage for professional malpractice liability, fidelity, employment practices liability and general liability, in amounts and with deductibles that we believe are appropriate for our operations. Our insurance coverage, however, may not cover all claims against us or continue to be available to us at a reasonable cost.We face certain risks in collecting our trade accounts receivable.We generate a significant amount of trade accounts receivable from our customers. Delays or defaults in payments owedsufficient numbers and upon economic terms acceptable to us, it could have a material adverse effect on our financial condition and resultsbusiness.The financial markets may experience significant turmoil,may negatively impact our liquiditycontains restrictive covenants that could trigger prepayment of obligations or additional costs.our abilitynegative covenants under the credit facility. Our failure to obtain financing.Our liquidity and our ability to obtain financing may be negatively impacted if one of our lenders under our Credit Facility, or another financial institution, suffers liquidity issues. Incomply with such restrictive covenants could result in an event weof default, which, if not cured or waived, could result in Kforce being required to repay the outstanding balance before the due date. We may not be able to drawrepay our debt or if forced to refinance on anyterms not acceptable to us could have a material adverse affect on our results of the amounts available under our Credit Facility,operations and financial condition.substantialloss of our major customer accounts could have a material adverse effect on our revenues and financial results.thereof. of our revenues among our largest clients and exposes us to increased risks arising from decreases in the volume of business from, or the possible loss of, those major customer accounts. Organizational changes occurring within those customers, or a deterioration of their financial condition or business prospects, could reduce their need for our services and result in a significant decrease in the revenues we derive from those customers and could have a material adverse effect on our financial results.Credit Facility expiresPatient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (the “PPACA”) imposes new mandates on September 20, 2016.individuals and employers, requiring most individuals to have health insurance. The PPACA assesses penalties on large employers that do not offer health insurance meeting certain coverage, value, or affordability standards to all full-time employees as defined under the PPACA. Because the regulations governing the PPACA’s employer mandate are new and subject to interpretation, it is possible that Kforce may incur liability in the form of penalties, fines, or damages if the health plans we offer are subsequently found not to meet minimum essential coverage, affordability or minimum value standards, or if our method for determining eligibility for coverage is found inadequate or our clients seek indemnification for health care claims resulting from consultants working on client assignments. The cost of any such penalties, fines or damages could have a material adverse effect on Kforce’s financial and operating results.attemptwere to obtainconclude that a future financing in addition to, or as a replacementwrite-down of our Credit Facility,goodwill or other intangible assets is necessary, it could result in material charges that are adverse to our operating results and financial marketposition. See Note 6 – “Goodwill and Other Intangible Assets” in the Notes to Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” for further details, including the details regarding the goodwill impairment losses within our GS reporting unit in recent years.could negatively impactin the financial and credit markets, sluggish or recessionary U.S. economic conditions, our abilityexposure to obtaincustomers in high-risk sectors such financing on favorable terms.Also, any theftSome of our information technology systems and networks are cloud-based or misuse of information resulting from a security breach could result in, among other things, loss of significant and/or sensitive information, litigationmanaged by affected parties, financial obligations resulting from such theft or misuse, higher insurance premiums, governmental investigations, negative reactions from current and potential future customers (including potential negative financial ramifications under certain customer contract provisions) and poor publicity and any of these could adversely affect our financial results.third parties. In addition, we depend on third-party vendors for certain functions (including the operations of our leased data center), whose future performance and reliability we cannot control.includingor provide certain benefits such as paid time off, sick leave, unemployment taxes, workers’ compensation and insurance premiums and claims, FICA, and Medicare, among others, related to our employees. Significant increases in the effective rates of any payroll-related costs would likely have a material adverse effect on Kforce. Over the last few years, many of the states in which Kforce conducts business have continued to significantly increase their state unemployment tax rates in an effort to increase funding for unemployment benefits. Costs could also increase as a result of health care reforms or the possible imposition of additional requirements and restrictions related to the placement of personnel. We may not be able to increase the fees charged to our clients in a timely manner or in a sufficient amount to cover these potential cost increases.Chief Executive Officer (“CEO”)CEO and Chief Financial Officer (“CFO”),CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Kforce have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.We rely on short-term engagements with mostclients.Because long-term engagementsservices, and clients are notfree to place orders with our competitors. Each Flexible Consultant's relationship with us is terminable at will. If clients terminate a significant partnumber of our agreements and we are unable to generate new contracts, or a significant number of our contracted personnel terminate their employment with us and are unable to find suitable replacements, the growth of our business other than incould be adversely affected and our GS segment, future financialrevenues and results cannotof operations could be reliably predicted by considering past trends or extrapolating past results.Competition for acquisition opportunities may restrict Kforce’s future growth by limiting our ability to make acquisitions at reasonable valuations.Kforce has increased its market share and presence in the staffing industry partly through strategic acquisitions of companies that have complemented or enhanced its business. We have historically faced competition for acquisitions. In the future, this could limit our ability to grow through acquisitions or could raise the prices of acquisitions and make them less accretive or possibly non-accretive to us. In addition, Kforce may be limited by its ability to obtain financing to consummate desirable acquisitions.Kforce may not be able to recruit and retain qualified personnel.Kforce depends upon the abilities of its staff to attract and retain personnel, particularly technical, professional, and cleared government services personnel, who possess the skills and experience necessary to meet the staffing requirements of our clients. We must continually evaluate and upgrade our base of available qualified personnel to keep pace with changing client needs and emerging technologies. We expect significant competition for individuals with proven technical or professional skills for the foreseeable future. If qualified personnel are not available to us in sufficient numbers and upon economic terms acceptable to us, it could have a material adverse effect on our business.Kforce may face significant risk arising from acquisitions or dispositions.Kforce may face difficulties integrating future acquisitions into existing operations and acquisitions may be unsuccessful, involve significant cash expenditures, or expose Kforce to unforeseen liabilities.These acquisitions involve numerous risks, including:potential loss of key employees or clients of acquired companies;
These acquisitions may also involve significant cash expenditures, debt incurrence, integration expenses, and exposure to unforeseen liabilities that could have a material adverse effect on our financial condition, results of operations, and cash flows. Any acquisition may ultimately have a negative impact on our business and financial condition.
In addition, dispositions involve risks, which could have a material adverse effect on us including:
Provisions in Kforce’s articles and bylaws and under Florida law may have certain anti-takeover effects.
Kforce’s common stock is traded on The NASDAQ Global Select Market under the symbol “KFRC.”
BUSINESS
The
On
Changes in the spending policies or budget priorities
Government Business.
On June 18, 2013, Kforce, along with other staffing firms, was named as a defendant
On February 19, 2014, the United States District Court for the Middle District of Florida unsealed a qui tam complaint that had been filed by a terminated former employee in June of last year. The complaint was filed against Kforce and Kforce Government Solutions Inc. (“KGS”). It alleges False Claims Act and federal and state whistleblower statute violations and certain accounting irregularities, as well as employment law and defamation claims. The United States government has not intervened in this action at this time. While the qui tam action was first disclosed to Kforce and KGS on February 19, 2014, counsel for the former employee previously informed Kforce and KGS of substantially similar allegations in a postemployment demand letter. After the allegations were raised, the matter was referred to the Audit Committee of Kforce’s Board of Directors for an investigation. The Audit Committee retained experienced, independent counsel for investigation. With the help of forensic accountants, the investigators concluded that the False Claims Act and accounting irregularity allegations raised in the demand letter were unsupported by material, credible evidence. Due to, among other things, this independent investigation, Kforce and KGS believe the allegations in the complaint are factually inaccurate and without merit. Kforce and KGS intend to vigorously defend the litigation. At this stage of the litigation, it is not reasonable to estimate the outcome or a range of loss, should a loss occur. Accordingly, no amounts have been provided for in Kforce’s Consolidated Financial Statements.
In the ordinary course of its business, Kforceour 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 from time to time threatened with litigationprobable or named as a defendant in various lawsuits and administrative proceedings.the amount of loss cannot be reasonably estimated. While management doesthe 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 these other mattersparticular litigation is appropriate, we may be subject to liability that could have a material adverse effect on the Company’sour financial position, results of operations, financial position or cash flows, litigation is subject to certain inherent uncertainties.flows. Kforce maintains liability insurance in such 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, 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.
Kforce is not aware
Not applicable.
Equity Securities.
Three Months Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2013 | ||||||||||||||||
High | $ | 16.65 | $ | 16.43 | $ | 17.99 | $ | 21.37 | ||||||||
Low | $ | 13.36 | $ | 12.23 | $ | 14.69 | $ | 16.83 | ||||||||
2012 | ||||||||||||||||
High | $ | 15.02 | $ | 15.40 | $ | 14.43 | $ | 14.92 | ||||||||
Low | $ | 12.01 | $ | 12.14 | $ | 10.34 | $ | 10.66 |
Three Months Ended | |||||||||||||||
March 31, | June 30, | September 30, | December 31, | ||||||||||||
2015 | |||||||||||||||
High | $ | 24.99 | $ | 23.92 | $ | 29.33 | $ | 28.84 | |||||||
Low | $ | 21.34 | $ | 20.32 | $ | 21.83 | $ | 22.90 | |||||||
2014 | |||||||||||||||
High | $ | 22.59 | $ | 23.80 | $ | 22.76 | $ | 24.72 | |||||||
Low | $ | 17.30 | $ | 19.97 | $ | 17.20 | $ | 18.65 |
A
We2014:
Three Months Ended | |||||||||||||||
March 31, | June 30, | September 30, | December 31, | ||||||||||||
2015 | $ | 0.11 | $ | 0.11 | $ | 0.11 | $ | 0.12 | |||||||
2014 | $ | 0.10 | $ | 0.10 | $ | 0.10 | $ | 0.11 |
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) (1) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b) (2) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a)) (c) (3) (4) | |||||||||
Equity compensation plans approved by shareholders | ||||||||||||
Kforce Inc. 2013 Stock Incentive Plan | N/A | N/A | 3,133,173 | |||||||||
Kforce Inc. 2006 Stock Incentive Plan | 82,768 | $ | 12.49 | 34,425 | ||||||||
Kforce Inc. 2009 Employee Stock Purchase Plan | N/A | N/A | 2,851,401 | |||||||||
Kforce Inc. Incentive Stock Option Plan (5) | 97,814 | $ | 10.79 | — | ||||||||
|
|
|
|
|
| |||||||
Total | 180,582 | $ | 11.57 | 6,018,999 |
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) (1) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b) (2) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (c) (Excluding Securities Reflected in Column (a)) (3) (4) | |||||||
Equity compensation plans approved by shareholders | ||||||||||
Kforce Inc. 2013 Stock Incentive Plan | — | — | 1,638,581 | |||||||
Kforce Inc. 2006 Stock Incentive Plan | 25,000 | $ | 11.58 | 34,425 | ||||||
Kforce Inc. 2009 Employee Stock Purchase Plan | N/A | N/A | 2,790,395 | |||||||
Kforce Inc. Incentive Stock Option Plan (5) | — | $ | — | — | ||||||
Total | 25,000 | $ | 11.58 | 4,463,401 |
(1) | In addition to the number of securities listed in this column, |
(2) | The weighted-average exercise price excludes unvested restricted stock because there is no exercise price associated with these equity awards. |
(3) | All of the shares of common stock that remain available for future issuance under the Kforce Inc. 2006 and 2013 Stock Incentive Plans may be issued in connection with options, warrants, rights and restricted stock awards. Each future grant of options or stock appreciation rights shall reduce the available shares under the Kforce Inc. 2006 and 2013 Stock Incentive Plans by an equal amount while each future grant of restricted stock shall reduce the available shares by 1.58 shares for each share awarded. In order to maximize our share reserves, the prevailing practice over the last few years has been for Kforce to issue full value awards as opposed to options and stock appreciation rights. |
(4) | As of December 31, |
(5) | Issuances of options under the Incentive Stock Option Plan ceased in 2005. |
Period October 1, 2013 to October 31, 2013 November 1, 2013 to November 30, 2013 December 1, 2013 to December 31, 2013 Total 2013:2015: Total Number of
Shares Purchased
(1) Average Price Paid
per Share Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans or Programs
(1) Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under the
Plans or Programs — — — $ 63,306,649 37,944 $ 19.96 37,944 $ 62,549,325 — — — $ 62,549,325 37,944 $ 19.96 37,944 $ 62,549,325 Period Total Number of
Shares Purchased
(1) Average Price Paid
per Share Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans or Programs Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under the
Plans or ProgramsOctober 1, 2015 to October 31, 2015 — $ — — $ 66,199,289 November 1, 2015 to November 30, 2015 331,912 $ 26.99 319,200 $ 57,584,351 December 1, 2015 to December 31, 2015 184,204 $ 25.15 184,204 $ 52,951,890 Total 516,116 $ 26.33 503,404 $ 52,951,890 (1) AllIncludes 12,712 shares of the shares reported above as purchased are attributablestock received upon vesting of restricted stock to shares withheld forsatisfy statutory minimum tax withholding requirements pertainingfor the period November 1, 2015 to the vesting of restricted stock.November 30, 2015.
Years Ended December 31, | ||||||||||||||||||||
2013 (1)(2) | 2012 (3)(4) | 2011 | 2010 | 2009 | ||||||||||||||||
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) | ||||||||||||||||||||
Net service revenues | $ | 1,151,887 | $ | 1,082,479 | $ | 1,004,747 | $ | 886,657 | $ | 802,108 | ||||||||||
Gross profit | 369,612 | 347,933 | 317,747 | 283,846 | 257,230 | |||||||||||||||
Selling, general and administrative expenses | 323,933 | 322,436 | 274,072 | 251,156 | 238,365 | |||||||||||||||
Goodwill impairment | 14,510 | 69,158 | — | — | — | |||||||||||||||
Depreciation and amortization | 9,846 | 10,789 | 12,505 | 12,589 | 11,673 | |||||||||||||||
Other expense, net | 1,225 | 1,116 | 1,256 | 1,236 | 1,085 | |||||||||||||||
Income (loss) from continuing operations, before income taxes | 20,098 | (55,566 | ) | 29,914 | 18,865 | 6,107 | ||||||||||||||
Income tax expense (benefit) | 9,311 | (19,854 | ) | 10,858 | 6,869 | 2,684 | ||||||||||||||
Income (loss) from continuing operations | 10,787 | (35,712 | ) | 19,056 | 11,996 | 3,423 | ||||||||||||||
Income from discontinued operations, net of income taxes | — | 22,009 | 8,100 | 8,638 | 9,450 | |||||||||||||||
Net income (loss) | $ | 10,787 | $ | (13,703 | ) | $ | 27,156 | $ | 20,634 | $ | 12,873 | |||||||||
Earnings (loss) per share – basic, continuing operations | $ | 0.32 | $ | (1.00 | ) | $ | 0.50 | $ | 0.30 | $ | 0.09 | |||||||||
Earnings (loss) per share – diluted, continuing operations | $ | 0.32 | $ | (1.00 | ) | $ | 0.49 | $ | 0.30 | $ | 0.09 | |||||||||
Earnings (loss) per share – basic | $ | 0.32 | $ | (0.38 | ) | $ | 0.72 | $ | 0.52 | $ | 0.33 | |||||||||
Earnings (loss) per share – diluted | $ | 0.32 | $ | (0.38 | ) | $ | 0.70 | $ | 0.51 | $ | 0.33 | |||||||||
Weighted average shares outstanding – basic | 33,511 | 35,791 | 37,835 | 39,480 | 38,485 | |||||||||||||||
Weighted average shares outstanding – diluted | 33,643 | 35,791 | 38,831 | 40,503 | 39,330 | |||||||||||||||
Cash dividend declared per share | $ | 0.10 | $ | 1.00 | $ | — | $ | — | $ | — | ||||||||||
As of December 31, | ||||||||||||||||||||
2013 (1)(2) | 2012 (3)(4) | 2011 | 2010 | 2009 | ||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||||
Working capital | $ | 112,913 | $ | 72,685 | $ | 103,075 | $ | 64,878 | $ | 57,924 | ||||||||||
Total assets | $ | 347,768 | $ | 325,149 | $ | 409,672 | $ | 391,044 | $ | 339,825 | ||||||||||
Total outstanding borrowings – Credit Facility | $ | 62,642 | $ | 21,000 | $ | 49,526 | $ | 10,825 | $ | 3,000 | ||||||||||
Total long-term liabilities | $ | 100,562 | $ | 56,429 | $ | 93,393 | $ | 36,904 | $ | 33,887 | ||||||||||
Stockholders’ equity | $ | 157,233 | $ | 169,846 | $ | 233,115 | $ | 253,817 | $ | 226,725 |
Years Ended December 31, | |||||||||||||||||||
2015 | 2014 (1) | 2013 (2)(3) | 2012 (4)(5) | 2011 | |||||||||||||||
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) | |||||||||||||||||||
Net service revenues | $ | 1,319,238 | $ | 1,217,331 | $ | 1,073,728 | $ | 1,005,487 | $ | 936,036 | |||||||||
Gross profit | 414,114 | 374,581 | 344,376 | 320,586 | 293,271 | ||||||||||||||
Selling, general and administrative expenses | 330,416 | 315,338 | 307,944 | 305,940 | 258,578 | ||||||||||||||
Goodwill impairment | — | — | 14,510 | 69,158 | — | ||||||||||||||
Depreciation and amortization | 9,831 | 9,894 | 9,846 | 10,789 | 12,505 | ||||||||||||||
Other expense, net | 2,195 | 1,392 | 1,147 | 1,057 | 1,220 | ||||||||||||||
Income (loss) from continuing operations, before income taxes | 71,672 | 47,957 | 10,929 | (66,358 | ) | 20,968 | |||||||||||||
Income tax expense (benefit) | 28,848 | 18,559 | 5,635 | (24,227 | ) | 7,339 | |||||||||||||
Income (loss) from continuing operations | 42,824 | 29,398 | 5,294 | (42,131 | ) | 13,629 | |||||||||||||
Income from discontinued operations, net of income taxes | — | 61,517 | 5,493 | 28,428 | 13,527 | ||||||||||||||
Net income (loss) | $ | 42,824 | $ | 90,915 | $ | 10,787 | $ | (13,703 | ) | $ | 27,156 | ||||||||
Earnings (loss) per share – basic, continuing operations | $ | 1.53 | $ | 0.94 | $ | 0.16 | $ | (1.18 | ) | $ | 0.36 | ||||||||
Earnings (loss) per share – diluted, continuing operations | $ | 1.52 | $ | 0.93 | $ | 0.16 | $ | (1.18 | ) | $ | 0.35 | ||||||||
Earnings (loss) per share – basic | $ | 1.53 | $ | 2.89 | $ | 0.32 | $ | (0.38 | ) | $ | 0.72 | ||||||||
Earnings (loss) per share – diluted | $ | 1.52 | $ | 2.87 | $ | 0.32 | $ | (0.38 | ) | $ | 0.70 | ||||||||
Weighted average shares outstanding – basic | 27,910 | 31,475 | 33,511 | 35,791 | 37,835 | ||||||||||||||
Weighted average shares outstanding – diluted | 28,190 | 31,691 | 33,643 | 35,791 | 38,831 | ||||||||||||||
Cash dividends declared per share | $ | 0.45 | $ | 0.41 | $ | 0.10 | $ | 1.00 | $ | — | |||||||||
As of December 31, | |||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
(IN THOUSANDS) | |||||||||||||||||||
Working capital | $ | 126,788 | $ | 130,226 | $ | 112,913 | $ | 72,685 | $ | 103,075 | |||||||||
Total assets | $ | 351,822 | $ | 363,922 | $ | 347,768 | $ | 325,149 | $ | 409,672 | |||||||||
Total outstanding borrowings on credit facility | $ | 80,472 | $ | 93,333 | $ | 62,642 | $ | 21,000 | $ | 49,526 | |||||||||
Total long-term liabilities | $ | 124,449 | $ | 130,351 | $ | 100,562 | $ | 56,429 | $ | 93,393 | |||||||||
Stockholders’ equity | $ | 139,627 | $ | 139,388 | $ | 157,233 | $ | 169,846 | $ | 233,115 |
(1) | During the year ended December 31, 2014, Kforce terminated the Company's Supplemental Executive Retirement Health Plan ("SERHP") and settled all future benefit obligations by making lump sum payments totaling approximately $3.9 million, which resulted in a net settlement loss of approximately $0.7 million. The termination effectively removed Kforce's related post-retirement benefit obligation. |
(2) | Kforce recognized a goodwill impairment charge of $14.5 million related to the GS reporting unit during 2013. The tax benefit associated with this impairment charge was $5.2 million, resulting in an after-tax impairment charge of $9.3 million. |
(3) | During the three months ended December 31, 2013, Kforce commenced a plan to streamline its leadership and support-related structure to better align a higher percentage of personnel in roles that are closest to the customer through an organizational realignment. As a result of the organizational realignment, Kforce incurred severance and termination-related expenses of $7.1 million during 2013 which were recorded within selling, general and administrative expense. Additionally, in connection with the realignment and succession planning, the Compensation Committee approved discretionary bonuses of $3.6 million paid to a broad group of senior management during the fourth quarter of 2013. |
(4) | Kforce recognized a goodwill impairment charge of $69.2 million related to the GS reporting unit during 2012. The tax benefit associated with this impairment charge was $24.7 million, resulting in an after-tax impairment charge of $44.5 million. |
(5) | In connection with the disposition of Kforce Clinical Research, Inc. (“KCR”), |
This section
Executive Summary –an executive summary of our results of operations for 2015. 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 their potential impact on our consolidated financial statements. Results of Operations – an analysis of Kforce’s consolidated results of operations for the three years presented in its consolidated financial statements. In order to assist the reader in understanding our business as a whole, certain metrics are presented for each of our segments. Liquidity and Capital Resources – an analysis of cash flows, off-balance sheet arrangements, stock repurchases and contractual obligations and commitments and the impact of changes in interest rates on our business. Effective August 3, 2014, Kforce divested its HIM segment through a sale of |
On March 31, 2012, Kforce sold all of the issued and outstanding stock of KCR. See Note 2 – “Discontinued Operations” to the Notes to Consolidated Financial Statements, included in this annual report.KHI. The results presented in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 20122014 and 20112013 include activity relating to KCRHIM as a discontinued operations.operation. Except aswhen specifically noted, our discussions below exclude any activity related to KCR,HIM, which isare addressed separately in the discussion of incomeIncome from discontinued operations, netDiscontinued Operations, Net of income taxes.
Income Taxes.
Description | Judgments and Uncertainties | Effect if Actual Results Differ From Assumptions | ||
Allowance for Doubtful Accounts, Fallouts and Other Accounts Receivable Reserves | ||||
See Note 1 – “Summary of Significant Accounting Policies” | Kforce performs an ongoing analysis of factors including recent write-off and delinquency trends, Kforce estimates its allowance for Kforce estimates its reserve for future revenue adjustments (e.g. bill rate adjustments, time card adjustments, early pay discounts) based on our historical experience. | We have not made any material changes in the accounting methodology used to establish our allowance for doubtful accounts, fallouts and other accounts receivable reserves. As of December 31, We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our allowance for doubtful accounts, fallouts and other accounts receivable reserves. However, if our estimates regarding estimated accounts receivable losses are inaccurate, we may be exposed to losses or gains that could be material. A 10% difference in actual accounts receivable losses reserved at December 31, |
Description | Judgments and Uncertainties | Effect if Actual Results Differ From Assumptions | ||
Goodwill Impairment | ||||
We evaluate goodwill for impairment annually or more frequently whenever events
The carrying value of goodwill as of December 31, | We determine the fair value of our reporting units using widely accepted valuation techniques, including the discounted cash flow, guideline transaction method and guideline company method. These types of analyses contain uncertainties because they require management to make significant assumptions and judgments including: 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. | For our Tech and FA 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 For our by 63%. As a result,
Although the valuation of the business supported its carrying value in 2015, a deterioration in any of the assumptions discussed in Note 6 – “Goodwill and Other Intangible Assets” |
Description | Judgments and Uncertainties | Effect if Actual Results Differ From Assumptions | ||
Self-Insured Liabilities | ||||
We are self-insured for certain losses related to health insurance and workers’ compensation claims in excess of insurable limits. When estimating our self-insured liabilities, we consider a number of factors, including historical claims experience, plan structure, internal claims management activities, demographic factors and severity factors. Periodically, management reviews its assumptions to determine the adequacy of our self-insured liabilities. Our liabilities for health insurance and workers’ compensation claims as of December 31, | 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. | We have not made any material changes in the accounting methodologies used to establish our self-insured liabilities during 2015 and 2014. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our self-insured liabilities. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. A 10% change in our self-insured liabilities related to health insurance and workers’ compensation as of December 31, | ||
| ||||
Description | Judgments and Uncertainties | Effect if Actual Results Differ From Assumptions | ||
Stock-Based Compensation | ||||
We have stock-based compensation programs, which include options, stock appreciation rights (“SARs”) and We have not granted any stock options or SARs over the last three years. We determine the fair market value of our restricted stock based on the closing stock price of Kforce’s common stock on the date of grant. | We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to determine stock-based compensation expense. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in stock-based compensation expense that could be material or the stock-based compensation expense reported in our financial statements may not be representative of the actual economic cost of the stock-based compensation. A 10% change in unrecognized stock-based compensation expense would have impacted our net income by |
Description | Judgments and Uncertainties | Effect if Actual Results Differ From Assumptions | ||
Defined Benefit Pension Plan – U.S. | ||||
We have a defined benefit pension plan that benefits certain named executive officers, the Supplemental Executive Retirement Plan (“SERP”)
The SERP | When estimating the obligation for our pension | We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our obligation. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. A 10% change in the discount rate used to measure the net periodic pension cost for the SERP | ||
| ||||
Description | Judgments and Uncertainties | Effect if Actual Results Differ From Assumptions | ||
Accounting for Income Taxes | ||||
See Note 4 – “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. Kforce is also required to exercise judgment with respect to the realization of our net deferred tax assets. Management evaluates all positive and negative evidence and exercises judgment regarding past and future events to determine if it is more likely than not that all or some portion of the deferred tax assets may not be realized. If appropriate, a valuation allowance is recorded against deferred tax assets to offset future tax benefits that may not be realized. | We do not believe that there is a reasonable likelihood that there will be a material change in our liability for uncertain income tax positions or our effective income tax rate. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses that could be material. Kforce recorded a valuation allowance of approximately $0.1 million as of December 31, A 0.50% change in our effective income tax rate |
In July 2013,
discussion of new accounting standards.
2013.
Additionally, during the years ended December 31, 2013 and 2012, Kforce recorded a goodwill impairment charge in the amount of $14.5 million and $69.2 million, respectively, in our GS reporting unit. In 2013, the goodwillThe impairment charge was a result of a business strategy decision made during the fourth quarter of 2013, regarding the GS reporting unit, to focus its service offerings and efforts on prime integrated business solution services. As a result of the change in focus, management plans to reallocate existing investments in the business and redirect the business development team to concentrate on a more specific and, in our opinion, a higher quality revenue stream. These plans will ultimately result in the transition away from certain existing revenue streams, specific revenue-generating contracts andsolutions opportunities in the business development life cycle that do not fit within the revised strategic scope of service offerings, including pure staff augmentation as well as product sales. We expect that the change in strategy, coupled with the lengthy contract procurement cycle within the government sectorFederal Government.
additional U.S. workers. From an economic standpoint, temporary employment figures and trends are important indicators of staffing demand, which improvedcontinued to be positive during 2013 as compared to 20122015, based on data published by the BLS. Total temporary employment increased 9.6%3.3% year-over-year and the penetration rate (the percentage of temporary staffing to total employment) increased 8.4% from December 2012 to December 2013, bringing the rate toremained near record levels at 2.06% in December 2013, an all-time high.2015. While the macro-employment picture remains uncertain, it has continuously improved, with the unemployment rate at 6.7%5.0% as of December 2013,2015, and non-farm payroll expanding an average of 182,000221,000 jobs per month in 2013.2015. Also, the college-level unemployment rate, which we believe serves as a proxy for professional employment and is more closely aligned with the Firm’s business strategy, was at 3.3%2.5% in December 2013. Kforce2015. Further, we believe that the unemployment rate in the specialties we serve is lower than the published averages, which we believe speaks to the demand environment in which we are operating. Management believes that uncertainty in the overall U.S. economic outlook related to the political landscape, potential tax changes, geo-political risk and impact of health care reform, willmay continue to fuel growth in temporary staffing as employers may be reluctant to increase full-time hiring. IfAdditionally, we believe the increasing costs and government regulation of employment may be driving a secular shift to an increased use of temporary staff as a percentage of total workforce. Given the near record levels of the penetration rate, of temporary staffing continues to experience growth in the coming years, we believe that our Flex revenues canmay grow significantly even in a relatively modest growth macro-economic environment. Kforce remains optimistic about the growth prospects of the temporary staffing industry, the penetration rate, and in particular, our revenue portfolio.
During 2013portfolio; however, the economic environment includes considerable uncertainty and overvolatility and therefore no reliable predictions can be made about the general economy, the staffing industry as a whole, or specialty staffing in particular.
We believe the divestiture of HIM provides us the opportunity to further dedicate our resources to exclusively providing technology and finance and accounting talent in the commercial and government markets through our staffing organization and Kforce Government Solutions, Inc., our government solutions provider.
December 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Revenues by Segment: | ||||||||||||
Tech | 64.2 | % | 62.4 | % | 62.1 | % | ||||||
FA | 21.0 | 22.0 | 21.9 | |||||||||
HIM | 6.8 | 7.1 | 6.8 | |||||||||
GS | 8.0 | 8.5 | 9.2 | |||||||||
|
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| |||||||
Net service revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
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| |||||||
Revenues by Type: | ||||||||||||
Flex | 95.8 | % | 95.6 | % | 95.7 | % | ||||||
Search | 4.2 | 4.4 | 4.3 | |||||||||
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| |||||||
Net service revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
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| |||||||
Gross profit | 32.1 | % | 32.1 | % | 31.6 | % | ||||||
Selling, general and administrative expenses | 28.1 | % | 29.8 | % | 27.3 | % | ||||||
Goodwill impairment | 1.3 | % | 6.4 | % | — | |||||||
Depreciation and amortization | 0.9 | % | 1.0 | % | 1.2 | % | ||||||
Income (loss) from continuing operations, before income taxes | 1.7 | % | (5.1 | )% | 3.0 | % | ||||||
Income (loss) from continuing operations | 0.9 | % | (3.3 | )% | 1.9 | % | ||||||
Net income (loss) | 0.9 | % | (1.3 | )% | 2.7 | % |
December 31, | ||||||||
2015 | 2014 | 2013 | ||||||
Revenues by Segment: | ||||||||
Tech | 67.9 | % | 69.2 | % | 68.9 | % | ||
FA | 24.7 | 22.7 | 22.6 | |||||
GS | 7.4 | 8.1 | 8.5 | |||||
Net service revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||
Revenues by Type: | ||||||||
Flex | 95.9 | % | 96.2 | % | 95.5 | % | ||
Direct Hire | 4.1 | 3.8 | 4.5 | |||||
Net service revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||
Gross profit | 31.4 | % | 30.8 | % | 32.1 | % | ||
Selling, general and administrative expenses | 25.0 | % | 25.9 | % | 28.7 | % | ||
Goodwill impairment | — | % | — | % | 1.4 | % | ||
Depreciation and amortization | 0.7 | % | 0.8 | % | 0.9 | % | ||
Income from continuing operations, before income taxes | 5.4 | % | 3.9 | % | 1.0 | % | ||
Income from continuing operations | 3.2 | % | 2.4 | % | 0.5 | % | ||
Net income | 3.2 | % | 7.5 | % | 1.0 | % |
(in $000’s) | 2013 | Increase (Decrease) | 2012 | Increase (Decrease) | 2011 | |||||||||||||||
Tech | ||||||||||||||||||||
Flex | $ | 720,179 | 9.9 | % | $ | 655,062 | 8.1 | % | $ | 606,238 | ||||||||||
Search | 19,183 | (6.5 | %) | 20,525 | 15.5 | % | 17,774 | |||||||||||||
|
|
|
|
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| |||||||||||||||
Total Tech | $ | 739,362 | 9.4 | % | $ | 675,587 | 8.3 | % | $ | 624,012 | ||||||||||
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FA | ||||||||||||||||||||
Flex | $ | 213,158 | 0.6 | % | $ | 211,797 | 9.0 | % | $ | 194,359 | ||||||||||
Search | 29,259 | 9.7 | % | 26,679 | 5.8 | % | 25,216 | |||||||||||||
|
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| |||||||||||||||
Total FA | $ | 242,417 | 1.7 | % | $ | 238,476 | 8.6 | % | $ | 219,575 | ||||||||||
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HIM | ||||||||||||||||||||
Flex | $ | 77,745 | 1.6 | % | $ | 76,517 | 12.2 | % | $ | 68,181 | ||||||||||
Search | 414 | (12.8 | )% | 475 | (10.4 | )% | 530 | |||||||||||||
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Total HIM | $ | 78,159 | 1.5 | % | $ | 76,992 | 12.1 | % | $ | 68,711 | ||||||||||
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GS | ||||||||||||||||||||
Flex | $ | 91,949 | 0.6 | % | $ | 91,424 | (1.1 | )% | $ | 92,449 | ||||||||||
Search | — | — | — | — | — | |||||||||||||||
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| |||||||||||||||
Total GS | $ | 91,949 | 0.6 | % | $ | 91,424 | (1.1 | )% | $ | 92,449 | ||||||||||
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| |||||||||||||||
Total Flex | $ | 1,103,031 | 6.6 | % | $ | 1,034,800 | 7.7 | % | $ | 961,227 | ||||||||||
Total Search | 48,856 | 2.5 | % | 47,679 | 9.6 | % | 43,520 | |||||||||||||
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|
|
|
| |||||||||||||||
Total Net Service Revenues | $ | 1,151,887 | 6.4 | % | $ | 1,082,479 | 7.7 | % | $ | 1,004,747 | ||||||||||
|
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|
|
|
|
While quarterly comparisons are not fully discussed herein, certainyear (in thousands):
2015 | Increase (Decrease) | 2014 | Increase (Decrease) | 2013 | |||||||||||||
Tech | |||||||||||||||||
Flex | $ | 873,609 | 6.1 | % | $ | 823,311 | 14.3 | % | $ | 720,179 | |||||||
Direct Hire | 22,333 | 16.6 | % | 19,158 | (0.1 | )% | 19,183 | ||||||||||
Total Tech | $ | 895,942 | 6.3 | % | $ | 842,469 | 13.9 | % | $ | 739,362 | |||||||
FA | |||||||||||||||||
Flex | $ | 294,186 | 18.0 | % | $ | 249,274 | 16.9 | % | $ | 213,158 | |||||||
Direct Hire | 31,738 | 15.3 | % | 27,537 | (5.9 | )% | 29,259 | ||||||||||
Total FA | $ | 325,924 | 17.7 | % | $ | 276,811 | 14.2 | % | $ | 242,417 | |||||||
GS | |||||||||||||||||
Flex | $ | 97,372 | (0.7 | )% | $ | 98,051 | 6.6 | % | $ | 91,949 | |||||||
Total GS | $ | 97,372 | (0.7 | )% | $ | 98,051 | 6.6 | % | $ | 91,949 | |||||||
Total Flex | $ | 1,265,167 | 8.1 | % | $ | 1,170,636 | 14.2 | % | $ | 1,025,286 | |||||||
Total Direct Hire | 54,071 | 15.8 | % | 46,695 | (3.6 | )% | 48,442 | ||||||||||
Total Net Service Revenues | $ | 1,319,238 | 8.4 | % | $ | 1,217,331 | 13.4 | % | $ | 1,073,728 |
Three Months Ended | ||||||||||||||||
(in $000’s, except Billing Days) | December 31 | September 30 | June 30 | March 31 | ||||||||||||
Billing Days | 62 | 64 | 64 | 63 | ||||||||||||
Flex Revenues | ||||||||||||||||
Tech | $ | 193,238 | $ | 188,888 | $ | 175,213 | $ | 162,840 | ||||||||
FA | 55,552 | 54,791 | 52,954 | 49,861 | ||||||||||||
HIM | 20,678 | 19,602 | 18,921 | 18,544 | ||||||||||||
GS | 21,695 | 24,127 | 23,297 | 22,830 | ||||||||||||
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| |||||||||
Total Flex | $ | 291,163 | $ | 287,408 | $ | 270,385 | $ | 254,075 | ||||||||
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| |||||||||
Search Revenues | ||||||||||||||||
Tech | $ | 4,338 | $ | 4,694 | $ | 5,356 | $ | 4,795 | ||||||||
FA | 7,238 | 7,456 | 7,900 | 6,665 | ||||||||||||
HIM | 180 | 94 | 48 | 92 | ||||||||||||
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| |||||||||
Total Search | $ | 11,756 | $ | 12,244 | $ | 13,304 | $ | 11,552 | ||||||||
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| |||||||||
Total Revenues | ||||||||||||||||
Tech | $ | 197,576 | $ | 193,582 | $ | 180,569 | $ | 167,635 | ||||||||
FA | 62,790 | 62,247 | 60,854 | 56,526 | ||||||||||||
HIM | 20,858 | 19,696 | 18,969 | 18,636 | ||||||||||||
GS | 21,695 | 24,127 | 23,297 | 22,830 | ||||||||||||
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|
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| |||||||||
Total Revenues | $ | 302,919 | $ | 299,652 | $ | 283,689 | $ | 265,627 | ||||||||
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|
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|
|
|
|
only (in thousands, except Billing Days).
Three Months Ended | |||||||||||||||||||||||||||
December 31 | September 30 | June 30 | March 31 | ||||||||||||||||||||||||
Revenues | Year-Over-Year Growth Rates | Revenues | Year-Over-Year Growth Rates | Revenues | Year-Over-Year Growth Rates | Revenues | Year-Over-Year Growth Rates | ||||||||||||||||||||
Flex | |||||||||||||||||||||||||||
Tech | $ | 212,917 | 0.2 | % | $ | 226,381 | 6.6 | % | $ | 225,873 | 9.6 | % | $ | 208,438 | 8.3 | % | |||||||||||
FA | 78,512 | 15.7 | % | 76,707 | 19.4 | % | 72,773 | 21.2 | % | 66,194 | 15.9 | % | |||||||||||||||
GS | 22,857 | (13.9 | )% | 24,351 | (1.8 | )% | 24,264 | 1.3 | % | 25,900 | 13.7 | % | |||||||||||||||
Total Flex | $ | 314,286 | 2.4 | % | $ | 327,439 | 8.7 | % | $ | 322,910 | 11.3 | % | $ | 300,532 | 10.4 | % | |||||||||||
Direct Hire | |||||||||||||||||||||||||||
Tech | $ | 5,109 | 7.8 | % | $ | 5,732 | 6.7 | % | $ | 6,291 | 24.9 | % | $ | 5,201 | 29.8 | % | |||||||||||
FA | 8,304 | 15.7 | % | 8,404 | 17.9 | % | 8,152 | 7.9 | % | 6,878 | 21.0 | % | |||||||||||||||
Total Direct Hire | $ | 13,413 | 12.6 | % | $ | 14,136 | 13.1 | % | $ | 14,443 | 14.7 | % | $ | 12,079 | 24.7 | % | |||||||||||
Total | |||||||||||||||||||||||||||
Tech | $ | 218,026 | 0.4 | % | $ | 232,113 | 6.6 | % | $ | 232,164 | 9.9 | % | $ | 213,639 | 8.7 | % | |||||||||||
FA | 86,816 | 15.7 | % | 85,111 | 19.2 | % | 80,925 | 19.7 | % | 73,072 | 16.4 | % | |||||||||||||||
GS | 22,857 | (13.9 | )% | 24,351 | (1.8 | )% | 24,264 | 1.3 | % | 25,900 | 13.7 | % | |||||||||||||||
Total | $ | 327,699 | 2.8 | % | $ | 341,575 | 8.8 | % | $ | 337,353 | 11.4 | % | $ | 312,611 | 10.8 | % | |||||||||||
Billing Days | 62 | 64 | 64 | 63 |
growing priority client accounts.
HIM Flex revenues increased 1.6% during the year ended December 31, 2013 compared to 2012 and increased 12.2% during the year ended December 31, 2012 compared to 2011. The increase in 2013 is partially attributable tocompetition and the required implementation of ICD-10 by October 1, 2014. The increase in revenues from ICD-10 was partially offset by a reduction in spending by customers as a result of increased healthcare reimbursement regulations. We expect ICD-10 to continue contributing to the growth of HIM service revenues throughout 2014.
lowest price technically acceptable government procurement environment. Our GS segment experienced an increase in net service revenueshad a significant amount of 0.6% duringits contracts go through a standard recompete cycle with the year ended December 31, 2013 as compared to 2012Federal Government and decreased 1.1% during the year ended December 31, 2012 as compared to 2011.retained each of these contracts. The slight growth in 2013 was primarily related to the expansion of revenues with existing GS customers in addition to the ramping of new government contract wins through the third quarter, partially offset by delays in certain government contracts during the fourth quarter due to the government shutdown. We expect 2014 revenues to decline over 2013 as a result of the aforementioned strategic decision made by Kforce management with regard toFirm believes the GS reporting unit to focus its service offerings and efforts on prime integrated business solution services.
segment will grow in 2016.
(in 000’s) | 2013 | Increase (Decrease) | 2012 | Increase (Decrease) | 2011 | |||||||||||||||
Tech | 10,929 | 9.0 | % | 10,023 | 4.2 | % | 9,615 | |||||||||||||
FA | 6,550 | 3.1 | % | 6,352 | 10.8 | % | 5,731 | |||||||||||||
HIM | 1,168 | 2.6 | % | 1,138 | 7.3 | % | 1,061 | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Total hours | 18,647 | 6.5 | % | 17,513 | 6.7 | % | 16,407 | |||||||||||||
|
|
|
|
|
|
31 (in thousands):
2015 | Increase (Decrease) | 2014 | Increase (Decrease) | 2013 | ||||||||||
Tech | 12,885 | 7.2 | % | 12,024 | 10.0 | % | 10,929 | |||||||
FA | 9,008 | 17.1 | % | 7,691 | 17.4 | % | 6,550 | |||||||
Total hours | 21,893 | 11.0 | % | 19,715 | 12.8 | % | 17,479 |
(in $000’s) | 2013 | Increase (Decrease) | 2012 | Increase (Decrease) | 2011 | |||||||||||||||
Tech | $ | 5,630 | (22.0 | )% | $ | 7,222 | 58.0 | % | $ | 4,571 | ||||||||||
FA | 423 | (19.7 | )% | 527 | (17.8 | )% | 641 | |||||||||||||
HIM | 5,245 | (17.8 | )% | 6,381 | 7.2 | % | 5,955 | |||||||||||||
GS | 348 | (37.4 | )% | 556 | (34.7 | )% | 852 | |||||||||||||
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|
|
|
|
| |||||||||||||||
Total billable expenses | $ | 11,646 | (20.7 | )% | $ | 14,686 | 22.2 | % | $ | 12,019 | ||||||||||
|
|
|
|
|
|
Search31 (in thousands):
2015 | Increase (Decrease) | 2014 | Increase (Decrease) | 2013 | |||||||||||||
Tech | $ | 5,584 | (8.4 | )% | $ | 6,093 | 8.2 | % | $ | 5,630 | |||||||
FA | 282 | (8.7 | )% | 309 | (27.0 | )% | 423 | ||||||||||
GS | 363 | (7.2 | )% | 391 | 12.4 | % | 348 | ||||||||||
Total billable expenses | $ | 6,229 | (8.3 | )% | $ | 6,793 | 6.1 | % | $ | 6,401 |
Search
2013.
2013 | Increase (Decrease) | 2012 | Increase (Decrease) | 2011 | ||||||||||||||||
Tech | 1,222 | (7.2 | )% | 1,317 | 8.7 | % | 1,212 | |||||||||||||
FA | 2,449 | 19.8 | % | 2,044 | 2.1 | % | 2,001 | |||||||||||||
HIM | 23 | (42.5 | )% | 40 | (45.2 | )% | 73 | |||||||||||||
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Total placements | 3,694 | 8.6 | % | 3,401 | 3.5 | % | 3,286 | |||||||||||||
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2015 | Increase (Decrease) | 2014 | Increase (Decrease) | 2013 | ||||||||||
Tech | 1,395 | 16.9 | % | 1,193 | (2.4 | )% | 1,222 | |||||||
FA | 2,505 | 11.0 | % | 2,256 | (7.9 | )% | 2,449 | |||||||
Total placements | 3,900 | 13.1 | % | 3,449 | (6.0 | )% | 3,671 |
2013 | Increase (Decrease) | 2012 | Increase (Decrease) | 2011 | ||||||||||||||||
Tech | $ | 15,695 | 0.8 | % | $ | 15,577 | 6.2 | % | $ | 14,665 | ||||||||||
FA | 11,946 | (8.5 | )% | 13,051 | 3.5 | % | 12,605 | |||||||||||||
HIM | 17,990 | 49.6 | % | 12,029 | 65.6 | % | 7,264 | |||||||||||||
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Total average placement fee | $ | 13,224 | (5.7 | )% | $ | 14,017 | 5.8 | % | $ | 13,244 | ||||||||||
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2015 | Increase (Decrease) | 2014 | Increase (Decrease) | 2013 | |||||||||||||
Tech | $ | 16,014 | (0.3 | )% | $ | 16,062 | 2.3 | % | $ | 15,695 | |||||||
FA | 12,668 | 3.8 | % | 12,205 | 2.2 | % | 11,946 | ||||||||||
Total average placement fee | $ | 13,864 | 2.4 | % | $ | 13,539 | 2.6 | % | $ | 13,194 |
As noted above, our GS segment does not make permanent placements; as a result, its gross profit percentage is the same as its Flex gross profit percentage.
2013 | Increase (Decrease) | 2012 | Increase (Decrease) | 2011 | ||||||||||||||||
Tech | 29.7 | % | — | 29.7 | % | 1.4 | % | 29.3 | % | |||||||||||
FA | 38.6 | % | 1.0 | % | 38.2 | % | 2.1 | % | 37.4 | % | ||||||||||
HIM | 32.3 | % | (9.0 | )% | 35.5 | % | (0.3 | )% | 35.6 | % | ||||||||||
GS | 34.1 | % | 8.6 | % | 31.4 | % | 2.3 | % | 30.7 | % | ||||||||||
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Total gross profit percentage | 32.1 | % | — | 32.1 | % | 1.6 | % | 31.6 | % |
2015 | Increase (Decrease) | 2014 | Increase (Decrease) | 2013 | ||||||||||
Tech | 29.2 | % | 1.0 | % | 28.9 | % | (2.7 | )% | 29.7 | % | ||||
FA | 36.5 | % | — | % | 36.5 | % | (5.4 | )% | 38.6 | % | ||||
GS | 34.3 | % | 10.6 | % | 31.0 | % | (9.1 | )% | 34.1 | % | ||||
Total gross profit percentage | 31.4 | % | 1.9 | % | 30.8 | % | (4.0 | )% | 32.1 | % |
The increase in Search gross profit from 2012 to 2013 was $1.2 million, composed of a $3.9 million increase in volume, offset by a $2.7 million decrease in rate. The increase in Search gross profit from 2011 to 2012 was $4.2 million, composed of a $1.6 million increase in volume and a $2.6 million increase in rate.
2013 | Increase (Decrease) | 2012 | Increase (Decrease) | 2011 | ||||||||||||||||
Tech | 27.8 | % | 1.1 | % | 27.5 | % | 1.1 | % | 27.2 | % | ||||||||||
FA | 30.2 | % | (0.7 | )% | 30.4 | % | 4.1 | % | 29.2 | % | ||||||||||
HIM | 31.9 | % | (9.1 | )% | 35.1 | % | 0.0 | % | 35.1 | % | ||||||||||
GS | 34.1 | % | 8.6 | % | 31.4 | % | 2.3 | % | 30.7 | % | ||||||||||
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Total Flex gross profit percentage | 29.1 | % | 0.3 | % | 29.0 | % | 1.8 | % | 28.5 | % |
2015 | Increase (Decrease) | 2014 | Increase (Decrease) | 2013 | ||||||||||
Tech | 27.4 | % | 0.7 | % | 27.2 | % | (2.2 | )% | 27.8 | % | ||||
FA | 29.7 | % | 0.7 | % | 29.5 | % | (2.3 | )% | 30.2 | % | ||||
GS | 34.3 | % | 10.6 | % | 31.0 | % | (9.1 | )% | 34.1 | % | ||||
Total Flex gross profit percentage | 28.5 | % | 1.8 | % | 28.0 | % | (3.1 | )% | 28.9 | % |
(in $000’s) | 2013 | % of Revenues | 2012 | % of Revenues | 2011 | % of Revenues | ||||||||||||||||||
Compensation, commissions, payroll taxes and benefits costs | $ | 275,881 | 24.0 | % | $ | 277,851 | 25.7 | % | $ | 239,457 | 23.8 | % | ||||||||||||
Other | 48,052 | 4.1 | 44,585 | 4.1 | 34,615 | 3.5 | ||||||||||||||||||
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Total SG&A | $ | 323,933 | 28.1 | % | $ | 322,436 | 29.8 | % | $ | 274,072 | 27.3 | % | ||||||||||||
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31 (in thousands):
2015 | % of Revenues | 2014 | % of Revenues | 2013 | % of Revenues | |||||||||||||||
Compensation, commissions, payroll taxes and benefits costs | $ | 278,207 | 21.1 | % | $ | 267,471 | 22.0 | % | $ | 264,636 | 24.7 | % | ||||||||
Other | 52,209 | 3.9 | % | 47,867 | 3.9 | % | 43,308 | 4.0 | % | |||||||||||
Total SG&A | $ | 330,416 | 25.0 | % | $ | 315,338 | 25.9 | % | $ | 307,944 | 28.7 | % |
As mentioned above, the Firm executed an organizational realignment plan, whereby we streamlined the Firm’s leadership and revenue enablers to align a higher percentage of roles closer to the customer. During the fourth quarter, the Firm incurred severance and termination-related charges of $7.1 million2013, as a result of the plan. Additionally, in connection with the realignment and succession planning, the Compensation Committee approved a discretionary bonus of $3.6 million paid to a broad group of senior management during the fourth quarter of 2013. The new alignment has resulted in more significant focus on our revenue generating activities and more streamlined processes and tools that enable us to simplify and improve how we do business with our clients and consultants. Additionally, we believe that this organizational realignment could positively impact our operating margins in 2014.
SG&Awell as a percentage of net service revenues increased 250 basis points in 2012 compared to 2011. This was primarily attributable to the following:
Goodwill Impairment. As discussed above,2013, Kforce management made a strategic business decision during the fourth quarter of 2013 with regard to the GS reporting unit to focus its service offerings and efforts on prime integrated business solution services. Assolutions and as a result of the change in focus, management plans to reallocate existing investments in the business and redirect the business development team to concentratewe recorded an impairment charge on a more specific and, in our opinion, a higher quality revenue stream. These plans will ultimately result in the transition away from certain existing revenue streams, specific revenue-generating contracts and opportunities in the business development life cycle that do not fit within the revised strategic scope of service offerings, including pure staff augmentation as well as product sales. This change in strategy, coupled with the lengthy contract procurement cycle within the government sector of approximately 18 months for solutions-based services, led us to expect negative impacts on near-term growth prospects of the GS segment and reductions in revenues and profitability over the next few years.
We believe these circumstances resulted in a possible impairment trigger during the fourth quarter, which was assessed in conjunction with the Firm’s annual goodwill impairment analysis as of December 31, 2013. The step one analysis for the GS reporting unit resultedgoodwill in the carrying value of invested capital exceeding the fair value of the GS reporting unit, primarily due to the reduction in the forecast. As a result, Kforce performed a step two goodwill impairment test for its GS reporting unit which ultimately resulted in Kforce recording an impairment chargeamount of approximately $14.5 million, with a related tax benefit of approximately $5.2 million during the fourth quarter of 2013.
During 2012, Kforce took an impairment charge on the GS reporting unit goodwill in the amount of $69.2 million, as previously discussed. Goodwill allocated to the GS reporting unit was $19.0 million and $33.5 million as ofyear ended December 31, 2013 and 2012, respectively.
A deterioration in the assumptions discussed in Note 6 – “Goodwill and Intangible Assets” to the Notes to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K, could result in an additional impairment charge.
2013. (in $000’s) Fixed asset depreciation Capital lease asset depreciation Capitalized software amortization Intangible asset amortization Total depreciation and amortization 2014 (in thousands): 2014. 2014. outstanding borrowings under our credit facility. Net income (loss) Income from discontinued operations, net of income taxes Income (loss) from continuing operations Goodwill impairment, pre-tax Depreciation and amortization Amortization of restricted stock Interest expense and other Income tax (benefit) expense Earnings per share adjustment (1) Adjusted EBITDA 31 (in thousands, except per share amounts): (5) having sufficient liquidity for the possibility of completing an acquisition or for an unexpected necessary expense. repurchases. (in $000’s) Cash provided by (used in): Operating activities Investing activities Financing activities Net (decrease) increase in cash and cash equivalents follows (in thousands): collections and certain tax payments made related to the HIM divestiture and resulting gain on sale. 2014. awards. legal ability to pay dividends. consolidated financial statements. On July 31, 2015, our Board of Directors approved a $60.0 million increase to the then remaining authorized amount. During the year ended December 31, 2015, Kforce repurchased approximately 1.5 million shares of common stock at a total cost of approximately $36.7 million under the Board-authorized common stock repurchase program. As of December 31, 2015, $53.0 million remained available for future repurchases. (in $000’s) Operating lease obligations Capital lease obligations Credit Facility (a) Interest payable – Credit Facility (b) Purchase obligations Liability for unrecognized tax positions (c) Deferred compensation plan liability (d) Other (e) Supplemental executive retirement plan (f) Supplement executive retirement health plan (f) Foreign defined benefit pension plan (g) Total 2013, 20122015, 2014 and 20112013, as well as the increases (decreases) experienced during 20132015 and 2012: 2013 Increase
(Decrease) 2012 Increase
(Decrease) 2011 $ 4,325 16.7 % $ 3,706 (11.7 )% $ 4,197 1,538 (7.5 ) 1,662 2.0 1,629 3,236 (28.3 ) 4,514 (18.3 ) 5,527 747 (17.6 ) 907 (21.3 ) 1,152 $ 9,846 (8.7 )% $ 10,789 (13.7 )% $ 12,505 2015 Increase
(Decrease) 2014 Increase
(Decrease) 2013 Fixed asset depreciation $ 6,738 6.2 % $ 6,345 8.2 % $ 5,863 Capitalized software amortization 2,318 (20.2 )% 2,904 (10.3 )% 3,236 Intangible asset amortization 775 20.2 % 645 (13.7 )% 747 Total depreciation and amortization $ 9,831 (0.6 )% $ 9,894 0.5 % $ 9,846 $0.6$0.4 million increase in 20132015 is primarily the result of the leasehold improvement additions made during 2013.2015. The $0.5 million decreaseincrease in 20122014 is primarily the result of certain assets becoming fully depreciatedleasehold improvement and furniture and fixture additions made during early 2012.$1.3$0.6 million decrease in 20132015 is primarily the result of several significant capitalized software balances becoming fully amortized during 2013.2015. The $1.0$0.3 million decrease in 20122014 is related toprimarily the result of software becoming fully amortizeddisposals during 2012.$1.2$2.2 million in 2013,2015, $1.4 million in 2014, and $1.1 million in 2012, and $1.3 million in 2011,2013, and consists primarily of interest expense related to Kforce’s Credit Facility.Expense (Benefit)Expense. For the year ending December 31, 2015, income tax expense as a percentage of income from continuing operations before income taxes (our “effective rate”) was 40.3%. The 2015 rate was unfavorably impacted by a change in the overall mix of income in the various state jurisdictions and the increase in particular uncertain tax positions. For the year ending December 31, 2014, income tax expense as a percentage of income from continuing operations before income taxes was 38.7%. There were no individual items that had a material impact on Kforce's effective rate. For the year ending December 31, 2013, income tax expense as a percentage of income from continuing operations before income taxes (our “effective rate”) was 46.3%51.6%, which was impacted by certain non-deductible meals and entertainment, the partially non-deductible goodwill impairment charge and certain other non-deductible expenses. For the year ending December 31, 2012, income tax benefit as a percentage of loss before income taxes (our “effective rate”) was 35.7%. The income tax benefit for 2012 was primarily related to tax benefits associated with the partially deductible goodwill impairment charge taken in 2012. For the year ending December 31, 2011, income tax expense as a percentage of income before income taxes was 36.3%. each of the years ended December 31, 20122014 and 2011 includes2013 include the consolidated income and expenses of KCR.for HIM. During the three months ended March 31, 2012,September 30, 2014, Kforce completed the sale of KCRHIM resulting in a pre-tax gain including adjustments, of $36.4$94.3 million. Included in the determination of the pre-tax gain is approximately $5.5$4.9 million of goodwill for HIM and transaction expenses totaling approximately $2.2$11.0 million, which primarily included commissions, legal fees, stock-based compensation related to acceleration of restricted stock due to change in control provisions, commissions and transaction bonuses.20122014 and 2011 were 44.6%2013 was 40.6% and 39.5%40.1%, respectively. The increase in the effective income tax rate(loss) income before income from discontinued operations, goodwillnet of income taxes, non-cash impairment (pre-tax) charges, interest, income taxes, depreciation and amortization and amortization of stock-based compensation expense. "Adjusted EBITDA Per Share", a non-GAAP financial measure, is Adjusted EBITDA divided by the number of diluted weighted average shares outstanding. Adjusted EBITDA and Adjusted EBITDA Per Share should not be considered a measure of financial performance under GAAP. Items excluded from Adjusted EBITDA and Adjusted EBITDA Per Share 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.EBITDA and Adjusted EBITDA is aPer Share. Adjusted EBITDA and Adjusted EBITDA Per Share are key measuremeasures used by management to evaluate itsour operations, including itsour ability to generate cash flows and our ability to repay our debt obligations, and management believes they are good measures of our core profitability, consequently, management believes this isthey are useful information to investors. The measuremeasures should not be considered in isolation or as an alternativealternatives 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 thus susceptible to varying calculations. Also, Adjusted EBITDA and Adjusted EBITDA Per Share, as presented, may not be comparable to similarly titled measures of other companies.wethat may have previously been spent with respect to the asset. In addition, although we excluded amortization of stock-based compensation expense (which we expect to continue to incur in the future) because it is a non-cash expense, the associated stock issued may result in an increase in our outstanding shares of stock, which may result in the dilution of our stockholder ownership interest. We encourage you to evaluate these items and the potential risks of excluding such items when analyzing our financial position.31:(in $000’s) except per share amounts Years Ended December 31, 2013 Per Share 2012 Per Share 2011 Per Share $ 10,787 $ 0.32 $ (13,703 ) $ (0.38 ) $ 27,156 $ 0.70 — — 22,009 0.62 8,100 0.21 $ 10,787 $ 0.32 $ (35,712 ) $ (1.00 ) $ 19,056 $ 0.49 14,510 0.43 69,158 1.93 — — 9,846 0.29 10,789 0.30 12,505 0.32 2,570 0.08 25,688 0.72 11,819 0.30 1,290 0.04 994 0.03 1,272 0.04 9,311 0.28 (19,854 ) (0.55 ) 10,858 0.28 — — — (0.01 ) — — $ 48,314 $ 1.44 $ 51,063 $ 1.42 $ 55,510 $ 1.43 (1)This earnings per share adjustment is necessary to properly reconcile net loss per share on a GAAP basis to Adjusted EBITDA per share. Years Ended December 31, 2015 Per Share 2014 Per Share 2013 Per Share Net income $ 42,824 $ 1.52 $ 90,915 $ 2.87 $ 10,787 $ 0.32 Income from discontinued operations, net of income taxes — — 61,517 1.94 5,493 0.16 Income from continuing operations $ 42,824 $ 1.52 $ 29,398 $ 0.93 $ 5,294 $ 0.16 Goodwill impairment, pre-tax — — — — 14,510 0.43 Depreciation and amortization 9,831 0.35 9,894 0.31 9,846 0.29 Stock-based compensation expense 5,819 0.21 2,969 0.09 2,555 0.07 Interest expense and other 1,960 0.07 1,396 0.04 1,212 0.04 Income tax expense 28,848 1.02 18,559 0.59 5,635 0.17 Adjusted EBITDA $ 89,282 $ 3.17 $ 62,216 $ 1.96 $ 39,052 $ 1.16 Weighted average shares outstanding - basic 27,910 31,475 33,511 Weighted average shares outstanding - diluted 28,190 31,691 33,643 Years Ended December 31, 2015 2014 2013 Net income $ 42,824 $ 90,915 $ 10,787 Gain on sale of discontinued operations — (64,600 ) — Goodwill impairment — — 14,510 Non-cash provisions and other 21,602 15,376 17,906 Changes in operating assets/liabilities 5,754 (67,273 ) (42,738 ) Capital expenditures (8,328 ) (6,011 ) (8,145 ) Free cash flow 61,852 (31,593 ) (7,680 ) Proceeds from disposition of business — 117,887 — Change in debt (12,861 ) 30,726 41,607 Repurchases of common stock (38,471 ) (101,771 ) (29,810 ) Cash dividend (12,545 ) (12,776 ) (3,297 ) Other 2,284 (2,110 ) (1,326 ) Change in cash $ 259 $ 363 $ (506 ) Credit Facility.credit facility. At December 31, 2013,2015, Kforce had $112.9$126.8 million in working capital compared to $72.7$130.2 million in 2012.2014. Kforce’s current ratio (current assets divided by current liabilities) was 2.32.4 at the end of 20132015 and 1.7 at the end of 2012. 2014, respectively. increase in working capital was primarily due to increases in the accounts receivable and the income tax receivable.Please see the accompanying Consolidated Statements of Cash Flows for each of the three years ended December 31, 2013, 20122015, 2014 and 20112013 in Item 8. Financial Statements and Supplementary Data forprovide a more detailed description of our cash flows. Currently, Kforce is principally focused on achieving the appropriate balance in the following areas of cash flow: (i)(1) achieving positive cash flow from operating activities; (ii)(2) returning capital to our shareholders through our dividendquarterly dividends and common stock repurchase program; (iii) reducing the(3) maintaining an appropriate outstanding balance ofon our Credit Facility; (iv) repurchasing our common stock; (v)credit facility; (4) investing in our infrastructure to allow sustainable growth via capital expenditures; and (vi) making strategic acquisitions.Credit Facilitycredit facility will be adequate to meet the capital expenditure and working capital requirements of our operations for at least the next 12 months. However, significanta material deterioration in the economic environment or market conditions, among other things, could negatively impact operating results cash flow,and liquidity, andas well as the ability of our lenders to fund borrowings. There is no assurance that: (i) our lenders will be able to fund our borrowings or (ii) if operations were to deteriorate and additional financing were to become necessary, we would be able to obtain financingamounts sufficient to meet operating requirements or at terms which are satisfactory and which would allow us to remain competitive.Actual resultsthe future could also differ materially from those indicated as a result of a number of factors, including the use of currently available resources for possible acquisitions and possible additional stock repurchases and dividends.follows: Years Ended December 31, 2013 2012 2011 $ 465 $ 55,978 $ 31,240 (8,547 ) 52,405 (10,090 ) 7,576 (107,941 ) (21,266 ) $ (506 ) $ 442 $ (116 ) Years Ended December 31, 2015 2014 2013 Cash provided by (used in): Operating activities $ 70,180 $ (25,582 ) $ 465 Investing activities (8,364 ) 110,535 (8,547 ) Financing activities (61,557 ) (84,590 ) 7,576 Net increase (decrease) in cash and cash equivalents $ 259 $ 363 $ (506 ) KCRof HIM on March 31, 2012.August 4, 2014. The accompanying consolidated statementsConsolidated Statements of cash flowsCash Flows have been presented on a combined basis (continuing operations and discontinued operations). for each of the years ended December 31, 2014 and 2013. Cash flows provided by discontinued operations for all prior periods were provided by operating activities and were not material to the capital resources of Kforce. In addition, the absence of cash flows from discontinued operations is not expected to have a significant effect on the future liquidity, financial position, or capital resources of Kforce. in 2013 are principally related to adjustments to net income for certain non-cash charges such as depreciation and amortization expense and stock-based compensation, as well as thegain on sale of discontinued operations and goodwill impairment charge.charges in prior years. These adjustments are more fully detailed in our Consolidated Statements of Cash Flows for each of the three years ended December 31, 2015, 2014 and 2013, in Item 8. Financial Statement and Supplementary Data. 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 employee and consultant populations' compensation, which includes base salary, commissions and bonuses. When comparing cash flows from operating activities for the years ended December 31, 2015, 2014 and 2013, 2012 and 2011, the primary drivers of cash inflows and outflows are net trade receivables and accounts payable. The decreaseincrease in cash provided by operating activities in 2013during the year ended December 31, 2015 as compared to 20122014 is primarily a result of improved timing of collections of accounts receivable as well as growth in our profitability. The increase in cash used in operating activities during the year ended December 31, 2014, as compared to 2013, is primarily a result of the increase in accountaccounts receivable due to the timing of collections.Capital expenditures have been made over the years on Kforce’s infrastructure to support the growth in our business. 2013, 20122015, 2014 and 2011,2013, which exclude equipment acquired under capital leases, were $8.3 million, $6.0 million and $8.1 million, $5.8 million and $6.5 million, respectively.Effective March 31, 2012, Kforce sold all of the issued and outstanding stock of KCR for a purchase price of $50.0 million plus a $7.3 million post-closing working capital adjustment. Proceeds from the divestiture of KCRHIM were $55.4$117.9 million net of transaction costs, during the year ended December 31, 2012.Kforce believes it hasWe believe that we have sufficient cash and availability under its Credit Facilitythe credit facility to make any expected necessary capital expenditures in the foreseeable future. In addition, we continually review our portfolio of businesses and their operations in comparison to our internal strategic and performance objectives. As part of this review, we may acquire other businesses and further invest in, fully divest and/or sell parts of our current businesses.2013, Kforce repurchasedthe year ended December 31, 2015, the Firm paid cash for repurchases of common stock totaling $29.8$38.5 million, which was comprisedcomposed of approximately $27.3$37.1 million of open market common stock repurchases and $1.4 million of common stock repurchases attributable to shares withheld for statutory minimum tax withholding requirements pertaining to the vesting of restricted stock awards, andawards. Of the $37.1 million of open market common stock repurchases, $1.4 million of the cash paid during the year ended December 31, 2015 related to the settlement of 2014 repurchases. During 2014, Kforce paid cash for repurchases of common stock totaling $101.8 million, which was composed of approximately $2.5$100.2 million of open market common stock repurchases and $1.6 million of common stock repurchases from the fourth quarter of 2012. During 2012, Kforce repurchased common stock totaling $44.4 million, which included open market repurchases of common stock of approximately $28.9 million and repurchases of common stock attributable to shares withheld for statutory minimum tax withholding requirements pertaining to the vesting of restricted stock awards of approximately $15.5 million. In 2011,awards. During 2013, Kforce paid cash for repurchases of common stock were $59.6totaling $29.8 million, which includedwas composed of approximately $29.0 million of open market common stock repurchases (including the settlement of approximately $2.5 million of common stock repurchases from the fourth quarter of approximately $58.12012) and $0.8 million and repurchases of common stock repurchases attributable to shares withheld for statutory minimum tax withholding requirements pertaining to the vesting of restricted stock awards of approximately $1.5 million.fourth quarteryear ended December 31, 2015, Kforce declared and paid dividends in cash of $12.5 million, or $0.45 per share. During the year ended December 31, 2014, Kforce declared and paid dividends in cash of $12.8 million, or $0.41 per share. During the year ended December 31, 2013, Kforce declared and paid adividends in cash dividend of $3.3 million, or $0.10 per share. During the fourth quarter of 2012, Kforce declared and paid a special cash dividend of $35.2 million, or $1.00 per share. We currently expectexpects to continue to declare and pay quarterly dividends of an amounta similar to our December 2013 dividend of $0.10 per share.amount. However, the declaration, payment and paymentamount of future dividends are discretionary and will be subject to determination by ourKforce’s Board of Directors each quarter following its review of, among other things, the Firm’s financial performance and our financial performance.credit facilityCredit Facility of up to $135$170.0 million (the “Revolving Loan Amount”) and (b) a $15$15.0 million sub-limit included in the Credit Facility for letters of credit. Kforce has a remaining accordion option to increase the borrowing capacity an additional $15 million.Borrowing availability under the Credit Facility is limited to the remainder of: (a) the lesser of (i) $135.0 million minus the four week average aggregate weekly payroll of employees assigned to work for customers, or (ii) 85% of the net amount of eligible accounts receivable, plus 80% of the net amount of eligible unbilled accounts receivable, plus 80% of the net amount of eligible employee placement accounts, minus certain minimum availability reserves, and in either case; minus (b) the aggregate outstanding amount under the Credit Facility. Outstanding borrowings under the Revolving Loan Amount bear interest at a rate of: (a) LIBOR plus an applicable margin based on various factors; or (b) the higher of: (i) the prime rate, (ii) the federal funds rate plus 0.50% or (iii) LIBOR plus 1.25%. FluctuationsSee Note 9 – “Credit Facility” in the ratioNotes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of unbilled to billed receivables could result in material changes to availability from time to time. Lettersthis report for a complete discussion of credit issued under theour Credit Facility require Kforce to pay a fronting fee equal to 0.125% of the amount of each letter of credit issued, plus a per annum fee equal to the applicable margin for LIBOR loans based on the total letters of credit outstanding. To the extent that Kforce has unused availability under the Credit Facility, an unused line fee is required to be paid equal to the applicable margin times the amount by which the maximum revolver amount exceeded the sum of the average daily outstanding amount of the revolving loans and the average daily undrawn face amount of outstanding letters of credit during the immediately preceding month. Borrowings under the Credit Facility are secured by substantially all of the assets of Kforce and its subsidiaries, excluding the real estate located at Kforce’s corporate headquarters in Tampa, Florida. Under the Credit Facility, Kforce is subject to certain affirmative and negative covenants including (but not limited to) the maintenance of a fixed charge coverage ratio of at least 1.00 to 1.00 if the Firm’s availability under the Credit Facility is less than the greater of 10% of the aggregate amount of the commitment of all of the lenders under the Credit Facility and $11.0 million. Kforce had availability under the Credit Facility of $43.2 million as of December 31, 2013; therefore, the minimum fixed charge coverage ratio was not applicable. Kforce believes that it will be able to maintain the minimum availability requirement; however, in the event that Kforce is unable to do so, Kforce could fail the fixed charge coverage ratio covenant, which would constitute an event of default. Kforce believes the likelihood of default is remote. The Credit Facility expires September 20, 2016.As of December 31, 2013 and 2012, $62.6 million and $21.0 million was outstanding under the Credit Facility, respectively. During the three months ended December 31, 2013, maximum outstanding borrowings under the Credit Facility were $62.6 million. As of February 24, 2014, $67.5 million was outstanding and $40 million was available under the Credit Facility.2013,2015, Kforce had letters of credit outstanding for workers’ compensation and other insurance coverage totaling $2.4$3.2 million, and for facility lease deposits totaling $0.3$0.5 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.2012,2014, Kforce repurchased approximately 3.4 million shares of common stock attributable to open market repurchases and shares withheld for statutory minimum tax withholding requirements pertaining to the vesting of restricted stock awards at a total cost of approximately $44.4 million. As of December 31, 2012, $39.9 million remained available for future repurchases. On February 1, 2013, our Board of Directors approved an increase to the existing authorization for repurchases of common stock by $50.0 million (exclusive of any previously unused authorizations). As a result, $89.9 million remained available for future repurchases as of February 1, 2013. During the year ended December 31, 2013, Kforce repurchased approximately 1.84.9 million shares of common stock at a total cost of approximately $27.3 million.$102.9 million under the Board-authorized common stock repurchase program. As of December 31, 2013, $62.62014, $29.7 million remainsof the Board-authorized common stock repurchase program remained available for future repurchases.2013:2015 (in thousands): Payments due by period Total Less than
1 year 1-3 Years 3-5 Years More than
5 years $ 12,604 $ 5,410 $ 6,003 $ 1,172 $ 19 8,082 3,539 4,484 59 — 62,642 — 62,642 — — 2,705 984 1,721 — — 10,787 6,165 4,622 — — — — — — — 26,296 3,149 2,126 914 20,107 — — — — — 10,538 — — — 10,538 8,537 48 109 146 8,234 13,251 — 404 — 12,847 $ 155,442 $ 19,295 $ 82,111 $ 2,291 $ 51,745 Payments due by period Total Less than
1 year 1-3 Years 3-5 Years More than
5 yearsOperating lease obligations $ 20,212 $ 7,970 $ 9,722 $ 2,520 $ — Capital lease obligations 2,023 943 1,006 74 — Credit Facility (a) 80,472 — — 80,472 — Interest payable – Credit Facility (b) 7,845 1,569 3,138 3,138 — Equipment notes (c) 2,914 575 1,150 1,189 — Interest payable - equipment notes (c) 206 75 98 33 — Purchase obligations 15,307 9,627 5,562 118 — Liability for unrecognized tax positions (d) — — — — — Deferred compensation plan liability (e) 26,526 2,288 2,895 1,326 20,017 Other (f) — — — — — Supplemental executive retirement plan (g) 14,284 — — 10,297 3,987 Foreign defined benefit pension plan (h) 7,504 376 4 82 7,042 Total $ 177,293 $ 23,423 $ 23,575 $ 99,249 $ 31,046 (a) The Credit Facility expires in September 2016.December 23, 2019.(b) Kforce’s weighted average interest rate as of December 31, 20132015 was 1.57%1.95%, which was utilized to forecast the expected future interest rate payments. These payments are inherently uncertain due to interest rate and outstanding borrowings fluctuations that will occur over the remaining term of the Credit Facility.(c) Kforce entered into separate notes with Wells Fargo and Bank of America N.A for the purchase of furniture, fixtures and equipment during 2015. The aggregate outstanding amounts under these notes as of December 31, 2015 are included in the accompanying Consolidated Balance Sheets and classified in Other current liabilities if payable within the next year or in Long-term debt - other if payable after the next year. The interest rate on the notes are 2.80% and 2.64%, respectively. The equipment notes expire in November 2020. (d) Kforce’s liability for unrecognized tax positions as of December 31, 20132015 was $0.4$0.8 million. This balance has been excluded from the table above due to the significant uncertainty with respect to expected settlements.the timing and amount of settlement, if any.(d)(e) Kforce has a non-qualified deferred compensation plan pursuant to which eligible highly-compensated key employees may elect to defer part of their compensation to later years. These amounts, which are included in the accompanying Consolidated Balance Sheets and classified as Accounts payable and other accrued liabilities and otherOther long-term liabilities, respectively, 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.(e)(f) Kforce provides letters of credit to certain vendors in lieu of cash deposits. Kforce currently has letters of credit totaling $2.7$3.7 million outstanding as security for workers’ compensation and property insurance policies, as well as facility lease deposits. Kforce maintains a sub-limit for letters of credit of $15$15.0 million under its Credit Facility.(f)(g) There is no funding requirement associated with the SERP or the SERHP.SERP. Kforce does not currently anticipate funding the SERP or SERHP during 2014.2015. Kforce has included the total undiscounted projected benefit payments, as determined at December 31, 2013,2015, in the table above. See Note 1211 – “Employee Benefit Plans” in the Notes to the Consolidated Financial Statements for more detail.(g)(h) There is no funding requirement associated with this plan. Kforce has included the total undiscounted projected benefit payments, as determined at December 31, 20132015 in the table above. There is no funding requirement associated with this plan.See Note 11 – “Employee Benefit Plans” in the Notes to Consolidated Financial Statements for more detail.
concerning any future income tax audits.
/s/ Deloitte & Touche LLP |
Certified Public Accountants |
Tampa, Florida |
February |
26, 2016 |
YEARS ENDED DECEMBER 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Net service revenues | $ | 1,151,887 | $ | 1,082,479 | $ | 1,004,747 | ||||||
Direct costs of services | 782,275 | 734,546 | 687,000 | |||||||||
|
|
|
|
|
| |||||||
Gross profit | 369,612 | 347,933 | 317,747 | |||||||||
Selling, general and administrative expenses | 323,933 | 322,436 | 274,072 | |||||||||
Goodwill impairment | 14,510 | 69,158 | — | |||||||||
Depreciation and amortization | 9,846 | 10,789 | 12,505 | |||||||||
|
|
|
|
|
| |||||||
Income (loss) from operations | 21,323 | (54,450 | ) | 31,170 | ||||||||
Other (income) expense: | ||||||||||||
Interest expense | 1,302 | 1,009 | 1,196 | |||||||||
Other (income) expense | (77 | ) | 107 | 60 | ||||||||
|
|
|
|
|
| |||||||
Income (loss) from continuing operations, before income taxes | 20,098 | (55,566 | ) | 29,914 | ||||||||
Income tax expense (benefit) | 9,311 | (19,854 | ) | 10,858 | ||||||||
|
|
|
|
|
| |||||||
Income (loss) from continuing operations | 10,787 | (35,712 | ) | 19,056 | ||||||||
Income from discontinued operations, net of income taxes | — | 22,009 | 8,100 | |||||||||
|
|
|
|
|
| |||||||
Net income (loss) | 10,787 | (13,703 | ) | 27,156 | ||||||||
Other comprehensive income (loss): | ||||||||||||
Defined benefit pension and postretirement plans, net of tax | 3,030 | 1,337 | (2,570 | ) | ||||||||
|
|
|
|
|
| |||||||
Comprehensive income (loss) | $ | 13,817 | $ | (12,366 | ) | $ | 24,586 | |||||
|
|
|
|
|
| |||||||
Earnings (loss) per share – basic: | ||||||||||||
From continuing operations | $ | 0.32 | $ | (1.00 | ) | $ | 0.50 | |||||
From discontinued operations | $ | — | $ | 0.62 | $ | 0.22 | ||||||
|
|
|
|
|
| |||||||
Earnings (loss) per share – basic | $ | 0.32 | $ | (0.38 | ) | $ | 0.72 | |||||
|
|
|
|
|
| |||||||
Earnings (loss) per share – diluted | ||||||||||||
From continuing operations | $ | 0.32 | $ | (1.00 | ) | $ | 0.49 | |||||
From discontinued operations | $ | — | $ | 0.62 | $ | 0.21 | ||||||
|
|
|
|
|
| |||||||
Earnings (loss) per share – diluted | $ | 0.32 | $ | (0.38 | ) | $ | 0.70 | |||||
|
|
|
|
|
| |||||||
Weighted average shares outstanding – basic | 33,511 | 35,791 | 37,835 | |||||||||
Weighted average shares outstanding – diluted | 33,643 | 35,791 | 38,831 | |||||||||
|
|
|
|
|
|
YEARS ENDED DECEMBER 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Net service revenues | $ | 1,319,238 | $ | 1,217,331 | $ | 1,073,728 | |||||
Direct costs of services | 905,124 | 842,750 | 729,352 | ||||||||
Gross profit | 414,114 | 374,581 | 344,376 | ||||||||
Selling, general and administrative expenses | 330,416 | 315,338 | 307,944 | ||||||||
Goodwill impairment | — | — | 14,510 | ||||||||
Depreciation and amortization | 9,831 | 9,894 | 9,846 | ||||||||
Income from operations | 73,867 | 49,349 | 12,076 | ||||||||
Other expense (income): | |||||||||||
Interest expense | 1,982 | 1,411 | 1,225 | ||||||||
Other expense (income) | 213 | (19 | ) | (78 | ) | ||||||
Income from continuing operations, before income taxes | 71,672 | 47,957 | 10,929 | ||||||||
Income tax expense | 28,848 | 18,559 | 5,635 | ||||||||
Income from continuing operations | 42,824 | 29,398 | 5,294 | ||||||||
Income from discontinued operations, net of income taxes | — | 61,517 | 5,493 | ||||||||
Net income | 42,824 | 90,915 | 10,787 | ||||||||
Other comprehensive income (loss): | |||||||||||
Defined benefit pension and post-retirement plans, net of tax | 689 | (688 | ) | 3,030 | |||||||
Comprehensive income | $ | 43,513 | $ | 90,227 | $ | 13,817 | |||||
Earnings per share – basic: | |||||||||||
From continuing operations | $ | 1.53 | $ | 0.94 | $ | 0.16 | |||||
From discontinued operations | $ | — | $ | 1.95 | $ | 0.16 | |||||
Earnings per share – basic | $ | 1.53 | $ | 2.89 | $ | 0.32 | |||||
Earnings per share – diluted | |||||||||||
From continuing operations | $ | 1.52 | $ | 0.93 | $ | 0.16 | |||||
From discontinued operations | $ | — | $ | 1.94 | $ | 0.16 | |||||
Earnings per share – diluted | $ | 1.52 | $ | 2.87 | $ | 0.32 | |||||
Weighted average shares outstanding – basic | 27,910 | 31,475 | 33,511 | ||||||||
Weighted average shares outstanding – diluted | 28,190 | 31,691 | 33,643 | ||||||||
Cash dividends declared per share | $ | 0.45 | $ | 0.41 | $ | 0.10 |
DECEMBER 31, | ||||||||
2013 | 2012 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 875 | $ | 1,381 | ||||
Trade receivables, net of allowances of $2,028 and $2,153, respectively | 179,095 | 151,570 | ||||||
Income tax refund receivable | 7,720 | 1,750 | ||||||
Deferred tax assets, net | 4,662 | 9,494 | ||||||
Prepaid expenses and other current assets | 10,534 | 7,364 | ||||||
|
|
|
| |||||
Total current assets | 202,886 | 171,559 | ||||||
Fixed assets, net | 36,728 | 34,883 | ||||||
Other assets, net | 30,991 | 28,038 | ||||||
Deferred tax assets, net | 23,270 | 21,523 | ||||||
Intangible assets, net | 4,993 | 5,736 | ||||||
Goodwill | 48,900 | 63,410 | ||||||
|
|
|
| |||||
Total assets | $ | 347,768 | $ | 325,149 | ||||
|
|
|
| |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable and other accrued liabilities | $ | 31,821 | $ | 36,205 | ||||
Accrued payroll costs | 56,872 | 50,063 | ||||||
Other current liabilities | 1,141 | 11,564 | ||||||
Income taxes payable | 139 | 1,042 | ||||||
|
|
|
| |||||
Total current liabilities | 89,973 | 98,874 | ||||||
Long-term debt – credit facility | 62,642 | 21,000 | ||||||
Long-term debt – other | 1,364 | 1,144 | ||||||
Other long-term liabilities | 36,556 | 34,285 | ||||||
|
|
|
| |||||
Total liabilities | 190,535 | 155,303 | ||||||
|
|
|
| |||||
Commitments and contingencies (see Note 16) | ||||||||
Stockholders’ Equity: | ||||||||
Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding | — | — | ||||||
Common stock, $0.01 par; 250,000 shares authorized, 69,480 and 68,531 issued, respectively | 695 | 685 | ||||||
Additional paid-in capital | 404,600 | 400,688 | ||||||
Accumulated other comprehensive loss | 317 | (2,713 | ) | |||||
Retained earnings | 47,612 | 40,203 | ||||||
Treasury stock, at cost; 35,751 and 33,980 shares, respectively | (295,991 | ) | (269,017 | ) | ||||
|
|
|
| |||||
Total stockholders’ equity | 157,233 | 169,846 | ||||||
|
|
|
| |||||
Total liabilities and stockholders’ equity | $ | 347,768 | $ | 325,149 | ||||
|
|
|
|
DECEMBER 31, | |||||||
2015 | 2014 | ||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 1,497 | $ | 1,238 | |||
Trade receivables, net of allowances of $2,121 and $2,040, respectively | 198,933 | 204,710 | |||||
Income tax refund receivable | 526 | 3,311 | |||||
Deferred tax assets, net | 4,518 | 4,980 | |||||
Prepaid expenses and other current assets | 9,060 | 10,170 | |||||
Total current assets | 214,534 | 224,409 | |||||
Fixed assets, net | 37,476 | 35,330 | |||||
Other assets, net | 28,671 | 30,349 | |||||
Deferred tax assets, net | 20,938 | 22,855 | |||||
Intangible assets, net | 4,235 | 5,011 | |||||
Goodwill | 45,968 | 45,968 | |||||
Total assets | $ | 351,822 | $ | 363,922 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current Liabilities: | |||||||
Accounts payable and other accrued liabilities | $ | 39,227 | $ | 38,104 | |||
Accrued payroll costs | 46,125 | 52,208 | |||||
Other current liabilities | 1,287 | 986 | |||||
Income taxes payable | 1,107 | 2,885 | |||||
Total current liabilities | 87,746 | 94,183 | |||||
Long-term debt – credit facility | 80,472 | 93,333 | |||||
Long-term debt – other | 3,351 | 562 | |||||
Other long-term liabilities | 40,626 | 36,456 | |||||
Total liabilities | 212,195 | 224,534 | |||||
Commitments and contingencies (see Note 15) | |||||||
Stockholders’ Equity: | |||||||
Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding | — | — | |||||
Common stock, $0.01 par; 250,000 shares authorized, 70,558 and 70,029 issued, respectively | 705 | 700 | |||||
Additional paid-in capital | 420,276 | 412,642 | |||||
Accumulated other comprehensive income (loss) | 318 | (371 | ) | ||||
Retained earnings | 155,096 | 125,378 | |||||
Treasury stock, at cost; 42,130 and 40,616 shares, respectively | (436,768 | ) | (398,961 | ) | |||
Total stockholders’ equity | 139,627 | 139,388 | |||||
Total liabilities and stockholders’ equity | $ | 351,822 | $ | 363,922 |
YEARS ENDED DECEMBER 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Common stock – shares: | ||||||||||||
Shares at beginning of period | 68,531 | 68,566 | 66,542 | |||||||||
Issuance of restricted stock, net of forfeitures | 882 | (105 | ) | 1,604 | ||||||||
Exercise of stock options and stock appreciation rights | 67 | 70 | 420 | |||||||||
|
|
|
|
|
| |||||||
Shares at end of period | 69,480 | 68,531 | 68,566 | |||||||||
|
|
|
|
|
| |||||||
Common stock – par value: | ||||||||||||
Balance at beginning of period | $ | 685 | $ | 686 | $ | 665 | ||||||
Issuance of restricted stock, net of forfeitures | 9 | (1 | ) | 16 | ||||||||
Exercise of stock options and stock appreciation rights | 1 | — | 5 | |||||||||
|
|
|
|
|
| |||||||
Balance at end of period | $ | 695 | $ | 685 | $ | 686 | ||||||
|
|
|
|
|
| |||||||
Additional paid-in capital: | ||||||||||||
Balance at beginning of period | $ | 400,688 | $ | 372,212 | $ | 355,869 | ||||||
Issuance of restricted stock, net of forfeitures | 72 | 36 | (16 | ) | ||||||||
Exercise of stock options and stock appreciation rights | 597 | 736 | 2,854 | |||||||||
Income tax benefit from stock-based compensation | 399 | 1,201 | 1,216 | |||||||||
Stock-based compensation expense | 2,570 | 26,243 | 11,976 | |||||||||
Employee stock purchase plan | 274 | 260 | 313 | |||||||||
|
|
|
|
|
| |||||||
Balance at end of period | $ | 404,600 | $ | 400,688 | $ | 372,212 | ||||||
|
|
|
|
|
| |||||||
Accumulated other comprehensive income (loss): | ||||||||||||
Balance at beginning of period | $ | (2,713 | ) | $ | (4,050 | ) | $ | (1,480 | ) | |||
Pension and postretirement plans, net of tax of $1,919, $854 and $1,532, respectively | 3,030 | 1,337 | (2,570 | ) | ||||||||
|
|
|
|
|
| |||||||
Balance at end of period | $ | 317 | $ | (2,713 | ) | $ | (4,050 | ) | ||||
|
|
|
|
|
| |||||||
Retained earnings: | ||||||||||||
Balance at beginning of period | $ | 40,203 | $ | 89,135 | $ | 61,979 | ||||||
Net income (loss) | 10,787 | (13,703 | ) | 27,156 | ||||||||
Dividend ($0.10, $1.00 and $0.00 per share, respectively) | (3,378 | ) | (35,229 | ) | — | |||||||
|
|
|
|
|
| |||||||
Balance at end of period | $ | 47,612 | $ | 40,203 | $ | 89,135 | ||||||
|
|
|
|
|
| |||||||
Treasury stock – shares: | ||||||||||||
Shares at beginning of period | 33,980 | 30,644 | 24,823 | |||||||||
Repurchases of common stock | 1,812 | 3,376 | 5,746 | |||||||||
Shares tendered in payment of the exercise price of stock options | — | 11 | 131 | |||||||||
Employee stock purchase plan | (41 | ) | (51 | ) | (56 | ) | ||||||
|
|
|
|
|
| |||||||
Shares at end of period | 35,751 | 33,980 | 30,644 | |||||||||
|
|
|
|
|
| |||||||
Treasury stock – cost: | ||||||||||||
Balance at beginning of period | $ | (269,017 | ) | $ | (224,868 | ) | $ | (163,216 | ) | |||
Repurchases of common stock | (27,313 | ) | (44,375 | ) | (59,643 | ) | ||||||
Shares tendered in payment of the exercise price of stock options | — | (161 | ) | (2,401 | ) | |||||||
Employee stock purchase plan | 339 | 387 | 392 | |||||||||
|
|
|
|
|
| |||||||
Balance at end of period | $ | (295,991 | ) | $ | (269,017 | ) | $ | (224,868 | ) | |||
|
|
|
|
|
|
YEARS ENDED DECEMBER 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Common stock – shares: | |||||||||||
Shares at beginning of period | 70,029 | 69,480 | 68,531 | ||||||||
Issuance for stock-based compensation and dividend equivalents, net of forfeitures | 497 | 444 | 882 | ||||||||
Exercise of stock options | 32 | 105 | 67 | ||||||||
Shares at end of period | 70,558 | 70,029 | 69,480 | ||||||||
Common stock – par value: | |||||||||||
Balance at beginning of period | $ | 700 | $ | 695 | $ | 685 | |||||
Issuance for stock-based compensation and dividend equivalents, net of forfeitures | 5 | 4 | 9 | ||||||||
Exercise of stock options | 0 | 1 | 1 | ||||||||
Balance at end of period | $ | 705 | $ | 700 | $ | 695 | |||||
Additional paid-in capital: | |||||||||||
Balance at beginning of period | $ | 412,642 | $ | 404,600 | $ | 400,688 | |||||
Issuance for stock-based compensation and dividend equivalents, net of forfeitures | 556 | 369 | 72 | ||||||||
Exercise of stock options | 381 | 1,213 | 597 | ||||||||
Income tax benefit from stock-based compensation | 551 | 595 | 399 | ||||||||
Stock-based compensation expense | 5,819 | 5,475 | 2,570 | ||||||||
Employee stock purchase plan | 327 | 390 | 274 | ||||||||
Balance at end of period | $ | 420,276 | $ | 412,642 | $ | 404,600 | |||||
Accumulated other comprehensive income (loss): | |||||||||||
Balance at beginning of period | $ | (371 | ) | $ | 317 | $ | (2,713 | ) | |||
Pension and post-retirement plans, net of tax of $429, $394 and $1,919, respectively | 689 | (688 | ) | 3,030 | |||||||
Balance at end of period | $ | 318 | $ | (371 | ) | $ | 317 | ||||
Retained earnings: | |||||||||||
Balance at beginning of period | $ | 125,378 | $ | 47,612 | $ | 40,203 | |||||
Net income | 42,824 | 90,915 | 10,787 | ||||||||
Dividends and dividend equivalents, net of forfeitures ($0.45, $0.41 and $0.10 per share, respectively) | (13,106 | ) | (13,149 | ) | (3,378 | ) | |||||
Balance at end of period | $ | 155,096 | $ | 125,378 | $ | 47,612 | |||||
Treasury stock – shares: | |||||||||||
Shares at beginning of period | 40,616 | 35,751 | 33,980 | ||||||||
Repurchases of common stock | 1,540 | 4,896 | 1,812 | ||||||||
Shares tendered in payment of the exercise price of stock options | — | 4 | — | ||||||||
Employee stock purchase plan | (26 | ) | (35 | ) | (41 | ) | |||||
Shares at end of period | 42,130 | 40,616 | 35,751 | ||||||||
Treasury stock – cost: | |||||||||||
Balance at beginning of period | $ | (398,961 | ) | $ | (295,991 | ) | $ | (269,017 | ) | ||
Repurchases of common stock | (38,058 | ) | (103,195 | ) | (27,313 | ) | |||||
Shares tendered in payment of the exercise price of stock options | — | (84 | ) | — | |||||||
Employee stock purchase plan | 251 | 309 | 339 | ||||||||
Balance at end of period | $ | (436,768 | ) | $ | (398,961 | ) | $ | (295,991 | ) |
YEARS ENDED DECEMBER 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income (loss) | $ | 10,787 | $ | (13,703 | ) | $ | 27,156 | |||||
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: | ||||||||||||
Gain on sale of discontinued operations | — | (36,418 | ) | — | ||||||||
Goodwill and intangible asset impairment | 14,510 | 69,158 | — | |||||||||
Deferred income tax (benefit) provision, net | 1,166 | (17,136 | ) | 653 | ||||||||
Provision for (recovery of) bad debts on accounts receivable and other accounts receivable reserves | 546 | 1,860 | (925 | ) | ||||||||
Depreciation and amortization | 9,846 | 10,862 | 12,694 | |||||||||
Stock-based compensation | 2,570 | 25,740 | 11,976 | |||||||||
Pension and postretirement benefit plans expense | 3,237 | 4,505 | 4,369 | |||||||||
Amortization of deferred financing costs | 90 | 92 | 139 | |||||||||
Tax benefit attributable to stock-based compensation | 399 | 1,201 | 1,216 | |||||||||
Excess tax benefit attributable to stock-based compensation | (110 | ) | (1,130 | ) | (878 | ) | ||||||
Deferred compensation liability increase (decrease), net | 3,994 | 2,111 | (634 | ) | ||||||||
(Gain) loss on cash surrender value of Company-owned life insurance | (3,690 | ) | (1,797 | ) | 1,733 | |||||||
Other | 257 | 55 | 251 | |||||||||
(Increase) decrease in operating assets, net of acquisitions: | ||||||||||||
Trade receivables, net | (28,071 | ) | 4,298 | (25,332 | ) | |||||||
Income tax refund receivable | (5,970 | ) | (1,500 | ) | 5,425 | |||||||
Prepaid expenses and other current assets | (3,170 | ) | (2,246 | ) | (380 | ) | ||||||
Other assets, net | (57 | ) | 244 | 75 | ||||||||
Increase (decrease) in operating liabilities, net of acquisitions: | ||||||||||||
Accounts payable and other current liabilities | (12,471 | ) | 10,913 | (4,576 | ) | |||||||
Accrued payroll costs | 7,422 | (241 | ) | 1,395 | ||||||||
Income taxes payable | (903 | ) | 807 | (15 | ) | |||||||
Other long-term liabilities | 83 | (1,697 | ) | (3,102 | ) | |||||||
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Cash provided by operating activities | 465 | 55,978 | 31,240 | |||||||||
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Cash flows from investing activities: | ||||||||||||
Capital expenditures | (8,145 | ) | (5,846 | ) | (6,495 | ) | ||||||
Proceeds from disposition of business, net of cash | — | 55,446 | — | |||||||||
Proceeds from the sale of assets held within the Rabbi Trust | 3,278 | 4,259 | — | |||||||||
Purchase of assets held within the Rabbi Trust | (3,697 | ) | (1,460 | ) | (3,440 | ) | ||||||
Other | 17 | 6 | (155 | ) | ||||||||
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Cash (used in) provided by investing activities | (8,547 | ) | 52,405 | (10,090 | ) | |||||||
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Cash flows from financing activities: | ||||||||||||
Proceeds from bank line of credit | 591,688 | 241,973 | 488,468 | |||||||||
Payments on bank line of credit | (550,081 | ) | (270,499 | ) | (449,767 | ) | ||||||
Payments of capital expenditure financing | (1,452 | ) | (1,802 | ) | (1,497 | ) | ||||||
Payments of deferred loan financing costs | — | — | (450 | ) | ||||||||
Short-term vendor financing | (180 | ) | 253 | 287 | ||||||||
Proceeds from exercise of stock options | 598 | 575 | 458 | |||||||||
Excess tax benefit attributable to stock-based compensation | 110 | 1,130 | 878 | |||||||||
Repurchases of common stock | (29,810 | ) | (44,375 | ) | (59,643 | ) | ||||||
Cash dividend | (3,297 | ) | (35,196 | ) | — | |||||||
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Cash provided by (used in) financing activities | 7,576 | (107,941 | ) | (21,266 | ) | |||||||
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Change in cash and cash equivalents | (506 | ) | 442 | (116 | ) | |||||||
Cash and cash equivalents at beginning of year | 1,381 | 939 | 1,055 | |||||||||
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Cash and cash equivalents at end of year | $ | 875 | $ | 1,381 | $ | 939 | ||||||
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YEARS ENDED DECEMBER 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Cash flows from operating activities: | |||||||||||
Net income | $ | 42,824 | $ | 90,915 | $ | 10,787 | |||||
Adjustments to reconcile net income to cash provided by (used in) operating activities: | |||||||||||
Gain on sale of discontinued operations | — | (64,600 | ) | — | |||||||
Goodwill impairment | — | — | 14,510 | ||||||||
Deferred income tax provision, net | 2,380 | 491 | 1,166 | ||||||||
Provision for bad debts on accounts receivable | 1,553 | 825 | 546 | ||||||||
Depreciation and amortization | 9,849 | 10,058 | 9,846 | ||||||||
Stock-based compensation | 5,819 | 3,028 | 2,570 | ||||||||
Pension and post-retirement benefit plans expense | 1,846 | 1,424 | 3,237 | ||||||||
Amortization of deferred financing costs | 122 | 105 | 90 | ||||||||
Excess tax benefit attributable to stock-based compensation | (551 | ) | — | (110 | ) | ||||||
Loss on deferred compensation plan investments, net | 77 | 446 | 304 | ||||||||
Gain from Company-owned life insurance proceeds | — | (849 | ) | — | |||||||
Contingent consideration liability remeasurement | 321 | — | — | ||||||||
Other | 186 | (152 | ) | 257 | |||||||
Decrease (increase) in operating assets: | |||||||||||
Trade receivables, net | 4,223 | (40,339 | ) | (28,071 | ) | ||||||
Income tax refund receivable | 2,785 | 4,409 | (5,970 | ) | |||||||
Prepaid expenses and other current assets | 1,110 | 530 | (3,170 | ) | |||||||
Other assets, net | (298 | ) | (27 | ) | (57 | ) | |||||
Increase (decrease) in operating liabilities: | |||||||||||
Accounts payable and other current liabilities | 1,788 | 5,653 | (12,471 | ) | |||||||
Accrued payroll costs | (5,503 | ) | (248 | ) | 7,422 | ||||||
Income taxes payable | (1,657 | ) | (34,934 | ) | (504 | ) | |||||
Other long-term liabilities | 3,306 | (2,317 | ) | 83 | |||||||
Cash provided by (used in) operating activities | 70,180 | (25,582 | ) | 465 | |||||||
Cash flows from investing activities: | |||||||||||
Capital expenditures | (8,328 | ) | (6,011 | ) | (8,145 | ) | |||||
Acquisition, net of cash received | — | (2,611 | ) | — | |||||||
Proceeds from disposition of business | — | 117,887 | — | ||||||||
Proceeds from the disposition of assets held within the Rabbi Trust | 445 | 2,668 | 3,278 | ||||||||
Purchase of assets held within the Rabbi Trust | (481 | ) | (2,436 | ) | (3,697 | ) | |||||
Proceeds from Company-owned life insurance | — | 1,037 | — | ||||||||
Other | — | 1 | 17 | ||||||||
Cash (used in) provided by investing activities | (8,364 | ) | 110,535 | (8,547 | ) | ||||||
Cash flows from financing activities: | |||||||||||
Proceeds from bank line of credit | 604,668 | 684,427 | 591,688 | ||||||||
Payments on bank line of credit | (617,529 | ) | (653,701 | ) | (550,081 | ) | |||||
Proceeds from financing agreement | 2,914 | — | — | ||||||||
Payments of capital expenditure financing | (1,274 | ) | (1,280 | ) | (1,452 | ) | |||||
Payments of loan financing costs | — | (460 | ) | — | |||||||
Short-term vendor financing | (252 | ) | (160 | ) | (180 | ) | |||||
Proceeds from exercise of stock options, net of shares tendered in payment of exercise | 381 | 1,131 | 598 | ||||||||
Excess tax benefit attributable to stock-based compensation | 551 | — | 110 | ||||||||
Repurchases of common stock | (38,471 | ) | (101,771 | ) | (29,810 | ) | |||||
Cash dividend | (12,545 | ) | (12,776 | ) | (3,297 | ) | |||||
Cash (used in) provided by financing activities | (61,557 | ) | (84,590 | ) | 7,576 | ||||||
Change in cash and cash equivalents | 259 | 363 | (506 | ) | |||||||
Cash and cash equivalents at beginning of year | 1,238 | 875 | 1,381 | ||||||||
Cash and cash equivalents at end of year | $ | 1,497 | $ | 1,238 | $ | 875 |
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SEC.
otherwise requires or indicates.
Net service revenues represent services rendered to customers less credits, discounts, rebates and allowances. Revenues include reimbursements of travel and out-of-pocket expenses (“billable expenses”) with equivalent amounts of expense recorded in direct costs of services.
Comprehensive Income. Consolidated Statements of Operations and Comprehensive Income. 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 in the Consolidated Statements of Operations and Comprehensive Income. Numerator: Income (loss) from continuing operations Income from discontinued operations, net of tax Net income (loss) Denominator: Weighted average shares outstanding – basic Common stock equivalents Weighted average shares outstanding – diluted Earnings (loss) per share – basic: From continuing operations From discontinued operations Earnings (loss) per share – basic Earnings (loss) per share – diluted: From continuing operations From discontinued operations Earnings (loss) per share – diluted (in thousands, except per share amounts): Comprehensive Income. Cash dividends declared per share performance and our legal ability to pay dividends. statements upon adoption. adjustment of $96 thousand. 2015. Net service revenues Direct costs of services and operating expenses Gain on sale of discontinued operations Income from discontinued operations, before income taxes Income tax expense Income from discontinued operations, net of income taxes 40.1%, respectively. Land Building and improvements Furniture and equipment Computer equipment Leasehold improvements Capital leases Less accumulated depreciation and amortization follows (in thousands): Current: Federal State Deferred following (in thousands): Federal income tax rate State income taxes, net of Federal tax effect Non-deductible goodwill impairment Non-deductible meals and entertainment Other Effective tax rate Deferred taxes, current: Assets: Accounts receivable reserves Accrued liabilities Deferred compensation obligation Pension and postretirement benefit plans Other Deferred tax assets, current Liabilities: Prepaid expenses Deferred tax asset, net – current Deferred taxes, non-current: Assets: Accrued liabilities Deferred compensation obligation Stock-based compensation Pension and postretirement benefit plans Goodwill and intangible assets Deferred revenue Other Deferred tax assets, non-current Liabilities: Fixed assets Other Deferred tax liabilities, non-current Valuation allowance Deferred tax asset, net – non-current Net deferred tax asset following (in thousands): 2033. concerning any future income tax audits. Beginning balance Additions for tax positions of prior years Additions for tax positions of current year Reductions for tax positions of prior years – lapse of applicable statutes Settlements Ending balance follows (in thousands): 2011. Assets held in Rabbi Trust Capitalized software, net of amortization Deferred loan costs, net of amortization Other non-current assets obligations. Balance as of December 31, 2011 Adjustment Disposition of KCR (a) Impairment of goodwill Balance as of December 31, 2012 Impairment of goodwill Balance as of December 31, 2013 primarily of all related costs of employment for its Flexible Consultants, including payroll wages, payroll taxes, payroll-related insurance for Kforce’s flexible employees, and certain fringe benefits, as well as subcontractor costs. Direct costs of permanent placement services primarily consist of reimbursable expenses. Direct costs of services exclude depreciation and amortization expense, which is presented on a separate line in the accompanying consolidated statementsConsolidated Statements of operationsOperations and comprehensive income (loss).“moremore likely than not”not that a deferred tax asset can be utilized to offset future taxes, a valuation allowance is recorded against that asset. The excess tax benefits of deductions attributable to employees’ disqualifying dispositions of shares obtained from incentive stock options, exercises of non-qualified stock options, and vesting of restricted stock are reflected as increases in additional paid-in capital.the provision for income taxesIncome tax expense in the accompanying consolidated financial statements.Kforce uses the framework established by the Financial Accounting Standards Board (“FASB”) for measuring fair value and disclosures about fair value measurements. share-basedstock-based compensation arrangements; valuing the investment in bond mutualmoney market funds within the Kforce’s deferred compensation plan; our debt and capital lease obligations.a contingent consideration liability. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities approximate fair value because of the short-term nature of these instruments. Using available market information and appropriate valuation methodologies, Kforce has determined the estimated fair value measurements; however, considerable judgment is required in interpreting data to develop the estimates of fair value.segments;segments, by comparing the reporting unit’s carrying amount, including goodwill, to the fair market value of the reporting unit. Kforce determines the fair market value of its reporting units based on a weighting of the present value of projected future cash flows (the “income approach”) and the use of comparative market approachapproaches under both the guideline company method and guideline transaction method (collectively, the “market approach”). Fair market value using the income approach is based on Kforce’s estimated future cash flows on a discounted basis. The market approach compares each of Kforce’s reporting units 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, assumptions related to forecasted operating results, discount rates, long-term growth rates, and market multiples. Changes in economic or operating conditions or changes in Kforce’s business strategies that occur after the annual impairment analysis and which impact these assumptions may result in a future goodwill impairment charge, which could be material to Kforce’s consolidated financial statements.15fifteen years. The impairment evaluation for indefinite-lived intangible assets, which for Kforce consistconsists of a trademark and trade name, is conducted on an annual basis or more frequently if events or changes in circumstances indicate that an asset may be impaired. Company-wide technology infrastructure. Direct internal costs, such as payroll and payroll-related costs, and external costs incurred during the development stage of each project, are capitalized and classified as capitalized software. Kforce capitalized development-stage implementation costs of $970, $1,718$0.3 million, $0.4 million and $2,876$1.0 million during the years ended December 31, 2013, 20122015, 2014 and 2011,2013, respectively. Capitalized software development costs are classified as otherOther assets, net in the accompanying consolidated balance sheetsConsolidated Balance Sheets and are being amortized over the estimated useful lives of the software, which range from one to five years, using the straight-line method.actual revenues (for Search revenue)Direct Hire revenues) or gross profit (for Flex revenue)revenues) pursuant to a calendar-year-basis commission plan. The amount of commissions paid as a percentage of revenues or gross profit increases as volume increases. Kforce accrues commissions for actual revenues or gross profit at a percentage equal to the percent of total expected commissions payable to total revenues or gross profit for the year, as applicable.(i)(1) in states that require participation in state-operated insurance funds and (ii)(2) for its GS segment 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 Incurred but Not Reported (“IBNR”)IBNR claims and for the ongoing development of existing claims.Taxes Assessed by Governmental Agencies – Revenue Producing TransactionsKforce collects sales tax for various taxing authorities and it is our policy to record these amounts on a net basis; thus, sales tax amounts are not included in net service revenues.$275$300 thousand in claims annually. Additionally, for all claim amounts exceeding $275,$300 thousand, Kforce retains the risk of loss up to an aggregate annual loss of those claims of $500.$450 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.PostretirementPension Benefits overfunded or underfunded status of its defined benefit postretirementpension plans as an asset ora liability in its consolidated balance sheetsConsolidated Balance Sheets and recognizes changes in that funded status in the year in which the changes occur through other comprehensive income (loss). Kforce also measures the funded status of the defined benefit postretirementpension plans as of the date of its fiscal year-end, with limited exceptions.and net periodic postretirement benefit cost if, as of the beginning of the year, that net gain or loss exceeds 10% of the greater of the projected benefit obligation or accumulated postretirement benefit obligation. If amortization is required, the minimum amortization shall be that excess divided by the average remaining service period of active plan participants. (loss) per share is computed as earnings (loss) divided by the weighted average number of common shares outstanding during the period. Basic weighted average shares outstanding excludes unvested shares of restricted stock. Diluted earnings (loss) per common share is computed by dividing the earnings (loss) attributable to common shareholders for the period by the weighted average number of common shares outstanding during the period plus the dilutive effect of stock options and other potentially dilutive securities such as unvested shares of restricted stock using the treasury stock method, except where the effect of including potential common shares would be anti-dilutive. Weighted average shares outstanding for purposes of computing diluted earnings per common share excludes contingently issuable unvested restricted stock unless the performance condition has been achieved as of the end of the applicable reporting period.(loss) per share for the three years ended December 31 2013: Years Ended December 31, 2013 2012 2011 $ 10,787 $ (35,712 ) $ 19,056 — 22,009 8,100 $ 10,787 $ (13,703 ) $ 27,156 33,511 35,791 37,835 132 — 996 33,643 35,791 38,831 $ 0.32 $ (1.00 ) $ 0.50 — 0.62 0.22 $ 0.32 $ (0.38 ) $ 0.72 $ 0.32 $ (1.00 ) $ 0.49 — 0.62 0.21 $ 0.32 $ (0.38 ) $ 0.70 Years Ended December 31, 2015 2014 2013 Numerator: Income from continuing operations $ 42,824 $ 29,398 $ 5,294 Income from discontinued operations, net of tax — 61,517 5,493 Net income $ 42,824 $ 90,915 $ 10,787 Denominator: Weighted average shares outstanding – basic 27,910 31,475 33,511 Common stock equivalents 280 216 132 Weighted average shares outstanding – diluted 28,190 31,691 33,643 Earnings per share – basic: From continuing operations $ 1.53 $ 0.94 $ 0.16 From discontinued operations — 1.95 0.16 Earnings per share – basic $ 1.53 $ 2.89 $ 0.32 Earnings per share – diluted: From continuing operations $ 1.52 $ 0.93 $ 0.16 From discontinued operations — 1.94 0.16 Earnings per share – diluted $ 1.52 $ 2.87 $ 0.32 yearyears ended December 31, 2011,2015, 2014 and 2013, there were inconsequential common stock equivalents excluded from the total weighted average awards to purchase or receive 33diluted common shares of common stock was not included inbased on the computation of diluted earnings per share, because thesefact that their inclusion would have had an anti-dilutive effect on earnings per share. Given that Kforce had a loss from continuing operations for the year ended December 31, 2012, the calculation of diluted loss per share from continuing operations, earnings from discontinued operations, and net loss is computed using basic weighted average common shares outstanding. For the year ended December 31, 2013, there were no shares of common stock excluded from the computation of diluted earnings per share.various employee share-based award plans.the 2009 ESPP. Treasury shares are accounted for under the cost method and reported as a reduction of stockholders’ equity in the accompanying consolidated financial statements.to: (i)to the supplemental executive retirement plan and supplemental executive retirement health plan, both ofSERP which covercovers a limited number of executives and (ii) a defined benefit plan covering all eligible employees in our Philippine operations. Because each of these plans is unfunded as of December 31, 2013,2015, the actuarial gains and losses arise as a result of the actuarial experience of the plans, as well as changes in actuarial assumptions in measuring the associated obligation as of year-end, or an interim date if any re-measurement is necessary. This information is provided in our consolidated statementsConsolidated Statements of operationsOperations and comprehensive income (loss).andon the record date. Such additional shares have the same vesting terms and conditions as the outstanding and unvested restricted stock. The following summarizes the cash dividends declared for the three years ended December 31: YEARS ENDED DECEMBER 31, 2013 2012 2011 $ 0.10 $ 1.00 — YEARS ENDED DECEMBER 31, 2015 2014 2013 Cash dividends declared per share $ 0.45 $ 0.41 $ 0.10 an amounta similar to its December 2013 dividend of $0.10 per share.amount. However, the declaration, payment and paymentamount of future dividends are discretionary and will be subject to determination by Kforce’s Board of Directors each quarter following its review of, among other things, the Firm’s financial performance.July 2013,February 2016, the FASB issued authoritative guidance regarding presentationthe accounting for leases. The guidance is to be applied for annual periods beginning after December 15, 2018 and interim periods within those annual periods, and early adoption is permitted. The guidance requires companies to apply the requirements retrospectively to all prior periods presented, including interim periods. Kforce elected not to adopt this standard early. Kforce is currently evaluating the potential impact on the consolidated financial statements.an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists.financial position. This guidance is to be applied for annual reporting periods beginning on or after December 15, 20132016, and interim periods within those annual periods.periods, and early adoption is permitted. Kforce is still determining if it will early adopt this standard. Kforce anticipates a change to the presentation of the deferred tax liabilities and assets on the consolidated balance sheets upon adoption.expect the adoption of this guidance to haveanticipate a material impact on its futureto the consolidated financial statements.On March 17, 2012,entered intosold to RCM Acquisition, Inc. (the “Purchaser”), under a Stock Purchase Agreement (the “SPA”) to selldated August 4, 2014, all of the issued and outstanding stock of KHI, a wholly-owned subsidiary of Kforce Clinical Research, Inc. (“KCR”) to inVentiv Health, Inc. (“Purchaser”). On March 31, 2012 (“Closing Date”),and operator of the Firm closed the sale of KCR to the Purchaserformer HIM reporting segment, for a total cash purchase price of $57,335, after giving effect to$119.0 million plus a $7,335 post-closing working capital adjustment. the closing of the sale, Kforce entered into a Transition Services Agreement (“TSA”(the “TSA”) with the Purchaser to provide certain post-closing transitional services for a period not to exceed 18 months from the Closing Date.12 months. Services provided by Kforce under the TSA ceased during the three months ended JuneSeptember 30, 2013.The2015. The fees for a significant majority of thesethe services under the TSA were generally equivalent to Kforce’sKforce's cost.$375$1.19 million, although this deductible diddoes not apply to certain specified losses. Kforce’s obligations under the indemnification provisions of the SPA, with the exception of certain items, ceased 1812 months from the Closing Dateclosing date and were limited to an aggregate of $5,000$8.925 million, although this cap didthese time and monetary caps do not apply to certain specified losses. While it cannot be certain, Kforce believes any material exposure under the indemnification provisions is remote, particularly given that the 1812 month time period for general indemnification claims has now passed and, as a result, Kforce has not recorded a liability as of December 31, 2013.KCRHIM have been presented as discontinued operations in the accompanying consolidated statementsConsolidated Statements of operationsOperations and comprehensive income (loss).Comprehensive Income. The following summarizes the results from discontinued operationsrevenues and pretax profits of HIM for the two years ended December 31: YEARS ENDED DECEMBER 31, 2012 2011 $ 29,808 $ 106,172 26,491 92,775 3,317 13,397 36,418 — 39,735 13,397 17,726 5,297 $ 22,009 $ 8,100 Additionally, in connection with31 (in thousands): YEARS ENDED DECEMBER 31, 2014 2013 Net service revenues $ 56,670 $ 78,159 Income from discontinued operations, before income taxes $ 103,512 $ 9,169 servicing of the TSA, approximately $2,658 was due to the Purchaser from Kforce as ofyear ended December 31, 2012 and is classified within accounts payable and other accrued liabilities in2014, the consolidated balance sheet. This was paid during 2013.Accelerationincome from discontinued operations included a gain, net of Equity AwardsIn connection withtransaction costs, on the dispositionsale of KCR as described above, the Board exercised its discretion, as permitted within the Kforce Inc. 2006 Stock Incentive Plan,HIM of $94.3 million pretax, or $56.1 million after tax. The transaction costs primarily included legal fees, stock-based compensation related to accelerate the vesting, for tax planning purposes, of substantially all of the outstanding and unvested restricted stock and alternative long-term incentive awards (“ALTI”) effective March 31, 2012. Kforce recognized a tax benefit from the acceleration of restricted stock, commissions and transaction bonuses in the vestingform of cash and common stock, which, in the aggregate, totaled $11.0 million. Stock-based compensation related to acceleration of restricted stock and ALTI. The acceleration resultedtransaction bonuses paid in stock in lieu of cash was $2.4 million. Kforce utilized the recognitionproceeds from the sale of previously unrecognized compensationHIM initially to pay down the outstanding borrowings under our Credit Facility and ultimately to repurchase shares of common stock.duringas a percentage of income from discontinued operations, before income taxes, for the quarteryear ended MarchDecember 31, 2012 of $31,297, which included $784 of payroll taxes. This expense2014 and 2013 was classified in selling, general40.6% and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss).follows: DECEMBER 31, USEFUL LIFE 2013 2012 $ 5,892 $ 5,892 5-40 years 25,191 25,121 5-7 years 9,701 8,232 3-5 years 8,966 7,269 3-5 years 6,894 4,720 3-5 years 4,306 5,902 60,950 57,136 (24,222 ) (22,253 ) $ 36,728 $ 34,883 DECEMBER 31, USEFUL LIFE 2015 2014 Land $ 5,892 $ 5,892 Building and improvements 5-40 years 25,516 25,304 Furniture and equipment 5-10 years 11,802 10,881 Computer equipment 3-5 years 11,393 10,380 Leasehold improvements 3-5 years 11,632 8,347 66,235 60,804 Less accumulated depreciation and amortization (28,759 ) (25,474 ) $ 37,476 $ 35,330 2012was $6.7 million, $6.3 million and 2011 was $5,863, $5,368 and $5,826,$5.9 million, respectively.following: YEARS ENDED DECEMBER 31, 2013 2012 2011 $ 7,119 $ (1,238 ) $ 8,784 1,026 (1,097 ) 1,244 1,166 (17,519 ) 830 $ 9,311 $ (19,854 ) $ 10,858 YEARS ENDED DECEMBER 31, 2015 2014 2013 Current: Federal $ 22,265 $ 15,782 $ 4,140 State 4,632 2,527 449 Deferred 1,951 250 1,046 $ 28,848 $ 18,559 $ 5,635 YEARS ENDED DECEMBER 31, 2013 2012 2011 35.0 % 35.0 % 35.0 % 4.2 4.7 3.3 2.4 (4.1 ) — 2.9 (0.7 ) 1.0 1.8 0.8 (3.0 ) 46.3 % 35.7 % 36.3 % YEARS ENDED DECEMBER 31, 2015 2014 2013 Federal income tax rate 35.0 % 35.0 % 35.0 % State income taxes, net of Federal tax effect 6.1 3.2 4.1 Non-deductible goodwill impairment — — 4.3 Non-deductible compensation — 1.1 — Non-deductible meals and entertainment 0.7 1.1 5.2 Other (1.5 ) (1.7 ) 3.0 Effective tax rate 40.3 % 38.7 % 51.6 % following: DECEMBER 31, 2013 2012 $ 779 $ 859 2,902 3,795 1,111 917 19 4,191 75 71 4,886 9,833 (224 ) (339 ) 4,662 9,494 579 258 6,896 6,622 773 356 4,916 5,563 11,750 10,142 106 54 1,531 2,140 26,551 25,135 (2,693 ) (2,659 ) (503 ) (868 ) (3,196 ) (3,527 ) (85 ) (85 ) 23,270 21,523 $ 27,932 $ 31,017 DECEMBER 31, 2015 2014 Deferred taxes, current: Assets: Accounts receivable reserves $ 982 $ 804 Accrued liabilities 2,753 3,123 Deferred compensation obligation 895 1,426 Other 74 75 Deferred tax assets, current 4,704 5,428 Liabilities: Prepaid expenses (186 ) (448 ) Deferred tax asset, net – current 4,518 4,980 Deferred taxes, non-current: Assets: Accrued liabilities 613 649 Deferred compensation obligation 6,956 6,324 Stock-based compensation 1,817 1,185 Pension and post-retirement benefit plans 5,303 5,125 Goodwill and intangible assets 7,543 10,407 Deferred revenue 27 28 Other 293 995 Deferred tax assets, non-current 22,552 24,713 Liabilities: Fixed assets (1,198 ) (1,651 ) Other (331 ) (122 ) Deferred tax liabilities, non-current (1,529 ) (1,773 ) Valuation allowance (85 ) (85 ) Deferred tax asset, net – non-current 20,938 22,855 Net deferred tax asset $ 25,456 $ 27,835 2013,2015, Kforce had approximately $20,907$4.7 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 2032.U.S. Internal Revenue Service (“IRS”)IRS audits, as well as state and other local income tax audits for various tax years. During 2013,2015, there were no ongoing IRS examinations. During 2014, the IRS finished an examination of Kforce’s U.S. income tax return for 20092010 and 2011 with no material adjustments, and no settlements. During 2013, the IRS commenced a Limited Issue Focused Exam of Kforce’s 2010 and 2011 U.S. income tax returns. No material liabilities are expected to result from this ongoing examination.adjustments. Although Kforce has not experienced any material liabilities in the past due to income tax audits, Kforce can make no assurances that this will continue.2013, 20122015, 2014 and 20112013 is as follows: December 31, 2013 2012 2011 $ 133 $ 72 $ 191 269 36 10 25 25 38 (24 ) — (82 ) — — (85 ) $ 403 $ 133 $ 72 DECEMBER 31, 2015 2014 2013 Beginning balance $ 278 $ 403 $ 133 Additions for tax positions of prior years 625 90 269 Additions for tax positions of current year — — 25 Reductions for tax positions of prior years – lapse of applicable statutes (33 ) (35 ) (24 ) Settlements (82 ) (180 ) — Ending balance $ 788 $ 278 $ 403 2013,2015, if recognized, would not significantly impact the effective tax rate. Kforce does not expect any significant changes to its uncertain tax positions in the next 12 months.2009. DECEMBER 31, 2013 2012 $ 24,910 $ 20,801 5,472 6,729 288 345 321 163 $ 30,991 $ 28,038 DECEMBER 31, 2015 2014 Assets held in Rabbi Trust $ 25,489 $ 25,715 Capitalized software, net of amortization 2,049 3,678 Deferred loan costs, net of amortization 487 608 Other non-current assets 646 348 $ 28,671 $ 30,349 2013,2015 and 2014, the assets held in Rabbi Trust were $24,910,$25.5 million and $25.7 million, respectively, which was comprised of $24,041primarily related to the cash surrender value of life insurance policies and $869 of money market funds. As of December 31, 2012, the assets held in Rabbi Trust were $20,801, which was comprised of $16,677 related to the cash surrender value of life insurance policies and $4,124 of bond mutual funds.policies. The cash surrender value of Company-owned life insurance policies relates to policies maintained by Kforce on certain participants in its deferred compensation plan, which in conjunction with the money market funds, could be used to fund the related obligations (Note 12).$2,244$0.7 million and $2,429$1.2 million during the years ended December 31, 20132015 and 2012,2014, respectively. Accumulated amortization of capitalized software was $34,816$37.7 million and $31,861$37.6 million as of December 31, 20132015 and 2012,2014, respectively. Amortization expense of capitalized software during the years ended December 31, 2015, 2014 and 2013 2012was $2.3 million, $2.9 million and 2011 was $3,236, $4,587 and $5,716,$3.2 million, respectively.2013:2015 and 2014 (in thousands): Technology Finance and
Accounting Clinical
Research Health
Information
Management Government
Solutions Total $ 17,034 $ 8,006 $ 5,474 $ 4,923 $ 102,641 $ 138,078 — — 36 (36 ) — — — — (5,510 ) — — (5,510 ) — — — — (69,158 ) (69,158 ) $ 17,034 $ 8,006 $ — $ 4,887 $ 33,483 $ 63,410 — — — — (14,510 ) (14,510 ) $ 17,034 $ 8,006 $ — $ 4,887 $ 18,973 $ 48,900 Technology Finance and
Accounting Health
Information
Management Government
Solutions Total Balance as of December 31, 2013 $ 17,034 $ 8,006 $ 4,887 $ 18,973 $ 48,900 Additions (a) — — — 1,955 1,955 Disposition of HIM (b) — — (4,887 ) — (4,887 ) Balance as of December 31, 2014 $ 17,034 $ 8,006 $ — $ 20,928 $ 45,968 Balance as of December 31, 2015 $ 17,034 $ 8,006 $ — $ 20,928 $ 45,968 (a) The increase is due to a non-significant acquisition of a business within our GS reporting unit in the fourth quarter of 2014. (b) The decrease is due to the disposition of our HIM reporting segment. See Note 2 – “Discontinued Operations” for additional discussion.
As of March 31, June 30, and September 30, 2013, as part of our customary quarterly procedures, we considered the qualitative and quantitative factors associated with each of our reporting units and determined that there was not an indication that the carrying values of any of our reporting units were likely impaired. During the fourth quarter of 2013, Kforce management made a strategic business decision with regard to the GS segment to focus its service offerings and efforts on prime integrated business solution services. As a result of this change in focus, management plans to reallocate existing investments in the business and redirect the business development team to concentrate on a more specific and, in our opinion, a higher quality revenue stream. These plans will ultimately result in the transition away from certain existing revenue streams, specific revenue-generating contracts and opportunities in the business development life cycle that do not fit within the revised strategic scope of service offerings, including pure staff augmentation as well as product sales. The change in strategy, coupled with the lengthy contract procurement cycle within the government sector of approximately 18 months for solution-based services, changed our expectations for the forecast, and is now is expected to have a negative impact on near-term growth prospects of the GS segment. We believe that these circumstances indicated a possible impairment trigger during the fourth quarter, which was assessed in conjunction with the annual impairment test.
During the annual impairment test performed as of December 31, 2013 for our Tech, FA and HIM 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, including goodwill. Based upon the qualitative assessments for our Tech and FAthese reporting units it was determined that it was not more likely than not that the fair value of the reporting units were less than thetheir carrying values. For our HIM reporting unit, a quantitative, or step one, analysis was deemed appropriate as a result of the deterioration in the operating results as compared to previous forecasts.
amounts.
As previously mentioned, the market approaches consist ofof: (1) the (i) guideline company method and (ii)(2) the guideline transaction method. The guideline company method applies pricing multiples derived from publicly-traded guideline companies that are comparable to the respective reporting unit to determine its value. To calculate fair values under the guideline company method, Kforce utilized enterprise value/revenue multiples ranging from 0.4x to 0.5x and 0.3x to 0.6x and enterprise value/EBITDA multiples ranging from 4.4x to 6.9x and 5.4x to 13.5x for GS and HIM, respectively. Additionally, the fair value under the guideline company method included a control premium ranging of 40% and 10% for GS and HIM respectively, which was determined based on a review of comparative market transactions.
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. To calculateOur assessment indicated that the fair values undervalue of the guideline transaction method, Kforce utilized enterprise value/revenue multiples ranging from 0.6x to 2.0x and 0.2x to 0.8x and enterprise value/EBITDA multiples ranging from 5.8x and 18.7x and from 4.7x to 19.7x, respectivelyGS reporting unit exceeded its carrying value.
units was more than its carrying amount. During the fourth quarter of 2013, Kforce management made a strategic business decision with regard to the GS segment to focus its service offerings and efforts on prime integrated business solutions. Upon completion of the first step of the goodwill impairment analysis as of December 31, 2013 for our HIMGS reporting unit, it was determined the fair value exceeded its carrying value by 156%. For the GS reporting unit, the resultsthat there was an indication of the first step of the goodwill impairment analysis as of December 31, 2013 indicated that the fair value was 73% of its carrying value; therefore, impairment was indicated.impairment. Because indicators of impairment existed, we commencedperformed the second step of the goodwill impairment analysis to determine the implied fair value of goodwill for the reporting unit, which was determined in the same manner utilized to estimate the amount of goodwill recognized in a business combination. As part of the second step of the impairment analysis performed as of December 31, 2013, we calculated the fair value of certain assets, including trade names and customer relationships. The implied fair value of goodwill was measured as the excess of the fair value of the GS reporting unit over the amounts assigned to its assets and liabilities.analysis. The goodwill impairment loss for the reporting unit was measured by the amount the carrying value of goodwill exceeded the implied fair value of the goodwill. Based on this assessment, we recorded an impairment charge of $14,510$14.5 million which is presented separately in the consolidated statementsConsolidated Statements of operationsOperations and comprehensive income (loss).Comprehensive Income. A tax benefit in the amount of $5,160$5.2 million was recorded related to the goodwill impairment charge.
During the three months ended June 30, 2012, due to certain adverse effects of events and indications during that time period, Kforce believed that a triggering event occurred within our GS reporting unit during the quarter. As a result, Kforce performed an interim goodwill impairment analysis for its GS reporting unit as of June 30, 2012, which resulted in an indication of impairment and Kforce recording an estimated impairment charge. Due to the complexity of the second step of the impairment analysis, Kforce completed the analysis during the fourth quarter of 2012. Based on this assessment, we recorded an impairment charge of $69,158 which included a related tax benefit of $24,670 during the year ended December 31, 2012. This impairment charge included an incremental adjustment of $3,858 with a related tax benefit of $1,405 resulting from the completion of the second step analysis during the fourth quarter of 2012.
The following table contains a disclosure of the gross amount and accumulated impairment losses of goodwill for Tech, FA and GS reporting units for the twothree years ended December 31, 2013:
Goodwill Carrying Value by Reporting Unit as of: | ||||||||||||
December 31, 2013 | December 31, 2012 | January 1, 2012 | ||||||||||
Technology | ||||||||||||
Gross amount | $ | 156,391 | $ | 156,391 | $ | 156,391 | ||||||
Accumulated impairment losses | $ | (139,357 | ) | $ | (139,357 | ) | $ | (139,357 | ) | |||
|
|
|
|
|
| |||||||
Carrying value | $ | 17,034 | $ | 17,034 | $ | 17,034 | ||||||
|
|
|
|
|
| |||||||
Finance and Accounting | ||||||||||||
Gross amount | $ | 19,766 | $ | 19,766 | $ | 19,766 | ||||||
Accumulated impairment losses | $ | (11,760 | ) | $ | (11,760 | ) | $ | (11,760 | ) | |||
|
|
|
|
|
| |||||||
Carrying value | $ | 8,006 | $ | 8,006 | $ | 8,006 | ||||||
|
|
|
|
|
| |||||||
Government Solutions | ||||||||||||
Gross amount | $ | 102,641 | $ | 102,641 | $ | 102,641 | ||||||
Accumulated impairment losses | $ | (83,668 | ) | $ | (69,158 | ) | $ | — | ||||
|
|
|
|
|
| |||||||
Carrying value | $ | 18,973 | $ | 33,483 | $ | 102,641 | ||||||
|
|
|
|
|
|
There has been no impairment charges recognized for the HIM reporting unit. As a result, the carrying value of goodwill for each of the two years ended December 31, 2013 and 2012 represents the gross amount of goodwill attributable to the reporting unit.
2015 (in thousands):
Goodwill Carrying Value by Reporting Unit as of: | |||||||||||
December 31, 2015 | December 31, 2014 | December 31, 2013 | |||||||||
Technology | |||||||||||
Gross amount | $ | 156,391 | $ | 156,391 | $ | 156,391 | |||||
Accumulated impairment losses | (139,357 | ) | (139,357 | ) | (139,357 | ) | |||||
Carrying value | $ | 17,034 | $ | 17,034 | $ | 17,034 | |||||
Finance and Accounting | |||||||||||
Gross amount | $ | 19,766 | $ | 19,766 | $ | 19,766 | |||||
Accumulated impairment losses | (11,760 | ) | (11,760 | ) | (11,760 | ) | |||||
Carrying value | $ | 8,006 | $ | 8,006 | $ | 8,006 | |||||
Government Solutions | |||||||||||
Gross amount | $ | 104,596 | $ | 104,596 | $ | 102,641 | |||||
Accumulated impairment losses | (83,668 | ) | (83,668 | ) | (83,668 | ) | |||||
Carrying value | $ | 20,928 | $ | 20,928 | $ | 18,973 |
December 31, 2013 | December 31, 2012 | |||||||
Definite-lived intangible assets | ||||||||
Customer relationships, customer contracts, and other | ||||||||
Gross amount | $ | 27,940 | $ | 27,936 | ||||
Accumulated amortization | $ | (25,187 | ) | $ | (24,440 | ) | ||
|
|
|
| |||||
Carrying value | $ | 2,753 | $ | 3,496 | ||||
|
|
|
| |||||
Indefinite-lived intangible assets | ||||||||
Trade name and trademark | ||||||||
Gross amount | $ | 2,240 | $ | 2,240 | ||||
Accumulated impairment losses | $ | — | $ | — | ||||
|
|
|
| |||||
Carrying value | $ | 2,240 | $ | 2,240 | ||||
|
|
|
|
follows (in thousands):
December 31, 2015 | December 31, 2014 | ||||||
Definite-lived intangible assets | |||||||
Customer relationships, customer contracts, technology and other | |||||||
Gross amount | $ | 28,603 | $ | 28,603 | |||
Accumulated amortization | (26,608 | ) | (25,832 | ) | |||
Carrying value | $ | 1,995 | $ | 2,771 | |||
Indefinite-lived intangible assets | |||||||
Trade name and trademark carrying value | $ | 2,240 | $ | 2,240 |
2013.
DECEMBER 31, | ||||||||
2013 | 2012 | |||||||
Accounts payable | $ | 19,445 | $ | 22,653 | ||||
Accrued liabilities | 12,376 | 13,552 | ||||||
|
|
|
| |||||
$ | 31,821 | $ | 36,205 | |||||
|
|
|
|
Kforce utilizes a major procurement card provider to pay certain of its corporate trade payables. The balance owed to this provider for these transactions as of December 31, 2013 and 2012 was $695 and $875, respectively, and has been included in accounts payable and other accrued liabilities in the accompanying consolidated balance sheets. The cash flows associated with these transactions have been presented as a financing activity in the accompanying consolidated statement of cash flows.
following (in thousands):
DECEMBER 31, | |||||||
2015 | 2014 | ||||||
Accounts payable | $ | 23,513 | $ | 21,863 | |||
Accrued liabilities | 15,714 | 16,241 | |||||
$ | 39,227 | $ | 38,104 |
DECEMBER 31, | ||||||||
2013 | 2012 | |||||||
Payroll and benefits | $ | 43,059 | $ | 36,172 | ||||
Payroll taxes | 9,111 | 9,246 | ||||||
Health insurance liabilities | 2,993 | 3,114 | ||||||
Workers’ compensation liabilities | 1,709 | 1,531 | ||||||
|
|
|
| |||||
$ | 56,872 | $ | 50,063 | |||||
|
|
|
|
following (in thousands):
DECEMBER 31, | |||||||
2015 | 2014 | ||||||
Payroll and benefits | $ | 39,043 | $ | 43,797 | |||
Payroll taxes | 2,832 | 3,062 | |||||
Health insurance liabilities | 2,968 | 3,417 | |||||
Workers’ compensation liabilities | 1,282 | 1,932 | |||||
$ | 46,125 | $ | 52,208 |
Other current liabilities consisted of the following:
DECEMBER 31, | ||||||||
2013 | 2012 | |||||||
Supplemental executive retirement plan (Note 12) | $ | — | $ | 10,682 | ||||
Other | 1,141 | 882 | ||||||
|
|
|
| |||||
$ | 1,141 | $ | 11,564 | |||||
|
|
|
|
10. Credit Facility
Borrowing availability
December 23, 2019.
11. As of February 23, 2016, $88.4 million was outstanding and $43.5 million was available under the Credit Facility.
DECEMBER 31, | ||||||||
2013 | 2012 | |||||||
Deferred compensation plan (Note 12) | $ | 22,247 | $ | 19,115 | ||||
Supplemental executive retirement plan (Note 12) | 7,852 | 8,976 | ||||||
Supplemental executive retirement health plan (Note 12) | 2,627 | 3,554 | ||||||
Other | 3,830 | 2,640 | ||||||
|
|
|
| |||||
$ | 36,556 | $ | 34,285 | |||||
|
|
|
|
12.following (in thousands):
DECEMBER 31, | |||||||
2015 | 2014 | ||||||
Deferred compensation plan (Note 11) | $ | 24,238 | $ | 22,425 | |||
Supplemental executive retirement plan (Note 11) | 11,337 | 10,197 | |||||
Other | 5,051 | 3,834 | |||||
$ | 40,626 | $ | 36,456 |
Alternative Long-Term Incentive
On January 3, 2012, Kforce granted to certain executive officers an ALTI as the result of certain performance criteria established in 2011 being met, which was to be initially measured over three tranches having periods of 12, 24, and 36 months, respectively. The terms of the grants specified that the ultimate annual payouts would be based on: (a) Kforce’s common stock price changes each year relative to its peer group or (b) the achievement of other market conditions contained in the terms of the award.
As discussed within Note 2 – “Discontinued Operations,” the Board approved the acceleration of all outstanding and unvested long-term incentives, including the ALTI, effective March 31, 2012. The accelerated ALTI of $9,805 was paid in April 2012. Kforce recognized total compensation expense related to ALTI $9,805 during the year ended December 31, 2012. No compensation expense related to ALTIs was recorded during the years ended December 31, 2013 or 2011.
compensation expense from continuing operations of $566 thousand was recognized for the plans for the year ended December 31, 2013.
Comprehensive Income.
Consolidated Balance Sheets. The decrease in the projected benefit obligation is the result of changes in the actuarial assumptions and a reduction in the number of plan participants. There is no requirement for Kforce to fund the Foreign Pension Plan and, as a result, no contributions were made to the Foreign Pension Plan during the year ended December 31, 2015. Kforce does not currently anticipate funding the Foreign Pension Plan during the year ending December 31, 2016.
DECEMBER 31, | ||||||||
2013 | 2012 | |||||||
Discount rate | 3.75 | % | 2.50 | % | ||||
Expected long-term rate of return on plan assets | — | — | ||||||
Rate of future compensation increase | 4.00 | % | 3.75 | % |
DECEMBER 31, | |||||
2015 | 2014 | ||||
Discount rate | 4.00 | % | 3.75 | % | |
Rate of future compensation increase | 4.00 | % | 4.00 | % |
DECEMBER 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Discount rate | 2.50 | % | 3.25 | % | 4.00 | % | ||||||
Expected long-term rate of return on plan assets | — | — | — | |||||||||
Rate of future compensation increase | 4.00 | % | 4.00 | % | 4.00 | % |
DECEMBER 31, | ||||||||
2015 | 2014 | 2013 | ||||||
Discount rate | 3.75 | % | 3.75 | % | 2.50 | % | ||
Rate of future compensation increase | 4.00 | % | 4.00 | % | 4.00 | % |
Due to the SERP being unfunded as of December 31, 2013 and 2012, it is not necessary for Kforce to determine the expected long-term rate of return on plan assets. Once funded, Kforce will determine the expected long-term rate of return on plan assets by determining the composition of the asset portfolio, the historical long-term investment performance and the current market conditions.
DECEMBER 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Service cost | $ | 2,018 | $ | 2,087 | $ | 3,248 | ||||||
Interest cost | 471 | 560 | 482 | |||||||||
Amortization of actuarial loss | 97 | 164 | 76 | |||||||||
Settlement loss | 24 | — | — | |||||||||
|
|
|
|
|
| |||||||
Net periodic benefit cost | $ | 2,610 | $ | 2,811 | $ | 3,806 | ||||||
|
|
|
|
|
|
ended (in thousands):
DECEMBER 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Service cost | $ | 1,323 | $ | 1,164 | $ | 2,018 | |||||
Interest cost | 383 | 294 | 471 | ||||||||
Amortization of actuarial loss | — | — | 97 | ||||||||
Settlement loss | — | — | 24 | ||||||||
Net periodic benefit cost | $ | 1,706 | $ | 1,458 | $ | 2,610 |
DECEMBER 31, | ||||||||
2013 | 2012 | |||||||
Projected benefit obligation, beginning | $ | 19,658 | $ | 17,230 | ||||
Service cost | 2,018 | 2,087 | ||||||
Interest cost | 471 | 560 | ||||||
Actuarial experience and changes in actuarial assumptions | (1,475 | ) | (219 | ) | ||||
Curtailment | (2,138 | ) | — | |||||
Benefits Paid | (10,682 | ) | — | |||||
|
|
|
| |||||
Projected benefit obligation, ending | $ | 7,852 | $ | 19,658 | ||||
|
|
|
|
Duringended (in thousands):
DECEMBER 31, | |||||||
2015 | 2014 | ||||||
Projected benefit obligation, beginning | $ | 10,197 | $ | 7,852 | |||
Service cost | 1,323 | 1,164 | |||||
Interest cost | 383 | 294 | |||||
Actuarial experience and changes in actuarial assumptions | (566 | ) | 887 | ||||
Projected benefit obligation, ending | $ | 11,337 | $ | 10,197 |
$9.5 million, respectively.
2016.
Benefit
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
|
follows (in thousands):
PROJECTED ANNUAL BENEFIT PAYMENTS | |||
2016 | $ | — | |
2017 | — | ||
2018 | — | ||
2019 | 10,297 | ||
2020 | — | ||
2021-2025 | — | ||
Thereafter | 3,987 |
Actuarial Assumptions
The following represents
DECEMBER 31, | ||||||||
2013 | 2012 | |||||||
Discount rate | 5.00 | % | 3.75 | % | ||||
Expected long-term rate of return on plan assets | — | — |
The following represents the actuarial assumptions used to determine the net periodic postretirement benefit cost for the years ended:
DECEMBER 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Discount rate | 3.75 | % | 4.00 | % | 5.25 | % | ||||||
Expected long-term rate of return on plan assets | — | — | — |
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 compared against the Citigroup Pension Discount Curve and Liability Index to ensure the rate used is reasonable.
Due to the SERHP being unfunded as ofyear ended December 31, 20132014, Kforce terminated the Company's SERHP and 2012, it is not necessary for Kforce to determine the expected long-term rate of return on plan assets. Once funded, Kforce will determine the expected long-term rate of return on plan assets by determining the composition of the asset portfolio, the historical long-term investment performance and current market conditions.
The following represents the assumed health care cost trend rates used to determine the postretirementsettled all future benefit obligations for the years ended:
DECEMBER 31, | ||||||||
2013 | 2012 | |||||||
Health care cost trend rate assumed for next year | 7.5 | % | 7.50 | % | ||||
Rate to which the cost trend rate is assumed to decline to (ultimate trend rate) | 5.00 | % | 5.00 | % | ||||
Year that the rate reaches the ultimate trend rate | 2018 | 2017 |
Assumed health care cost trend rates can haveby making lump sum payments totaling approximately $3.9 million, which resulted in a significant effect on the amounts reported for the SERHP. A one percent changenet settlement loss of $0.7 million recorded in assumed health care cost trend rates would have the following effects:
One Percentage Point | ||||||||
Increase | Decrease | |||||||
Effect of total of service and interest cost | $ | 73 | $ | (59 | ) | |||
Effect on postretirement benefit obligation | $ | 459 | $ | (374 | ) |
Net Periodic Postretirement Benefit Cost
The following represents the components of net periodic postretirement benefit cost for the years ended:
DECEMBER 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Service cost | $ | 649 | $ | 919 | $ | 324 | ||||||
Interest cost | 134 | 150 | 47 | |||||||||
Amortization of actuarial loss | 86 | 272 | 6 | |||||||||
Curtailment gain | (359 | ) | — | — | ||||||||
|
|
|
|
|
| |||||||
Net periodic benefit (gain) cost | $ | 510 | $ | 1,341 | $ | 377 | ||||||
|
|
|
|
|
|
Changes in Postretirement Benefit Obligation
The following represents the changesSelling, general and administrative expenses in the postretirementcorresponding Consolidated Statements of Operations and Comprehensive Income. The termination effectively removed Kforce's related post-retirement benefit obligation for the years ended:
DECEMBER 31, | ||||||||
2013 | 2012 | |||||||
Accumulated postretirement benefit obligation, beginning | $ | 3,574 | $ | 3,764 | ||||
Service cost | 649 | 919 | ||||||
Interest cost | 134 | 150 | ||||||
Actuarial experience and changes in actuarial assumptions | (834 | ) | (1,259 | ) | ||||
Curtailment | (785 | ) | — | |||||
Benefits Paid | (64 | ) | — | |||||
|
|
|
| |||||
Accumulated postretirement benefit obligation, ending | $ | 2,674 | $ | 3,574 | ||||
|
|
|
|
obligation.
Estimated Future Benefit Payments
Benefit payments by the SERHP, which reflect anticipated future service of the participants, are expected to be paid (undiscounted) as follows:
PROJECTED ANNUAL BENEFIT PAYMENTS | ||||
2014 | $ | 48 | ||
2015 | 52 | |||
2016 | 57 | |||
2017 | 70 | |||
2018 | 76 | |||
2019-2023 | 743 | |||
Thereafter | 7,491 |
Pretax amounts recognized in accumulated other comprehensive income (loss) as of December 31, 2013 that have not yet been recognized as components of net periodic post-retirement benefit cost for all of Kforce’s defined benefit pension and postretirement plans, including the foreign defined benefit plan, consist entirely of actuarial gains and losses arising fromyears ended (in thousands):
DECEMBER 31, | |||||||
2014 | 2013 | ||||||
Service cost | $ | 174 | $ | 649 | |||
Interest cost | 78 | 134 | |||||
Amortization of actuarial loss | — | 86 | |||||
Settlement/curtailment loss/(gain) | 725 | (359 | ) | ||||
Net periodic benefit cost | $ | 977 | $ | 510 |
Pensions | Postretirement | |||||||
Net pretax actuarial gain | $ | 304 | $ | 234 | ||||
|
|
|
|
The estimated portion of the net actuarial loss above that is expected to be recognized as a component of net periodicpost-retirement benefit cost inobligation for the year ending December 31, 2014 is shown below:
Pensions | Postretirement | |||||||
Recognized net actuarial loss (gain) | $ | 11 | $ | — | ||||
|
|
|
|
13.ended (in thousands):
DECEMBER 31, | |||
2014 | |||
Accumulated post-retirement benefit obligation, beginning | $ | 2,674 | |
Service cost | 174 | ||
Interest cost | 78 | ||
Actuarial experience and changes in actuarial assumptions | 234 | ||
Settlement/curtailment loss/(gain) | 725 | ||
Benefits Paid | (3,885 | ) | |
Accumulated post-retirement benefit obligation, ending | $ | — |
Refer to Note 11 – “Employee Benefit Plans” and Note 5 – “Other Assets” for additional discussion.
Assets/(Liabilities) Measured at Fair Value: | Asset/(Liability) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
As of December 31, 2013: | ||||||||||||||||
Recurring basis: | ||||||||||||||||
Money market funds (1) | $ | 869 | $ | 869 | $ | — | $ | — | ||||||||
Credit Facility (2) | $ | (62,642 | ) | $ | — | $ | (62,642 | ) | $ | — | ||||||
Non-recurring basis: | ||||||||||||||||
Goodwill (3) | $ | 48,900 | $ | — | $ | — | $ | 48,900 | ||||||||
As of December 31, 2012: | ||||||||||||||||
Recurring basis: | ||||||||||||||||
Bond mutual funds (1) | $ | 4,124 | $ | 4,124 | $ | — | $ | — | ||||||||
Credit Facility (2) | $ | (21,000 | ) | $ | — | $ | (21,000 | ) | $ | — | ||||||
Non-recurring basis: | ||||||||||||||||
Goodwill (3) | $ | 63,410 | $ | — | $ | — | $ | 63,410 |
14.follows (in thousands):
Assets/(Liabilities) Measured at Fair Value: | Asset/(Liability) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
As of December 31, 2015 | |||||||||||||||
Money market funds | $ | 36 | $ | 36 | $ | — | $ | — | |||||||
Contingent consideration liability | $ | (798 | ) | $ | — | $ | — | $ | (798 | ) | |||||
As of December 31, 2014 | |||||||||||||||
Contingent consideration liability | $ | (477 | ) | $ | — | $ | — | $ | (477 | ) |
7.9 million.
Incentive Stock Option Plan | Stock Incentive Plan | Total | Weighted Average Exercise Price Per Share | Total Intrinsic Value of Options Exercised | ||||||||||||||||
Outstanding as of December 31, 2010 | 587 | 98 | 685 | $ | 9.47 | |||||||||||||||
Exercised | (349 | ) | — | (349 | ) | $ | 8.20 | $ | 2,931 | |||||||||||
Forfeited/Cancelled | (12 | ) | — | (12 | ) | $ | 10.75 | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Outstanding as of December 31, 2011 | 226 | 98 | 324 | $ | 10.79 | |||||||||||||||
Exercised | (65 | ) | (5 | ) | (70 | ) | $ | 10.48 | $ | 238 | ||||||||||
Forfeited/Cancelled | (7 | ) | — | (7 | ) | $ | 11.00 | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Outstanding as of December 31, 2012 | 154 | 93 | 247 | $ | 10.87 | |||||||||||||||
Exercised | (57 | ) | (10 | ) | (67 | ) | $ | 8.98 | $ | 573 | ||||||||||
Forfeited/Cancelled | — | — | — | $ | — | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Outstanding and Exercisable as of December 31, 2013 | 97 | 83 | 180 | $ | 11.57 | |||||||||||||||
|
|
|
|
|
|
2015, 2014 and 2013 (in thousands, except per share amounts):
Incentive Stock Option Plan | 2006 Stock Incentive Plan | Total | Weighted Average Exercise Price Per Share | Total Intrinsic Value of Options Exercised | ||||||||||||
Exercisable as of December 31, 2012 | 154 | 93 | 247 | $ | 10.87 | |||||||||||
Exercised | (57 | ) | (10 | ) | (67 | ) | $ | 8.98 | $ | 573 | ||||||
Exercisable as of December 31, 2013 | 97 | 83 | 180 | $ | 11.57 | |||||||||||
Exercised | (57 | ) | (48 | ) | (105 | ) | $ | 11.61 | $ | 1,029 | ||||||
Forfeited/Cancelled | (18 | ) | — | (18 | ) | $ | 11.00 | |||||||||
Exercisable as of December 31, 2014 | 22 | 35 | 57 | $ | 11.69 | |||||||||||
Exercised | (22 | ) | (10 | ) | (32 | ) | $ | 11.78 | $ | 359 | ||||||
Exercisable as of December 31, 2015 | — | 25 | 25 | $ | 11.58 |
OUTSTANDING AND EXERCISABLE | ||||||||||||||||
Range of Exercise Prices | Number of Awards (#) | Weighted Average Remaining Contractual Term (Yrs) | Weighted Average Exercise Price ($) | Total Intrinsic Value | ||||||||||||
$0.00 - $8.95 | — | — | $ | — | $ | — | ||||||||||
$8.96 - $14.45 | 181 | 2.17 | $ | 11.57 | 1,605 | |||||||||||
|
|
|
| |||||||||||||
181 | 2.17 | $ | 11.57 | $ | 1,605 | |||||||||||
|
|
|
|
2015 (in thousands, except per share amounts):
OUTSTANDING AND EXERCISABLE | ||||||||||||
Range of Exercise Prices | Number of Awards (#) | Weighted Average Remaining Contractual Term (Yrs) | Weighted Average Exercise Price ($) | Total Intrinsic Value | ||||||||
$9.13 - $14.45 | 25 | 1.57 | $ | 11.58 | $ | 342 |
Although no such requirement exists, SARs have historically been granted (if any) on the first trading day of each year to certain Kforce executives based on the extent by which
There was no SARs activity during the year ended December 31, 2013 or 2012. Therefore, the following table presents only the activity for the year ended December 31, 2011:
Number of SARs | Weighted Average Exercise Price Per SAR | Total Intrinsic Value of SARs Exercised | ||||||||||
Outstanding as of December 31, 2010 | 169 | $ | 10.32 | |||||||||
Exercised | (169 | ) | $ | 10.32 | $ | 1,278 | ||||||
|
| |||||||||||
Outstanding as of December 31, 2011 | — | $ | — | |||||||||
|
|
No compensation expense was recognized during the three years ended December 31, 2013 due to the grant date fair value being fully amortized as of December 31, 2008. As of December 31, 2013, there was no unrecognized compensation cost related to SARs.
Restricted Stock
Restrictedrestricted stock grants made to Kforce’s executives and management are generally based on the extent by which annual long-term incentive performance goals, which are established by Kforce’s Compensation Committee during the first quarter of the year of performance, have been met, as certifieddetermined by the Compensation Committee. Additionally, Kforce, with the approval of the Compensation Committee, grants restricted stock in varying amounts as determined appropriate during the year to retain executives and management. Restricted stock granted by Kforce contains time-based vesting terms ranging from twoduring the year ended December 31, 2015 will vest over a period of between one to ten years, and, for certainwith equal vesting annually.
Number of Restricted Stock | Weighted Average Grant Date Fair Value | Total Intrinsic Value of Restricted Stock Vested | ||||||||||
Outstanding as of December 31, 2010 | 1,898 | $ | 12.34 | |||||||||
Granted (a) | 1,604 | $ | 16.31 | |||||||||
Vested | (168 | ) | $ | 11.41 | $ | 2,592 | ||||||
Forfeited | — | $ | — | |||||||||
|
| |||||||||||
Outstanding as of December 31, 2011 | 3,334 | $ | 14.30 | |||||||||
Granted | 288 | $ | 12.67 | |||||||||
Vested | (3,191 | ) | $ | 14.15 | $ | 47,407 | ||||||
Forfeited (a) | (393 | ) | $ | 16.37 | ||||||||
|
| |||||||||||
Outstanding as of December 31, 2012 | 38 | $ | 12.11 | |||||||||
Granted | 904 | $ | 16.72 | |||||||||
Vested | (109 | ) | $ | 14.15 | $ | 2,092 | ||||||
Forfeited | (22 | ) | $ | 15.43 | ||||||||
|
| |||||||||||
Outstanding as of December 31, 2013 | 811 | $ | 16.89 | |||||||||
|
|
2015 (in thousands, except per share amounts):
Number of Restricted Stock | Weighted Average Grant Date Fair Value | Total Intrinsic Value of Restricted Stock Vested | ||||||||
Outstanding as of December 31, 2012 | 38 | $ | 12.11 | |||||||
Granted | 904 | $ | 16.72 | |||||||
Vested | (109 | ) | $ | 14.15 | $ | 2,092 | ||||
Forfeited | (22 | ) | $ | 15.43 | ||||||
Outstanding as of December 31, 2013 | 811 | $ | 16.89 | |||||||
Granted | 528 | $ | 20.18 | |||||||
Vested | (273 | ) | $ | 17.37 | $ | 5,624 | ||||
Forfeited | (84 | ) | $ | 18.38 | ||||||
Outstanding as of December 31, 2014 | 982 | $ | 18.55 | |||||||
Granted | 556 | $ | 24.01 | |||||||
Vested | (186 | ) | $ | 18.28 | $ | 4,580 | ||||
Forfeited | (59 | ) | $ | 19.37 | ||||||
Outstanding as of December 31, 2015 | 1,293 | $ | 20.89 |
year ended December 31, 2014.
As discussed within Note 2 – “Discontinued Operations,” the Board approved the vesting acceleration of substantially all of the outstanding and unvested long-term incentives, including the restricted stock, effective March 31, 2012. As a result of the acceleration, Kforce accelerated all of the previously unrecognized compensation expense associated with these awards of $22,158 during the three months ended March 31, 2012.
Kforce recognized total compensation expense related to restricted stock of $2,570, $26,243 and $11,976 during the years ended December 31, 2013, 2012 and 2011, respectively.
15.
2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | Total | ||||||||||||||||||||||
Capital leases | ||||||||||||||||||||||||||||
Present value of payments | $ | 1,256 | $ | 1,000 | $ | 313 | $ | 51 | $ | — | $ | — | $ | 2,620 | ||||||||||||||
Interest | 2,283 | 2,212 | 959 | 8 | — | — | 5,462 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Capital lease payments | $ | 3,539 | $ | 3,212 | $ | 1,272 | $ | 59 | $ | — | $ | — | $ | 8,082 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Operating leases | ||||||||||||||||||||||||||||
Facilities | $ | 5,373 | $ | 3,635 | $ | 2,342 | $ | 748 | $ | 424 | $ | 19 | $ | 12,541 | ||||||||||||||
Furniture and equipment | 37 | 18 | 8 | — | — | — | 63 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total operating leases | $ | 5,410 | $ | 3,653 | $ | 2,350 | $ | 748 | $ | 424 | $ | 19 | $ | 12,604 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total leases | $ | 8,949 | $ | 6,865 | $ | 3,622 | $ | 807 | $ | 424 | $ | 19 | $ | 20,686 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
follows (in thousands):
2016 | 2017 | 2018 | 2019 | 2020 | Thereafter | Total | |||||||||||||||||||||
Capital leases | |||||||||||||||||||||||||||
Present value of payments | $ | 837 | $ | 594 | $ | 351 | $ | 67 | $ | — | $ | — | $ | 1,849 | |||||||||||||
Interest | 106 | 36 | 25 | 7 | — | — | 174 | ||||||||||||||||||||
Capital lease payments | $ | 943 | $ | 630 | $ | 376 | $ | 74 | $ | — | $ | — | $ | 2,023 | |||||||||||||
Operating leases | |||||||||||||||||||||||||||
Facilities | $ | 7,886 | $ | 6,031 | $ | 3,691 | $ | 1,914 | $ | 606 | $ | — | $ | 20,128 | |||||||||||||
Furniture and equipment | 84 | — | — | — | — | — | 84 | ||||||||||||||||||||
Total operating leases | $ | 7,970 | $ | 6,031 | $ | 3,691 | $ | 1,914 | $ | 606 | $ | — | $ | 20,212 | |||||||||||||
Total leases | $ | 8,913 | $ | 6,661 | $ | 4,067 | $ | 1,988 | $ | 606 | $ | — | $ | 22,235 |
2020.
$0.5 million.
On June 18, 2013, Kforce, along with other staffing firms, was named as a defendant
On February 19, 2014, the United States District Court for the Middle District of Florida unsealed a qui tam complaint that had been filed by a terminated former employee in June of last year. The complaint was filed against Kforce and Kforce Government Solutions Inc. (“KGS”). It alleges False Claims Act and federal and state whistleblower statute violations and certain accounting irregularities, as well as employment law and defamation claims. The United States government has not intervened in this action at this time. While the qui tam action was first disclosed to Kforce and KGS on February 19, 2014, counsel for the former employee previously informed Kforce and KGS of substantially similar allegations in a postemployment demand letter. After the allegations were raised, the matter was referred to the Audit Committee of Kforce’s Board of Directors for investigation. The Audit Committee retained experienced, independent counsel for an investigation. With the help of forensic accountants, the investigators concluded that the False Claims Act and accounting irregularity allegations raised in the demand letter were unsupported by material, credible evidence. Due to, among other things, this independent investigation, Kforce and KGS believe the allegations in the complaint are factually inaccurate and without merit. Kforce and KGS intend to vigorously defend the litigation. At this stage of the litigation, it is not reasonable to estimate the outcome or a range of loss, should a loss occur. Accordingly, no amounts have been provided for in Kforce’s Consolidated Financial Statements.
In the ordinary course of its business, Kforceour 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 from time to time threatened with litigationprobable or named as a defendant in various lawsuits and administrative proceedings.the amount of loss cannot be reasonably estimated. While management doesthe 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 these other mattersparticular litigation is appropriate, we may be subject to liability that could have a material adverse effect on the Company’sour financial position, results of operations, financial position or cash flows, litigation is subject to certain inherent uncertainties.flows. Kforce maintains liability insurance in such 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, 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.
Tax Audits
IRS audits, as well as state and other local income tax audits for various tax years. During 2013,2015, there were no on-going IRS examinations. During 2014, the IRS finished an examination of Kforce’s USU.S. income tax return for 20092010 and 2011 with no material adjustments, and no settlements. During 2013,adjustments. Although Kforce has not experienced any material liabilities in the IRS commenced a Limited Issue Focused Exam of Kforce’s 2010 and 2011 U.Spast due to income tax returns. No material liabilities and expected to result from this ongoing examination. During 2012,audits, Kforce was audited by state taxing authorities for sales,can make no assurances concerning any future income and gross receipts taxes, which in some cases covered multiple years. In 2012, the tax audits were settled for $1,624 in cash.
audits.
reason.
17.
taxes, in the accompanying Consolidated Statements of Operations and Comprehensive Income.
Technology | Finance and Accounting | Health Information Management | Government Solutions | Total | ||||||||||||||||
2013 | ||||||||||||||||||||
Net service revenues | ||||||||||||||||||||
Flexible billings | $ | 720,179 | $ | 213,158 | $ | 77,745 | $ | 91,949 | $ | 1,103,031 | ||||||||||
Search fees | 19,183 | 29,259 | 414 | — | 48,856 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenue | $ | 739,362 | $ | 242,417 | $ | 78,159 | $ | 91,949 | $ | 1,151,887 | ||||||||||
Gross profit | $ | 219,360 | $ | 93,663 | $ | 25,236 | $ | 31,353 | $ | 369,612 | ||||||||||
2012 | ||||||||||||||||||||
Net service revenues | ||||||||||||||||||||
Flexible billings | $ | 655,062 | $ | 211,797 | $ | 76,517 | $ | 91,424 | $ | 1,034,800 | ||||||||||
Search fees | 20,525 | 26,679 | 475 | — | 47,679 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenue | $ | 675,587 | $ | 238,476 | $ | 76,992 | $ | 91,424 | $ | 1,082,479 | ||||||||||
Gross profit | $ | 200,738 | $ | 91,124 | $ | 27,347 | $ | 28,724 | $ | 347,933 | ||||||||||
2011 | ||||||||||||||||||||
Net service revenues | ||||||||||||||||||||
Flexible billings | $ | 606,238 | $ | 194,359 | $ | 68,181 | $ | 92,449 | $ | 961,227 | ||||||||||
Search fees | 17,774 | 25,216 | 530 | — | 43,520 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenue | $ | 624,012 | $ | 219,575 | $ | 68,711 | $ | 92,449 | $ | 1,004,747 | ||||||||||
Gross profit | $ | 182,862 | $ | 82,028 | $ | 24,476 | $ | 28,381 | $ | 317,747 |
18.(in thousands):
Tech | FA | GS | Total | ||||||||||||
2015 | |||||||||||||||
Net service revenues | |||||||||||||||
Flexible billings | $ | 873,609 | $ | 294,186 | $ | 97,372 | $ | 1,265,167 | |||||||
Direct Hire fees | 22,333 | 31,738 | — | 54,071 | |||||||||||
Total revenue | $ | 895,942 | $ | 325,924 | $ | 97,372 | $ | 1,319,238 | |||||||
Gross profit | $ | 261,721 | $ | 119,036 | $ | 33,357 | $ | 414,114 | |||||||
Operating expenses | 342,442 | ||||||||||||||
Income from continuing operations, before income taxes | $ | 71,672 | |||||||||||||
2014 | |||||||||||||||
Net service revenues | |||||||||||||||
Flexible billings | $ | 823,311 | $ | 249,274 | $ | 98,051 | $ | 1,170,636 | |||||||
Direct Hire fees | 19,158 | 27,537 | — | 46,695 | |||||||||||
Total revenue | $ | 842,469 | $ | 276,811 | $ | 98,051 | $ | 1,217,331 | |||||||
Gross profit | $ | 243,085 | $ | 101,071 | $ | 30,425 | $ | 374,581 | |||||||
Operating expenses | 326,624 | ||||||||||||||
Income from continuing operations, before income taxes | $ | 47,957 | |||||||||||||
2013 | |||||||||||||||
Net service revenues | |||||||||||||||
Flexible billings | $ | 720,179 | $ | 213,158 | $ | 91,949 | $ | 1,025,286 | |||||||
Direct Hire fees | 19,183 | 29,259 | — | 48,442 | |||||||||||
Total revenue | $ | 739,362 | $ | 242,417 | $ | 91,949 | $ | 1,073,728 | |||||||
Gross profit | $ | 219,360 | $ | 93,663 | $ | 31,353 | $ | 344,376 | |||||||
Operating expenses | 333,447 | ||||||||||||||
Income from continuing operations, before income taxes | $ | 10,929 |
THREE MONTHS ENDED | ||||||||||||||||
March 31 | June 30 | September 30 | December 31 | |||||||||||||
2013 | ||||||||||||||||
Net service revenues | $ | 265,627 | $ | 283,689 | $ | 299,652 | $ | 302,919 | ||||||||
Gross profit | 83,336 | 92,847 | 97,312 | 96,117 | ||||||||||||
Income from continuing operations, net of income taxes | 3,094 | 6,948 | 8,979 | (8,234 | ) | |||||||||||
Income from discontinued operations, net of income taxes | — | — | — | — | ||||||||||||
Net income (loss) | 3,094 | 6,948 | 8,979 | (8,234 | ) | |||||||||||
Earnings (loss) per share-basic | $ | 0.09 | $ | 0.21 | $ | 0.27 | $ | (0.25 | ) | |||||||
Earnings (loss) per share-diluted | $ | 0.09 | $ | 0.21 | $ | 0.27 | $ | (0.25 | ) | |||||||
2012 | ||||||||||||||||
Net service revenues | $ | 268,350 | $ | 274,129 | $ | 270,161 | $ | 269,839 | ||||||||
Gross profit | 80,825 | 89,766 | 88,762 | 88,580 | ||||||||||||
(Loss) income from continuing operations, net of income taxes | (17,727 | ) | (33,182 | ) | 9,275 | 5,922 | ||||||||||
Income (loss) from discontinued operations, net of income taxes | 21,803 | 15 | (7 | ) | 198 | |||||||||||
Net income (loss) | 4,076 | (33,167 | ) | 9,268 | 6,120 | |||||||||||
Earnings (loss) per share-basic | $ | 0.12 | $ | (0.90 | ) | $ | 0.26 | $ | 0.17 | |||||||
Earnings (loss) per share-diluted | $ | 0.12 | $ | (0.90 | ) | $ | 0.26 | $ | 0.17 |
Certain prior quarter amounts have been reclassified to conform with current year presentation and may not tie back to quarterly filings. The following table provides quarterly information for the years ended December 31, 2015 and 2014 (in thousands, except per share amounts):
THREE MONTHS ENDED | |||||||||||||||
March 31 | June 30 | September 30 | December 31 | ||||||||||||
2015 | |||||||||||||||
Net service revenues | $ | 312,611 | $ | 337,353 | $ | 341,575 | $ | 327,699 | |||||||
Gross profit | 94,740 | 106,038 | 109,821 | 103,515 | |||||||||||
Income from continuing operations, net of income taxes | 5,785 | 11,593 | 13,545 | 11,901 | |||||||||||
Income from discontinued operations, net of income taxes | — | — | — | — | |||||||||||
Net income | 5,785 | 11,593 | 13,545 | 11,901 | |||||||||||
Earnings per share-basic | $ | 0.20 | $ | 0.41 | $ | 0.49 | $ | 0.43 | |||||||
Earnings per share-diluted | $ | 0.20 | $ | 0.41 | $ | 0.48 | $ | 0.43 | |||||||
2014 | |||||||||||||||
Net service revenues | $ | 282,024 | $ | 302,758 | $ | 313,810 | $ | 318,739 | |||||||
Gross profit | 83,526 | 94,386 | 98,291 | 98,378 | |||||||||||
Income from continuing operations, net of income taxes | 4,389 | 7,953 | 7,995 | 9,061 | |||||||||||
Income (loss) from discontinued operations, net of income taxes | 1,860 | 2,750 | 57,023 | (116 | ) | ||||||||||
Net income | 6,249 | 10,703 | 65,018 | 8,945 | |||||||||||
Earnings per share-basic | $ | 0.19 | $ | 0.33 | $ | 2.07 | $ | 0.30 | |||||||
Earnings per share-diluted | $ | 0.19 | $ | 0.33 | $ | 2.06 | $ | 0.30 |
During the first quarter of 2012,2014, in connection with the disposition of KCR,HIM, the Board exercised its discretion, as permitted underincome from discontinued operations included a gain, net of transactions costs, on the Kforce Inc. 2006 Stock Incentive Plan,sale of discontinued operations of $94.3 million pretax, or $56.1 million after tax. The transactions costs primarily included legal fees, stock-based compensation related to accelerate the vesting, for tax planning purposes,acceleration of substantially allrestricted stock, commissions and transaction bonuses in the form of cash and common stock, which in the outstanding and unvestedaggregate, totaled $11.0 million. Stock-based compensation related to the acceleration of restricted stock and ALTI effective March 31, 2012. The acceleration resultedtransaction bonuses paid in the recognitionstock in lieu of previously unrecognized compensation expense of $31,297, which includes $784 of payroll taxes. This expense has been classified in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss).
Additionally, during the second quarter of 2012, Kforce recorded an estimated goodwill impairment charge of $65,300. Kforce completed the step 2 impairment analysis and recorded an additional goodwill impairment charge of $3,858 during the fourth quarter of 2012.
19.cash was $2.4 million.
2013 | 2012 | 2011 | ||||||||||
Cash paid during the period for: | ||||||||||||
Income taxes, net | $ | 14,789 | $ | 14,456 | $ | 8,747 | ||||||
Interest, net | $ | 800 | $ | 554 | $ | 838 | ||||||
Non-Cash Transaction Information: | ||||||||||||
Tax benefit from disqualifying dispositions of stock options and restricted stock | $ | 15 | $ | 36 | $ | 145 | ||||||
Shares tendered in payment of exercise price of stock options and SARs | $ | — | $ | 161 | $ | 2,401 | ||||||
Common Stock transactions: | ||||||||||||
Employee stock purchase plan | $ | 613 | $ | 647 | $ | 705 | ||||||
Equipment acquired under capital leases | $ | 1,929 | $ | 672 | $ | 1,166 |
31 (in thousands):
2015 | 2014 | 2013 | |||||||||
Cash paid during the period for: | |||||||||||
Income taxes, net | $ | 25,395 | $ | 52,565 | $ | 14,789 | |||||
Interest, net | $ | 1,609 | $ | 1,048 | $ | 800 | |||||
Non-Cash Transaction Information: | |||||||||||
Shares tendered in payment of exercise price of stock options | $ | — | $ | 84 | $ | — | |||||
Employee stock purchase plan | $ | 578 | $ | 699 | $ | 613 | |||||
Equipment acquired under capital leases | $ | 1,470 | $ | 313 | $ | 1,929 | |||||
Unsettled repurchases of common stock | $ | 1,012 | $ | 1,425 | $ | — | |||||
Contingent consideration for acquisition | $ | — | $ | 477 | $ | — |
None.
Financial Statements and Supplementary Data.
We have adopted a Code of Ethics and Business Conduct that2015.
2015.
2015.
2015.
2015.
(a) | The following documents are filed as part of this Report: |
Consolidated Financial Statementsconsolidated financial statements and related notes thereto of Kforce.Consolidated Financial Statementsconsolidated financial statements or notes thereto.(b)
Consolidated Financial Statements: | ||||
Consolidated Financial Statement Schedule: | ||||
COLUMN A | COLUMN B | COLUMN C | COLUMN D | COLUMN E | ||||||||||||||||||||
DESCRIPTION | BALANCE AT BEGINNING OF | CHARGED TO COSTS AND EXPENSES (RECOVERY) | CHARGED TO OTHER ACCOUNTS (a) | DEDUCTIONS (b) | BALANCE AT END OF PERIOD | |||||||||||||||||||
Accounts receivable reserves | 2011 | $ | 4,021 | (1,103 | ) | 166 | (627 | ) | $ | 2,457 | ||||||||||||||
2012 | $ | 2,457 | 1,249 | (70 | ) | (1,483 | ) | $ | 2,153 | |||||||||||||||
2013 | $ | 2,153 | 382 | (54 | ) | (453 | ) | $ | 2,028 |
COLUMN A | COLUMN B | COLUMN C | COLUMN D | COLUMN E | ||||||||||||||
DESCRIPTION | BALANCE AT BEGINNING OF PERIOD | CHARGED TO COSTS AND EXPENSES (RECOVERY) | CHARGED TO OTHER ACCOUNTS (a) | DEDUCTIONS (b) | BALANCE AT END OF PERIOD | |||||||||||||
Accounts receivable reserves | 2013 | $ | 2,153 | 382 | (54 | ) | (453 | ) | $ | 2,028 | ||||||||
2014 | $ | 2,028 | 530 | 31 | (549 | ) | $ | 2,040 | ||||||||||
2015 | $ | 2,040 | 1,653 | 1 | (1,573 | ) | $ | 2,121 |
(a) | Charged to other accounts includes the provision for fallouts of |
(b) | Deductions include write-offs of uncollectible accounts receivable and fallouts of |
/s/ DAVID L. DUNKEL /s/ DAVID L. DUNKEL /s/ DAVID M. KELLY /s/ /s/ JOHN N. ALLRED /s/ RICHARD M. COCCHIARO /s/ MARK F. FURLONG /s/ ELAINE D. ROSEN /s/ A. GORDON TUNSTALL /s/ RALPH E. STRUZZIERO /s/ HOWARD W. SUTTER KFORCE INC. Date: February 27, 201426, 2016 By: David L. Dunkel Date: February 27, 2014 Date: February 26, 2016 By: David L. Dunkel Director and (Principal Executive Officer) Date: February 27, 201426, 2016 By: David M. Kelly Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: February 27, 201426, 2016 By: SARA R. NICHOLS Sara R. NicholsJeffrey B. Hackman Senior Vice President, Finance and Chief Accounting Officer (Principal Accounting Officer) Date: February 27, 201426, 2016 By: John N. Allred Director Date: February 27, 201426, 2016 By: /s/ W.R. CAREY, JR. W.R. Carey, Jr.DirectorDate: February 27, 2014By: Richard M. Cocchiaro Vice Chairman and DirectorDate: February 27, 201426, 2016 By: Mark F. Furlong Director Date: February 27, 2014 Date: February 26, 2016 By: Elaine D. Rosen Director Date: February 27, 201426, 2016 By: A. Gordon Tunstall Director Date: February 27, 201426, 2016 By: Ralph E. Struzziero Director Date: February 27, 201426, 2016 By: Howard W. Sutter Vice Chairman and Director Date: February 26, 2016 By: /s/ N. JOHN SIMMONS N. John Simmons Director ExhibitNumber DescriptionDescription 3.1 Amended and Restated Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 33-91738) filed with the SEC on May 9, 1996. 3.1a Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (File No. 333-111566) filed with the SEC on February 9, 2004, as amended. 3.1b Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (File No. 333-111566) filed with the SEC on February 9, 2004, as amended. 3.1c Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (File No. 333-111566) filed with the SEC on February 9, 2004, as amended. 3.1d Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on May 17, 2000. 3.1e Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-26058) filed with the SEC on March 29, 2002. 3.2 Amended & Restated Bylaws, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on April 29, 2013. 4.1 Form of Stock Certificate, incorporated by reference to the Registrant’s Registration Statement on Form S-3 (File No. 333-158086) filed with the SEC on March 18, 2009. 4.2 Form of Indenture, incorporated by reference to the Registrant’s Registration Statement on Form S-3 (File No. 333-181004) filed with the SEC on April 27, 2012. 9.1Form of Parent Voting Agreement, dated as of December 2, 2003, by and between the Registrant and certain stockholders of Hall, Kinion & Associates, Inc., incorporated by reference to the Registrant’s Registration Statement on Form S-4 (File No. 333-111566) filed with the SEC on December 24, 2003, as amended. 9.2Form of Voting Agreement, dated as of December 2, 2003, by and between Hall Kinion & Associates, Inc. and certain stockholders of the Registrant, incorporated by reference to the Registrant’s Registration Statement on Form S-4 (File No. 333-111566) filed with the SEC on December 24, 2003, as amended.10.1 Third Amended and Restated Credit Agreement, dated September 20, 2011, between Kforce Inc. and its subsidiaries and Bank of America, N.A. and the other lenders thereto, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on September 23, 2011. 10.2 Consent and First Amendment, dated March 30, 2012, to Third Amended and Restated Credit Agreement between Kforce Inc. and its subsidiaries and Bank of America, N.A. and other lenders thereto, incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-26058) filed with the SEC on May 7, 2012. 10.3 Second Amendment and Joinder, dated December 27, 2013, to Third Amended and Restated Credit Agreement between Kforce Inc. and its subsidiaries and Bank of America, N.A. and other lenders thereto.thereto, incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 000-26058) filed with the SEC on February 27, 2014.10.4 Third Amendment, dated December 23, 2014, to Third Amended and Restated Credit Agreement, Second Amendment to Second Amended and Restated Security Agreement and Joinder between Kforce Inc. and its subsidiaries and Bank of America, N.A. and other lenders thereto, incorporated by reference to the Registrant's Current Report on Form 8-K (File No. 000-26058) filed with the SEC on December 23, 2014. 10.4*Description 10.5* Amended and Restated Employment Agreement, dated as of January 1, 2013,December 31, 2006, between the Registrant and David L. Dunkel, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on January 3, 2013.8, 2007. 10.5*10.6* Amendment to Employment Agreement, dated as of December 24, 2008, between Kforce Inc. and David L. Dunkel, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on December 29, 2008. 10.6*Employment Agreement, dated as of December 31, 2006, between the Registrant and William L. Sanders, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on January 8, 2007. 10.7*Amendment to Employment Agreement, dated as of December 24, 2008, between Kforce Inc. and William L. Sanders, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on December 29, 2008.ExhibitNumberDescription 10.8*10.7* Employment Agreement, dated as of December 31, 2006, between the Registrant and Joseph J. Liberatore, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on January 8, 2007. 10.9*10.8* Amendment to Employment Agreement, dated as of December 24, 2008, between Kforce Inc. and Joseph J. Liberatore, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on December 29, 2008. 10.10*Employment Agreement, dated as of December 31, 2006, between the Registrant and Michael Ettore, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on January 8, 2007. 10.11*Amendment to Employment Agreement, dated as of December 24, 2008, between Kforce Inc. and Michael Ettore, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on December 29, 2008. 10.12*10.9* Employment Agreement, dated as of July 1, 2003, between the Registrant and Howard Sutter, incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-26058) filed with the SEC on March 11, 2009. 10.13*10.10* Amendment to Employment Agreement, dated as of December 30, 2008, between Kforce Inc. and Howard Sutter, incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-26058) filed with the SEC on March 11, 2009. 10.14*Employment Agreement, dated as of October 2, 2009, between Kforce Inc. and Randy Marmon, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on October 8, 2009. 10.1510.11 Administrative Agreement, dated as of December 29, 2009, between and among Kforce Government Solutions, Inc., on behalf of itself, Kforce Global Solutions, Inc., and Bradson Corporation and the U.S. Department of the Interior, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on December 30, 2009. 10.1610.12 Amended Administrative Agreement, dated as of May 3, 2012, between and among Kforce Government Solutions, Inc. and the U.S. Department of the Interior, incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-26058) filed with the SEC on May 7, 2012. 10.17*10.13* Kforce Inc. 2006 Stock Incentive Plan, incorporated by reference to the Registrant’s Registration Statement on Form S-8 (File No. 333-168529) filed with the SEC on August 4, 2010. 10.18*10.14* Kforce Inc. 2013 Stock Incentive Plan, incorporated by reference to the Registrant’s Registration Statement on Form S-8 (File No. 333-188631) filed with the SEC on May 15, 2013. 10.19*10.15* Employment Agreement, dated as of June 1, 2011, between the Registrant and Richard M. Cocchiaro, incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-26058) filed with the SEC on August 4, 2011. 10.20*10.16* Form of Restricted Stock Award Agreement, incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-26058) filed with the SEC on March 4, 2011. 10.2110.17 Stock Purchase Agreement, dated as of March 17, 2012,August 4, 2014, by and among Kforce Inc., Kforce Clinical Research, and RCM Acquisition, Inc. and inVentiv Health, Inc., incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on March 19, 2012.August 6, 2014. 10.2210.18 Amendment #1 to Stock Ownership Guidelines, dated September 28, 2012, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on October 4, 2012. 10.23*10.19* Amended and Restated Employment Agreement, dated as of January 1, 2013, between Kforce Inc. and David M. Kelly, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on January 3, 2013. 10.24*10.20* Form of Restricted Stock Award Agreement, incorporated by reference to the Registrant’s Quarterly Report onForm 10-Q (File No. 000-26058) filed with the SEC on October 30, 2013. 10.21* Kforce Inc. Directors' Restricted Stock Unit Deferral Plan, filed electronically herewith. Description 21 List of Subsidiaries. 23 Consent of Deloitte & Touche LLP. 31.1 Certification by the Chief Executive Officer of Kforce Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification by the Chief Financial Officer of Kforce Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification by the Chief Executive Officer of Kforce Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification by the Chief Financial Officer of Kforce Inc. pursuant to 18 U.S.C. Section 2350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.1 The Consolidated Financial Statements and Schedule listed in Part IV, Item 15 of this Form 10-K are formatted in XBRL. * Management contract or compensatory plan or arrangement.