x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FLORIDA | 59-3264661 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
1001 EAST PALM AVENUE, TAMPA, FLORIDA | 33605 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ | |||
Emerging growth company | ¨ |
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Item 2. | ||
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Item 1A. | ||
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Item 6. | ||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net service revenues | $ | 341,053 | $ | 336,460 | $ | 1,015,354 | $ | 993,708 | |||||||
Direct costs of services | 236,678 | 231,080 | 709,925 | 684,857 | |||||||||||
Gross profit | 104,375 | 105,380 | 305,429 | 308,851 | |||||||||||
Selling, general and administrative expenses | 81,921 | 87,803 | 249,105 | 258,732 | |||||||||||
Depreciation and amortization | 2,110 | 2,075 | 6,213 | 6,654 | |||||||||||
Income from operations | 20,344 | 15,502 | 50,111 | 43,465 | |||||||||||
Other expense, net | 1,364 | 778 | 3,906 | 2,277 | |||||||||||
Income before income taxes | 18,980 | 14,724 | 46,205 | 41,188 | |||||||||||
Income tax expense | 8,881 | 5,704 | 19,060 | 17,654 | |||||||||||
Net income | 10,099 | 9,020 | 27,145 | 23,534 | |||||||||||
Other comprehensive (loss) income: | |||||||||||||||
Defined benefit pension plans, net of tax | (278 | ) | (2 | ) | (287 | ) | (7 | ) | |||||||
Change in fair value of interest rate swap, net of tax | 60 | — | (52 | ) | — | ||||||||||
Comprehensive income | $ | 9,881 | $ | 9,018 | $ | 26,806 | $ | 23,527 | |||||||
Earnings per share – basic | $ | 0.40 | $ | 0.35 | $ | 1.07 | $ | 0.90 | |||||||
Earnings per share – diluted | $ | 0.40 | $ | 0.34 | $ | 1.06 | $ | 0.89 | |||||||
Weighted average shares outstanding – basic | 25,296 | 25,996 | 25,264 | 26,287 | |||||||||||
Weighted average shares outstanding – diluted | 25,535 | 26,173 | 25,565 | 26,449 | |||||||||||
Dividends declared per share | $ | 0.12 | $ | 0.12 | $ | 0.36 | $ | 0.36 |
September 30, 2017 | December 31, 2016 | ||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 703 | $ | 1,482 | |||
Trade receivables, net of allowances of $2,439 and $2,066, respectively | 243,843 | 206,361 | |||||
Income tax refund receivable | 1,893 | 172 | |||||
Prepaid expenses and other current assets | 12,685 | 10,691 | |||||
Total current assets | 259,124 | 218,706 | |||||
Fixed assets, net | 40,654 | 43,145 | |||||
Other assets, net | 37,265 | 30,511 | |||||
Deferred tax assets, net | 19,803 | 23,449 | |||||
Intangible assets, net | 3,384 | 3,642 | |||||
Goodwill | 45,968 | 45,968 | |||||
Total assets | $ | 406,198 | $ | 365,421 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current Liabilities: | |||||||
Accounts payable and other accrued liabilities | $ | 34,476 | $ | 37,230 | |||
Accrued payroll costs | 51,135 | 44,137 | |||||
Other current liabilities | 1,887 | 1,765 | |||||
Income taxes payable | 486 | 221 | |||||
Total current liabilities | 87,984 | 83,353 | |||||
Long-term debt – credit facility | 126,100 | 111,547 | |||||
Long-term debt – other | 2,773 | 3,984 | |||||
Other long-term liabilities | 47,062 | 44,801 | |||||
Total liabilities | 263,919 | 243,685 | |||||
Commitments and contingencies (see Note B) | |||||||
Stockholders’ Equity: | |||||||
Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding | — | — | |||||
Common stock, $0.01 par; 250,000 shares authorized, 71,224 and 71,268 issued, respectively | 712 | 713 | |||||
Additional paid-in capital | 435,275 | 428,212 | |||||
Accumulated other comprehensive (loss) income | (155 | ) | 184 | ||||
Retained earnings | 192,158 | 174,967 | |||||
Treasury stock, at cost; 44,617 and 44,469 shares, respectively | (485,711 | ) | (482,340 | ) | |||
Total stockholders’ equity | 142,279 | 121,736 | |||||
Total liabilities and stockholders’ equity | $ | 406,198 | $ | 365,421 |
Nine Months Ended September 30, 2017 | |||
Common stock – shares: | |||
Shares at beginning of period | 71,268 | ||
Issuance for stock-based compensation and dividends, net of forfeitures | (49 | ) | |
Exercise of stock options | 5 | ||
Shares at end of period | 71,224 | ||
Common stock – par value: | |||
Balance at beginning of period | $ | 713 | |
Issuance for stock-based compensation and dividends, net of forfeitures | (1 | ) | |
Exercise of stock options | 0 | ||
Balance at end of period | $ | 712 | |
Additional paid-in capital: | |||
Balance at beginning of period | $ | 428,212 | |
Cumulative effect upon adoption of new accounting standard (Note A) | 769 | ||
Issuance for stock-based compensation and dividends, net of forfeitures | 362 | ||
Exercise of stock options | 72 | ||
Stock-based compensation expense | 5,667 | ||
Employee stock purchase plan | 193 | ||
Balance at end of period | $ | 435,275 | |
Accumulated other comprehensive income (loss): | |||
Balance at beginning of period | $ | 184 | |
Defined benefit pension plans, net of tax of $176 | (287 | ) | |
Change in fair value of interest rate swap, net of tax of $33 | (52 | ) | |
Balance at end of period | $ | (155 | ) |
Retained earnings: | |||
Balance at beginning of period | $ | 174,967 | |
Cumulative effect upon adoption of new accounting standard (Note A), net of tax of $300 | (469 | ) | |
Net income | 27,145 | ||
Dividends, net of forfeitures ($0.36 per share) | (9,485 | ) | |
Balance at end of period | $ | 192,158 | |
Treasury stock – shares: | |||
Shares at beginning of period | 44,469 | ||
Repurchases of common stock | 167 | ||
Employee stock purchase plan | (19 | ) | |
Shares at end of period | 44,617 | ||
Treasury stock – cost: | |||
Balance at beginning of period | $ | (482,340 | ) |
Repurchases of common stock | (3,577 | ) | |
Employee stock purchase plan | 206 | ||
Balance at end of period | $ | (485,711 | ) |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 27,145 | $ | 23,534 | |||
Adjustments to reconcile net income to cash provided by operating activities: | |||||||
Deferred income tax provision, net | 3,978 | 1,353 | |||||
Provision for bad debts on accounts receivable | 896 | 575 | |||||
Depreciation and amortization | 6,373 | 6,702 | |||||
Stock-based compensation expense | 5,667 | 5,042 | |||||
Defined benefit pension plans expense | 692 | 1,398 | |||||
Loss on deferred compensation plan investments, net | 339 | 411 | |||||
Gain on sale of Global's assets | (3,148 | ) | — | ||||
Other | 745 | 179 | |||||
(Increase) decrease in operating assets | |||||||
Trade receivables, net | (38,378 | ) | (11,072 | ) | |||
Income tax refund receivable | (1,721 | ) | (214 | ) | |||
Prepaid expenses and other current assets | (2,071 | ) | (2,672 | ) | |||
Other assets, net | (544 | ) | 24 | ||||
(Decrease) increase in operating liabilities | |||||||
Accounts payable and other current liabilities | (1,321 | ) | (2,114 | ) | |||
Accrued payroll costs | 8,506 | 6,822 | |||||
Income taxes payable | 265 | 509 | |||||
Other long-term liabilities | (1,774 | ) | (813 | ) | |||
Cash provided by operating activities | 5,649 | 29,664 | |||||
Cash flows from investing activities: | |||||||
Capital expenditures | (5,424 | ) | (9,409 | ) | |||
Proceeds from sale of Global's assets | 1,000 | — | |||||
Cash used in investing activities | (4,424 | ) | (9,409 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from credit facility | 887,293 | 677,788 | |||||
Payments on credit facility | (872,740 | ) | (656,930 | ) | |||
Proceeds from other financing arrangements | — | 856 | |||||
Payments on other financing arrangements | (1,582 | ) | (1,371 | ) | |||
Proceeds from exercise of stock options | 72 | 172 | |||||
Payments of loan financing fees | (1,696 | ) | (158 | ) | |||
Repurchases of common stock | (4,226 | ) | (31,787 | ) | |||
Cash dividend | (9,125 | ) | (9,397 | ) | |||
Cash used in financing activities | (2,004 | ) | (20,827 | ) | |||
Change in cash and cash equivalents | (779 | ) | (572 | ) | |||
Cash and cash equivalents at beginning of period | 1,482 | 1,497 | |||||
Cash and cash equivalents at end of period | $ | 703 | $ | 925 |
September 30, 2017 | December 31, 2016 | ||||||
Accounts payable | $ | 19,287 | $ | 20,321 | |||
Accrued liabilities | 15,189 | 16,909 | |||||
Total Accounts payable and other accrued liabilities | $ | 34,476 | $ | 37,230 |
September 30, 2017 | December 31, 2016 | ||||||
Payroll and benefits | $ | 43,254 | $ | 37,409 | |||
Health insurance liabilities | 4,183 | 2,790 | |||||
Payroll taxes | 2,466 | 2,640 | |||||
Workers’ compensation liabilities | 1,232 | 1,298 | |||||
Total Accrued payroll costs | $ | 51,135 | $ | 44,137 |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Service cost | $ | 79 | $ | 328 | $ | 239 | $ | 984 | |||||||
Interest cost | 134 | 113 | 403 | 339 | |||||||||||
Net periodic benefit cost | $ | 213 | $ | 441 | $ | 642 | $ | 1,323 |
Number of Restricted Stock | Weighted Average Grant Date Fair Value | Total Intrinsic Value of Restricted Stock Vested | ||||||||
Outstanding as of December 31, 2016 | 1,708 | $ | 21.86 | |||||||
Granted | 133 | $ | 21.57 | |||||||
Forfeited/Canceled | (182 | ) | $ | 21.90 | ||||||
Vested | (290 | ) | $ | 21.13 | $ | 6,501 | ||||
Outstanding as of September 30, 2017 | 1,369 | $ | 21.97 |
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 September 30, 2017 | |||||||||||||||
Recurring basis: | |||||||||||||||
Contingent consideration liability | $ | (756 | ) | $ | — | $ | — | $ | (756 | ) | |||||
Interest rate swap derivative instrument | $ | (85 | ) | $ | — | $ | (85 | ) | $ | — | |||||
As of December 31, 2016 | |||||||||||||||
Recurring basis: | |||||||||||||||
Contingent consideration liability | $ | (756 | ) | $ | — | $ | — | $ | (756 | ) |
Tech | FA | GS | Total | ||||||||||||
Three Months Ended September 30, | |||||||||||||||
2017 | |||||||||||||||
Net service revenues: | |||||||||||||||
Flex revenues | $ | 224,148 | $ | 78,209 | $ | 26,547 | $ | 328,904 | |||||||
Direct Hire revenues | 5,133 | 7,016 | — | 12,149 | |||||||||||
Total net service revenues | $ | 229,281 | $ | 85,225 | $ | 26,547 | $ | 341,053 | |||||||
Gross profit | $ | 65,560 | $ | 29,709 | $ | 9,106 | $ | 104,375 | |||||||
Operating expenses | 85,395 | ||||||||||||||
Income before income taxes | $ | 18,980 | |||||||||||||
2016 | |||||||||||||||
Net service revenues: | |||||||||||||||
Flex revenues | $ | 220,376 | $ | 76,290 | $ | 26,818 | $ | 323,484 | |||||||
Direct Hire revenues | 5,148 | 7,828 | — | 12,976 | |||||||||||
Total net service revenues | $ | 225,524 | $ | 84,118 | $ | 26,818 | $ | 336,460 | |||||||
Gross profit | $ | 65,173 | $ | 30,439 | $ | 9,768 | $ | 105,380 | |||||||
Operating expenses | 90,656 | ||||||||||||||
Income before income taxes | $ | 14,724 | |||||||||||||
Nine Months Ended September 30, | |||||||||||||||
2017 | |||||||||||||||
Net service revenues: | |||||||||||||||
Flex revenues | $ | 663,778 | $ | 239,196 | $ | 74,873 | $ | 977,847 | |||||||
Direct Hire revenues | 15,917 | 21,590 | — | 37,507 | |||||||||||
Total net service revenues | $ | 679,695 | $ | 260,786 | $ | 74,873 | $ | 1,015,354 | |||||||
Gross profit | $ | 192,223 | $ | 89,666 | $ | 23,540 | $ | 305,429 | |||||||
Operating expenses | 259,224 | ||||||||||||||
Income before income taxes | $ | 46,205 | |||||||||||||
2016 | |||||||||||||||
Net service revenues: | |||||||||||||||
Flex revenues | $ | 650,997 | $ | 228,365 | $ | 75,231 | $ | 954,593 | |||||||
Direct Hire revenues | 15,673 | 23,442 | — | 39,115 | |||||||||||
Total net service revenues | $ | 666,670 | $ | 251,807 | $ | 75,231 | $ | 993,708 | |||||||
Gross profit | $ | 193,132 | $ | 90,695 | $ | 25,024 | $ | 308,851 | |||||||
Operating expenses | 267,663 | ||||||||||||||
Income before income taxes | $ | 41,188 |
Nine Months Ended | |||||||
September 30, | |||||||
2017 | 2016 | ||||||
Cash paid during the period for: | |||||||
Income taxes, net | $ | 15,204 | $ | 16,023 | |||
Interest, net | $ | 2,714 | $ | 1,569 | |||
Non-cash transaction information: | |||||||
Employee stock purchase plan | $ | 399 | $ | 528 | |||
Equipment acquired under capital leases | $ | 465 | $ | 1,123 | |||
Receivable for sale of Global's assets | $ | 1,979 | $ | — |
• | Executive Summary – an executive summary of our results of operations as of and for the nine months ended September 30, 2017. |
• | Results of Operations – an analysis of Kforce’s unaudited condensed consolidated results of operations for the three and nine months ended September 30, 2017 and 2016, which have been presented in its unaudited condensed 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, stock repurchases, off-balance sheet arrangements and contractual obligations and commitments on our business. |
• | 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. |
• | Net service revenues for the nine months ended September 30, 2017 increased 2.2% to $1.0 billion from $993.7 million in the comparable period in 2016. |
• | Flex revenues for the nine months ended September 30, 2017 increased 3.0% on a billing day basis over the comparable period in 2016. Flex revenues increased 2.5% and 5.3% for Tech and FA, respectively, and remained stable for GS on a billing day basis. |
• | Direct Hire revenues for the nine months ended September 30, 2017 decreased 4.1% to $37.5 million from $39.1 million in the comparable period in 2016. |
• | Flex gross profit margin for the nine months ended September 30, 2017 decreased 90 basis points to 27.4% from 28.3% in the comparable period in 2016. Flex gross profit margin decreased 70 basis points for Tech, 100 basis points for FA and 190 basis points for GS. The overall reduction in Flex gross profit margin is primarily a result of compression in the spread between our bill rates and pay rates and higher benefit costs for the nine months ended September 30, 2017. |
• | During the third quarter of 2017, Flex gross profit margins improved sequentially by 10 basis points in Tech Flex, 20 basis points in FA Flex and 450 basis points in GS. Flex gross profit margins were adversely impacted by 10 basis points in Tech Flex and 20 basis points in FA Flex during the third quarter of 2017 as a result of Hurricanes Harvey and Irma. |
• | Selling, general and administrative (“SG&A”) expenses as a percentage of revenues for the nine months ended September 30, 2017 decreased to 24.5% from 26.0% in the comparable period in 2016. The 150 basis point decrease was primarily related to the $6.0 million severance costs recognized during the nine months ended September 30, 2016 associated with realignment activities focused on streamlining our organization. In addition, compensation costs are lower on a year-over-year basis as a result of previous realignment activities and improved associate productivity levels during 2017. |
• | Net income for the nine months ended September 30, 2017 increased 15.3% to $27.1 million from $23.5 million in the comparable period in 2016 driven by the SG&A items described above. |
• | Diluted earnings per share for the nine months ended September 30, 2017 increased to $1.06 from $0.89 per share in the comparable period in 2016 primarily driven by the factors noted above. Diluted earnings per share was negatively impacted by approximately $0.05 in the three months ended September 30, 2017 as a result of Hurricanes Harvey and Irma, which includes a contribution towards disaster relief efforts of $1.0 million. |
• | The Firm declared and paid three quarterly dividends of $0.12 per share during the nine months ended September 30, 2017, resulting in a total cash payout of $9.1 million. |
• | The Firm entered into a new Credit Facility on May 25, 2017, which, among other things, increased the borrowing capacity by $130.0 million to $300.0 million. |
• | The total amount outstanding under our Credit Facility as of September 30, 2017 was $126.1 million. The total amount outstanding under our previous credit facility as of December 31, 2016 was $111.5 million. This increase of $14.6 million was primarily driven by lower than anticipated operating cash flows during the nine months ended September 30, 2017 as a result of an increase in days sales outstanding. |
• | The Firm entered into a forward-starting interest rate swap agreement on April 21, 2017 to mitigate the risk of rising interest rates. The notional amount of the Swap is $65.0 million for the first three years and decreases to $25.0 million for years four and five. |
• | During the three months ended September 30, 2017, Kforce completed the sale of Global’s assets and recorded a $3.3 million gain on sale within SG&A. During 2017, Global generated approximately $2.5 million in Tech Flex revenue per quarter. |
Three Months Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
Net service revenues by segment: | |||||||||||
Tech | 67.2 | % | 67.0 | % | 66.9 | % | 67.1 | % | |||
FA | 25.0 | 25.0 | 25.7 | 25.3 | |||||||
GS | 7.8 | 8.0 | 7.4 | 7.6 | |||||||
Net service revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||
Revenues by type: | |||||||||||
Flex | 96.4 | % | 96.1 | % | 96.3 | % | 96.1 | % | |||
Direct Hire | 3.6 | 3.9 | 3.7 | 3.9 | |||||||
Net service revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||
Gross profit | 30.6 | % | 31.3 | % | 30.1 | % | 31.1 | % | |||
Selling, general and administrative expenses | 24.0 | % | 26.1 | % | 24.5 | % | 26.0 | % | |||
Depreciation and amortization | 0.6 | % | 0.6 | % | 0.6 | % | 0.7 | % | |||
Income before income taxes | 5.6 | % | 4.4 | % | 4.6 | % | 4.1 | % | |||
Net income | 3.0 | % | 2.7 | % | 2.7 | % | 2.4 | % |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||
2017 | Increase (Decrease) | 2016 | 2017 | Increase (Decrease) | 2016 | ||||||||||||||||
Tech | |||||||||||||||||||||
Flex | $ | 224,148 | 1.7 | % | $ | 220,376 | $ | 663,778 | 2.0 | % | $ | 650,997 | |||||||||
Direct Hire | 5,133 | (0.3 | )% | 5,148 | 15,917 | 1.6 | % | 15,673 | |||||||||||||
Total Tech revenues | $ | 229,281 | 1.7 | % | $ | 225,524 | $ | 679,695 | 2.0 | % | $ | 666,670 | |||||||||
FA | |||||||||||||||||||||
Flex | $ | 78,209 | 2.5 | % | $ | 76,290 | $ | 239,196 | 4.7 | % | $ | 228,365 | |||||||||
Direct Hire | 7,016 | (10.4 | )% | 7,828 | 21,590 | (7.9 | )% | 23,442 | |||||||||||||
Total FA revenues | $ | 85,225 | 1.3 | % | $ | 84,118 | $ | 260,786 | 3.6 | % | $ | 251,807 | |||||||||
GS | |||||||||||||||||||||
Flex | $ | 26,547 | (1.0 | )% | $ | 26,818 | $ | 74,873 | (0.5 | )% | $ | 75,231 | |||||||||
Total GS revenues | $ | 26,547 | (1.0 | )% | $ | 26,818 | $ | 74,873 | (0.5 | )% | $ | 75,231 | |||||||||
Total Flex revenues | $ | 328,904 | 1.7 | % | $ | 323,484 | $ | 977,847 | 2.4 | % | $ | 954,593 | |||||||||
Total Direct Hire revenues | 12,149 | (6.4 | )% | 12,976 | 37,507 | (4.1 | )% | 39,115 | |||||||||||||
Total net service revenues | $ | 341,053 | 1.4 | % | $ | 336,460 | $ | 1,015,354 | 2.2 | % | $ | 993,708 |
Year-Over-Year Revenue Growth Rates | |||||||||||||||
(Per Billing Day) | |||||||||||||||
Q3 2017 | Q2 2017 | Q1 2017 | Q4 2016 | Q3 2016 | |||||||||||
Tech Flex | 3.3 | % | 1.5 | % | 2.7 | % | 1.4 | % | (2.7 | )% | |||||
Tech Direct Hire | 1.3 | % | 9.3 | % | (4.1 | )% | (13.1 | )% | (10.2 | )% | |||||
Total Tech | 3.3 | % | 1.7 | % | 2.5 | % | 1.1 | % | (2.8 | )% | |||||
FA Flex | 4.1 | % | 4.3 | % | 7.5 | % | 2.1 | % | (0.5 | )% | |||||
FA Direct Hire | (9.0 | )% | (2.4 | )% | (11.7 | )% | (15.4 | )% | (6.9 | )% | |||||
Total FA | 2.9 | % | 3.6 | % | 5.8 | % | 0.4 | % | (1.2 | )% | |||||
Total Staffing (Total Tech and FA) | 3.2 | % | 2.2 | % | 3.4 | % | 0.9 | % | (2.4 | )% | |||||
GS | 0.6 | % | (6.4 | )% | 6.6 | % | 4.0 | % | 10.1 | % | |||||
Total Firm | 3.0 | % | 1.6 | % | 3.7 | % | 1.1 | % | (1.5 | )% | |||||
Billing Days | 63 | 64 | 64 | 61 | 64 |
Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2017 | ||||||||||||||
Tech | FA | Tech | FA | ||||||||||||
Volume (hours worked) | $ | 2,976 | $ | 138 | $ | 13,153 | $ | 5,998 | |||||||
Bill rate | 900 | 1,754 | (30 | ) | 4,760 | ||||||||||
Billable expenses | (104 | ) | 27 | (342 | ) | 73 | |||||||||
Total change in Flex revenues | $ | 3,772 | $ | 1,919 | $ | 12,781 | $ | 10,831 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
2017 | Increase (Decrease) | 2016 | 2017 | Increase (Decrease) | 2016 | ||||||||||||
Tech | 3,299 | 1.4 | % | 3,254 | 9,778 | 2.0 | % | 9,583 | |||||||||
FA | 2,347 | 0.2 | % | 2,343 | 7,213 | 2.6 | % | 7,028 | |||||||||
Total hours | 5,646 | 0.9 | % | 5,597 | 16,991 | 2.3 | % | 16,611 |
Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2017 | ||||||||||||||
Tech | FA | Tech | FA | ||||||||||||
Volume (number of placements) | $ | 114 | $ | (789 | ) | $ | (276 | ) | $ | (1,855 | ) | ||||
Placement fee | (129 | ) | (23 | ) | 520 | 3 | |||||||||
Total change in Direct Hire revenues | $ | (15 | ) | $ | (812 | ) | $ | 244 | $ | (1,852 | ) |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
2017 | Increase (Decrease) | 2016 | 2017 | Increase (Decrease) | 2016 | ||||||||||||
Tech | 303 | 2.0 | % | 297 | 914 | (1.8 | )% | 931 | |||||||||
FA | 578 | (10.1 | )% | 643 | 1,764 | (7.9 | )% | 1,915 | |||||||||
Total placements | 881 | (6.3 | )% | 940 | 2,678 | (5.9 | )% | 2,846 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||
2017 | Increase (Decrease) | 2016 | 2017 | Increase (Decrease) | 2016 | ||||||||||||||||
Tech | $ | 16,917 | (2.5 | )% | $ | 17,343 | $ | 17,406 | 3.4 | % | $ | 16,837 | |||||||||
FA | 12,139 | (0.2 | )% | 12,169 | 12,242 | — | % | 12,240 | |||||||||||||
Total average placement fee | $ | 13,784 | (0.1 | )% | $ | 13,802 | $ | 14,005 | 1.9 | % | $ | 13,744 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
2017 | Increase (Decrease) | 2016 | 2017 | Increase (Decrease) | 2016 | ||||||||||||
Tech | 28.6 | % | (1.0 | )% | 28.9 | % | 28.3 | % | (2.4 | )% | 29.0 | % | |||||
FA | 34.9 | % | (3.6 | )% | 36.2 | % | 34.4 | % | (4.4 | )% | 36.0 | % | |||||
GS | 34.3 | % | (5.8 | )% | 36.4 | % | 31.4 | % | (5.7 | )% | 33.3 | % | |||||
Total gross profit percentage | 30.6 | % | (2.2 | )% | 31.3 | % | 30.1 | % | (3.2 | )% | 31.1 | % |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
2017 | Increase (Decrease) | 2016 | 2017 | Increase (Decrease) | 2016 | ||||||||||||
Tech | 27.0 | % | (0.7 | )% | 27.2 | % | 26.6 | % | (2.6 | )% | 27.3 | % | |||||
FA | 29.0 | % | (2.0 | )% | 29.6 | % | 28.5 | % | (3.4 | )% | 29.5 | % | |||||
GS | 34.3 | % | (5.8 | )% | 36.4 | % | 31.4 | % | (5.7 | )% | 33.3 | % | |||||
Total Flex gross profit percentage | 28.0 | % | (2.1 | )% | 28.6 | % | 27.4 | % | (3.2 | )% | 28.3 | % |
Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2017 | ||||||||||||||
Tech | FA | Tech | FA | ||||||||||||
Volume (hours worked) | $ | 1,027 | $ | 568 | $ | 3,484 | $ | 3,190 | |||||||
Bill rate | (625 | ) | (486 | ) | (4,637 | ) | (2,367 | ) | |||||||
Total change in Flex gross profit | $ | 402 | $ | 82 | $ | (1,153 | ) | $ | 823 |
2017 | % of Revenues | 2016 | % of Revenues | ||||||||||
Three Months Ended September 30, | |||||||||||||
Compensation, commissions, payroll taxes and benefits costs | $ | 70,655 | 20.7 | % | $ | 75,527 | 22.4 | % | |||||
Other (1) | 11,266 | 3.3 | % | 12,276 | 3.7 | % | |||||||
Total SG&A | $ | 81,921 | 24.0 | % | $ | 87,803 | 26.1 | % | |||||
Nine Months Ended September 30, | |||||||||||||
Compensation, commissions, payroll taxes and benefits costs | $ | 211,551 | 20.8 | % | $ | 220,453 | 22.2 | % | |||||
Other (1) | 37,554 | 3.7 | % | 38,279 | 3.8 | % | |||||||
Total SG&A | $ | 249,105 | 24.5 | % | $ | 258,732 | 26.0 | % |
(1) | Balances in “other” include bad debt expense, lease expense, professional fees, travel, telephone, computer and certain other expenses. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||
2017 | Increase (Decrease) | 2016 | 2017 | Increase (Decrease) | 2016 | ||||||||||||||||
Fixed asset depreciation (1) | $ | 1,761 | 6.6 | % | $ | 1,652 | $ | 5,248 | 5.6 | % | $ | 4,969 | |||||||||
Capitalized software amortization | 263 | (12.9 | )% | 302 | 706 | (40.1 | )% | 1,179 | |||||||||||||
Intangible asset amortization | 86 | (28.9 | )% | 121 | 259 | (48.8 | )% | 506 | |||||||||||||
Total depreciation and amortization | $ | 2,110 | 1.7 | % | $ | 2,075 | $ | 6,213 | (6.6 | )% | $ | 6,654 |
(1) | Fixed asset depreciation includes amortization of capital leases. |
Nine Months Ended | |||||||
September 30, | |||||||
2017 | 2016 | ||||||
Net income | $ | 27,145 | $ | 23,534 | |||
Non-cash provisions and other | 15,542 | 15,660 | |||||
Changes in operating assets/liabilities | (37,038 | ) | (9,530 | ) | |||
Net cash provided by operating activities | 5,649 | 29,664 | |||||
Capital expenditures | (5,424 | ) | (9,409 | ) | |||
Free cash flow | 225 | 20,255 | |||||
Proceeds from sale of Global's assets | 1,000 | — | |||||
Change in debt | 14,553 | 20,858 | |||||
Repurchases of common stock | (4,226 | ) | (31,787 | ) | |||
Cash dividend | (9,125 | ) | (9,397 | ) | |||
Other | (3,206 | ) | (501 | ) | |||
Change in cash | $ | (779 | ) | $ | (572 | ) |
2017 | 2016 | ||||||
Three Months Ended September 30, | |||||||
Net income | $ | 10,099 | $ | 9,020 | |||
Depreciation and amortization | 2,165 | 2,102 | |||||
Stock-based compensation expense | 1,798 | 1,336 | |||||
Interest expense, net | 1,295 | 757 | |||||
Income tax expense | 8,881 | 5,704 | |||||
Adjusted EBITDA | $ | 24,238 | $ | 18,919 | |||
Nine Months Ended September 30, | |||||||
Net income | $ | 27,145 | $ | 23,534 | |||
Depreciation and amortization | 6,373 | 6,702 | |||||
Stock-based compensation expense | 5,667 | 5,042 | |||||
Interest expense, net | 3,813 | 2,291 | |||||
Income tax expense | 19,060 | 17,654 | |||||
Adjusted EBITDA | $ | 62,058 | $ | 55,223 |
Nine Months Ended | |||||||
September 30, | |||||||
2017 | 2016 | ||||||
Cash provided by (used in): | |||||||
Operating activities | $ | 5,649 | $ | 29,664 | |||
Investing activities | (4,424 | ) | (9,409 | ) | |||
Financing activities | (2,004 | ) | (20,827 | ) | |||
Net decrease in cash and cash equivalents | $ | (779 | ) | $ | (572 | ) |
Nine Months Ended | ||||||||
September 30, | ||||||||
2017 (1) | 2016 (2) | |||||||
Open market repurchases | $ | 2,077 | $ | 30,080 | ||||
Repurchase of shares related to tax withholding requirements for vesting of restricted stock | 2,149 | 1,707 | ||||||
$ | 4,226 | $ | 31,787 |
(1) | The open market repurchases during the nine months ended September 30, 2017 includes $0.9 million related to the settlement of 2016 repurchases. |
(2) | The open market repurchases during the nine months ended September 30, 2016 includes $1.0 million related to the settlement of 2015 repurchases. |
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 Programs | |||||||||
July 1, 2017 to July 31, 2017 | — | $ | — | — | $ | 50,719,471 | |||||||
August 1, 2017 to August 31, 2017 | 7,475 | $ | 17.70 | — | $ | 50,719,471 | |||||||
September 1, 2017 to September 30, 2017 | 74,255 | $ | 19.23 | 74,255 | $ | 49,291,378 | |||||||
Total | 81,730 | $ | 19.09 | 74,255 | $ | 49,291,378 |
(1) | Includes 7,475 shares of stock received upon vesting of restricted stock to satisfy statutory minimum tax withholding requirements for the period August 1, 2017 through August 31, 2017. |
Exhibit Number | Description | |
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 April 28, 1995. | |
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. | ||
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. | ||
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. | ||
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. | ||
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. | ||
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. | ||
Credit Agreement, dated May 25, 2017, between Kforce Inc. and its subsidiaries and Wells Fargo Bank, National Association, 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 May 25, 2017. | ||
Certification by the Chief Executive Officer of Kforce Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
Certification by the Chief Financial Officer of Kforce Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
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. | ||
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 | Part I, Item 1 of this Form 10-Q formatted in XBRL. |
Kforce Inc. | ||||||
(Registrant) | ||||||
Date: November 1, 2017 | By: | /s/ DAVID M. KELLY | ||||
David M. Kelly | ||||||
Senior Vice President and Chief Financial Officer | ||||||
(Principal Financial Officer) | ||||||
Date: November 1, 2017 | By: | /s/ JEFFREY B. HACKMAN | ||||
Jeffrey B. Hackman | ||||||
Senior Vice President, Finance and Accounting | ||||||
(Principal Accounting Officer) |
/s/ DAVID L. DUNKEL | |
David L. Dunkel, | |
Chief Executive Officer | |
(Principal Executive Officer) |
/s/ DAVID M. KELLY | |
David M. Kelly, | |
Senior Vice President, Chief Financial Officer | |
(Principal Financial Officer) |
/s/ DAVID L. DUNKEL | |
David L. Dunkel, | |
Chief Executive Officer | |
(Principal Executive Officer) |
/s/ DAVID M. KELLY | |
David M. Kelly, | |
Senior Vice President, Chief Financial Officer | |
(Principal Financial Officer) |
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2017 |
Oct. 27, 2017 |
|
Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2017 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q3 | |
Entity Registrant Name | KFORCE INC | |
Entity Central Index Key | 0000930420 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 26,467,271 |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Income Statement [Abstract] | ||||
Net service revenues | $ 341,053 | $ 336,460 | $ 1,015,354 | $ 993,708 |
Direct costs of services | 236,678 | 231,080 | 709,925 | 684,857 |
Gross profit | 104,375 | 105,380 | 305,429 | 308,851 |
Selling, general and administrative expenses | 81,921 | 87,803 | 249,105 | 258,732 |
Depreciation and amortization | 2,110 | 2,075 | 6,213 | 6,654 |
Income from operations | 20,344 | 15,502 | 50,111 | 43,465 |
Other expense, net | 1,364 | 778 | 3,906 | 2,277 |
Income before income taxes | 18,980 | 14,724 | 46,205 | 41,188 |
Income tax expense | 8,881 | 5,704 | 19,060 | 17,654 |
Net income | 10,099 | 9,020 | 27,145 | 23,534 |
Other comprehensive (loss) income: | ||||
Defined benefit pension plans, net of tax | (278) | (2) | (287) | (7) |
Change in fair value of interest rate swap, net of tax | 60 | 0 | (52) | 0 |
Comprehensive income | $ 9,881 | $ 9,018 | $ 26,806 | $ 23,527 |
Earnings per share – basic (in dollars per share) | $ 0.40 | $ 0.35 | $ 1.07 | $ 0.90 |
Earnings per share – diluted (in dollars per share) | $ 0.40 | $ 0.34 | $ 1.06 | $ 0.89 |
Weighted average shares outstanding – basic (in shares) | 25,296 | 25,996 | 25,264 | 26,287 |
Weighted average shares outstanding – diluted (in shares) | 25,535 | 26,173 | 25,565 | 26,449 |
Dividends declared per share (in dollars per share) | $ 0.12 | $ 0.12 | $ 0.36 | $ 0.36 |
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Trade receivables, allowances | $ 2,439 | $ 2,066 |
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized (in shares) | 15,000,000 | 15,000,000 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Preferred stock, shares outstanding (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 250,000,000 | 250,000,000 |
Common stock, shares issued (in shares) | 71,224,000 | 71,268,000 |
Treasury stock, shares (in shares) | 44,617,000 | 44,469,000 |
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Parenthetical) $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2017
USD ($)
$ / shares
| |
Defined benefit pension plans, tax | $ 176 |
Interest rate swap tax | $ 33 |
Dividend (in dollars per share) | $ / shares | $ 0.36 |
Summary of Significant Accounting Policies |
9 Months Ended |
---|---|
Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Unless otherwise noted below, there have been no material changes to the accounting policies presented in Note 1 - “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of the 2016 Annual Report on Form 10-K. Basis of Presentation The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC regarding interim financial reporting. Accordingly, certain information and footnotes normally required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements have been condensed or omitted pursuant to those rules and regulations, although Kforce believes that the disclosures made are adequate to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2016 Annual Report on Form 10-K. In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation. The Unaudited Condensed Consolidated Balance Sheet as of December 31, 2016 was derived from our audited Consolidated Balance Sheet as of December 31, 2016, as presented in our 2016 Annual Report on Form 10-K. Our quarterly operating results are affected by the number of billing days in a quarter and the seasonality of our customers’ businesses. 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 U.S. state and federal employment tax resets. Thus, the results of operations for any interim period may be impacted by these factors and are not necessarily indicative of, nor comparable to, the results of operations for a full year. Principles of Consolidation The unaudited condensed consolidated financial statements include the accounts of Kforce Inc. and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. References in this document to “Kforce,” “the Company,” “we,” “the Firm,” “management,” “our” or “us” refer to Kforce Inc. and its subsidiaries, except where the context indicates otherwise. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most important of these estimates and assumptions relate to the following: allowance for doubtful accounts, fallouts and other accounts receivable reserves; accounting for goodwill and identifiable intangible assets; self-insured liabilities for workers’ compensation and health insurance; obligations for pension plans and accounting for income taxes. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates. Derivative Instrument Kforce’s interest rate swap derivative instrument is recorded at fair value on the Unaudited Condensed Consolidated Balance Sheets. The derivative instrument has been designated as a cash flow hedge; the effective portion of the gain or loss on the derivative instrument is recorded as a component of accumulated other comprehensive income, net of tax, and reclassified into earnings when the hedged item affects earnings and into the line item of the hedged item. Any ineffective portion of the gain or loss is recognized immediately into Other expense, net on the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income. Cash flows from the derivative instrument are classified in the Unaudited Condensed Consolidated Statements of Cash Flows in the same category as the hedged item. Stock-Based Compensation Kforce accounts for stock-based compensation by measuring the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost is recognized over the requisite service period. Effective January 1, 2017, as a result of our adoption of a recently issued accounting standard, the Firm changed its accounting policy regarding forfeitures and elected to recognize as incurred. Income Taxes Effective January 1, 2017, as a result of our adoption of a recently issued accounting standard, excess tax benefits or deficiencies of deductions attributable to employees’ vesting of restricted stock are reflected in Income tax expense in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income. Health Insurance Except for certain fully insured health insurance lines of coverage, Kforce retains the risk of loss for each health insurance plan participant up to $350 thousand in claims annually. Additionally, for all claim amounts exceeding $350 thousand, Kforce retains the risk of loss up to an aggregate annual loss of those claims of $700 thousand. For its partially self-insured lines of coverage, health insurance costs are accrued using estimates to approximate the liability for reported claims and incurred but not reported 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. Earnings per Share Basic earnings per share is computed as earnings divided by the weighted average number of common shares outstanding (“WASO”) during the period. WASO excludes unvested shares of restricted stock. Diluted earnings per common share is computed by dividing the earnings attributable to common shareholders by diluted WASO. Diluted WASO includes the dilutive effect of stock options and other potentially dilutive securities such as unvested shares of restricted stock using the treasury stock method, except where the effect of including potential common shares would be anti-dilutive. For the three and nine months ended September 30, 2017, there were 239 thousand and 301 thousand common stock equivalents included in the diluted WASO, respectively. For the three and nine months ended September 30, 2016, there were 177 thousand and 162 thousand common stock equivalents included in the diluted WASO, respectively. For the three and nine months ended September 30, 2017 and 2016, there was an insignificant amount of anti-dilutive common stock equivalents. New Accounting Standards Recently Adopted Accounting Standards In March 2017, the FASB issued authoritative guidance requiring that an employer disaggregate the service cost component from the other components of net periodic benefit cost for defined benefit pension plans. The amendments also provide explicit guidance on how to present the service cost component and the other components of net periodic benefit cost in the income statement. The guidance is to be applied for annual periods beginning after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. The guidance should be applied retrospectively for the presentation of the service cost component and the other components of net periodic benefit cost in the income statements. We elected to early adopt this guidance as of January 1, 2017 due to the ease of implementation. The impact of early adoption resulted in a retrospective adjustment to the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income to reclass the interest cost component of net periodic benefit cost from Selling, general and administrative expenses to Other expense, net. The amount of the reclassification was approximately $0.1 million for the three months ended September 30, 2017 and 2016, respectively. The amount of the reclassification was approximately $0.4 million and $0.3 million for the nine months ended September 30, 2017 and 2016, respectively. In January 2017, the FASB issued authoritative guidance simplifying the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under this guidance, an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The guidance is to be applied for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The guidance requires companies to apply the requirements prospectively. We elected to early adopt this guidance as of January 1, 2017 in order to simplify our processes. The adoption of this guidance did not have an impact on the Firm’s consolidated financial statements. In March 2016, the FASB issued authoritative guidance regarding the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liability, and classification in the statement of cash flows. This guidance was effective for us on January 1, 2017. The impact of this guidance resulted in the following: •All excess tax benefits and deficiencies will be recognized as income tax benefit or expense in the income statement. Prior to the effective date, they were recognized as a change to additional paid-in capital. The Firm will apply this amendment prospectively. For the three and nine months ended September 30, 2017, the Firm recorded approximately $0.1 million and $0.3 million, respectively, of excess tax benefits as a reduction to Income tax expense in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income. This resulted in a reduction to our effective tax rate of 0.6% and an increase to our diluted earnings per share of $0.01 for the nine months ended September 30, 2017. This accounting standard guidance is likely to create volatility in the Firm’s effective tax rate in the future, though the impact is uncertain and based upon future stock price changes. •Excess tax benefits and deficiencies will be classified as an operating activity in the statement of cash flows. Prior to the effective date, they were included in financing activities in the statement of cash flows. The Firm elected to apply this amendment retrospectively. This change increased our net cash provided by operating activities by $0.3 million for each of the nine months ended September 30, 2017 and 2016 in the accompanying Unaudited Condensed Consolidated Statements of Cash Flows. •An entity is allowed to make a policy election as to whether it will include an estimate for awards expected to be forfeited or whether it will account for forfeitures as they occur. The Firm elected to change its policy on accounting for forfeitures and to account for them as they occur in order to simplify our processes. This policy election is to be applied using a modified retrospective approach with a cumulative-effect adjustment to retained earnings as of the effective date. The impact to the beginning balance of retained earnings was $0.5 million, which is net of taxes of $0.3 million. In November 2015, the FASB issued authoritative guidance requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This guidance was effective for us on January 1, 2017. The Firm elected to apply this guidance retrospectively. As a result, $4.8 million of current deferred tax assets, net was reclassified to noncurrent deferred tax assets, net as of December 31, 2016. Accounting Standards Not Yet Adopted In August 2017, the FASB issued authoritative guidance targeting improvements to accounting for hedging activities by simplifying the rules around hedge accounting and improving the disclosure requirements. The guidance is to be applied for annual periods beginning after December 15, 2018, including interim periods within those annual periods, and early adoption is permitted in any interim period. The hedge accounting guidance should be implemented using a modified retrospective approach for any hedges that exist on the date of adoption, while the presentation and disclosure requirements must be applied prospectively. Kforce is currently evaluating the potential impact on the consolidated financial statements. In June 2016, the FASB issued authoritative guidance on accounting for credit losses on financial instruments, including trade receivables. The guidance requires the application of a current expected credit loss model, which measures credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts. The guidance is to be applied for annual periods beginning after December 15, 2019, and interim periods within those annual periods, and early adoption is permitted no sooner than annual periods beginning after December 15, 2018. The guidance requires companies to apply the requirements using a modified retrospective approach. Kforce is currently evaluating the potential impact on the consolidated financial statements. In February 2016, the FASB issued authoritative guidance regarding the accounting for leases. The guidance is to be applied for annual periods beginning after December 15, 2018, and interim periods within those annual periods, and early adoption is permitted. The guidance requires companies to apply the requirements retrospectively to all prior periods presented, including interim periods. Kforce elected not to adopt this standard early. The Firm has made progress with assessing contractual arrangements that may be impacted by the new standard. Kforce anticipates that the adoption of this standard will have a significant impact to its consolidated balance sheet as it will result in recording substantially all operating leases as a right-to-use asset and lease obligation. Kforce continues to assess all potential impacts of the standard, especially with respect to our disclosures. In May 2014, the FASB issued authoritative guidance regarding revenue from contracts with customers, which specifies that revenue should be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued authoritative guidance deferring the effective date of the new revenue standard by one year for all entities. The one-year deferral results in the guidance being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 and entities are not permitted to adopt the standard earlier than the original effective date. Since May 2014, the FASB has issued additional and amended authoritative guidance regarding revenue from contracts with customers to clarify and improve the understanding of the implementation guidance. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. We have selected the modified retrospective transition method. Based on our preliminary assessment, we believe that the timing of our revenue recognition will not be impacted for at least 95% of our revenues. The remainder of our revenues are derived from Government Solutions (“GS”) fixed-price contracts. We are reviewing these contracts in order to determine if there may be any change to the timing of revenue recognition. We are continuing to evaluate various items that may impact our revenue transaction prices. Furthermore, we do anticipate an increase in the level of disclosure around our arrangements and resulting revenue recognition. |
Commitments and Contingencies |
9 Months Ended |
---|---|
Sep. 30, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies Litigation We are involved in legal proceedings, claims, and administrative matters that arise in the ordinary course of our business. We have made accruals with respect to certain of these matters, where appropriate, that are reflected in our unaudited condensed consolidated financial statements but are not, individually or in the aggregate, considered material. For other matters for which an accrual has not been made, we have not yet determined that a loss is probable or the amount of loss cannot be reasonably estimated. While the ultimate outcome of the matters cannot be determined, we currently do not expect that these proceedings and claims, individually or in the aggregate, will have a material effect on our financial position, results of operations, or cash flows. The outcome of any litigation is inherently uncertain, however, and if decided adversely to us, or if we determine that settlement of particular litigation is appropriate, we may be subject to liability that could have a material adverse effect on our financial position, results of operations, or cash flows. Kforce maintains liability insurance in amounts and with such coverage and deductibles as management believes is reasonable. The principal liability risks that Kforce insures against are workers’ compensation, personal injury, bodily injury, property damage, directors’ and officers’ liability, errors and omissions, cyber liability, employment practices liability and fidelity losses. There can be no assurance that Kforce’s liability insurance will cover all events or that the limits of coverage will be sufficient to fully cover all liabilities. Accordingly, we disclose matters below for which a material loss is reasonably possible. On August 25, 2016, Kforce Flexible Solutions LLC (along with co-defendant BMO Harris Bank) was served with a complaint brought in the Northern District of Illinois, U.S. District Court, Eastern District of Illinois; Shepard v. BMO Harris Bank N.A. et al., Case No.: 1:16-cv-08288. The plaintiff purports to bring claims on her own behalf and on behalf of a putative class of telephone-dedicated workers for alleged violations of the Fair Labor Standards Act, the Illinois Minimum Wage Law, and the Illinois Wage Payment and Collection Act based upon the defendants’ purported failure to pay her and other class members all earned regular and overtime pay for all time worked. More specifically, the plaintiff alleges that class employees were required to perform unpaid work before and after the start and end times of their shifts. She seeks unpaid back regular and overtime wages, liquidated damages, statutory penalties, and attorney fees and costs. On October 24, 2017, the presiding judge granted preliminary approval of a resolution of this matter. The judge will consider final approval of the parties’ resolution on February 15, 2018. We do not expect this matter to have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. Employment Agreements Kforce has entered into employment agreements with certain executives that provide for minimum compensation, salary and continuation of certain benefits for a six-month to a three-year period after their employment ends under certain circumstances. Certain of the agreements also provide for a severance payment of one to three times annual salary and one-half to three times average annual bonus if such an agreement is terminated without good cause by Kforce or for good reason by the executive. These agreements contain certain post-employment restrictive covenants. At September 30, 2017, Kforce’s liability would be approximately $39.8 million if, following a change in control, all of the executives under contract were terminated without good cause by the employer or if the executives resigned for good reason and $15.6 million if, in the absence of a change in control, all of the executives under contract were terminated by Kforce without good cause or if the executives resigned for good reason. As of September 30, 2017, approximately $0.8 million of severance was accrued for two executives. |
Accounts Payable and Other Accrued Liabilities |
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Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Accounts Payable and Other Accrued Liabilities | Accounts Payable and Other Accrued Liabilities Accounts payable and other accrued liabilities consisted of the following (in thousands):
Our accounts payable balance includes trade creditor and independent contractor payables. Our accrued liabilities balance includes the current portion of our deferred compensation plans liability, accrued customer rebates and other accrued liabilities. |
Accrued Payroll Costs |
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Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Payroll Costs | Accrued Payroll Costs Accrued payroll costs consisted of the following (in thousands):
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Credit Facility |
9 Months Ended |
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Sep. 30, 2017 | |
Debt Disclosure [Abstract] | |
Credit Facility | Credit Facility On May 25, 2017, the Firm entered into a credit agreement with Wells Fargo Bank, National Association, as administrative agent, Wells Fargo Securities, LLC, as lead arranger and bookrunner, Bank of America, N.A., as syndication agent, Regions Bank and BMO Harris Bank, N.A., as co-documentation agents, and the lenders referred to therein (the “Credit Facility”). In connection with entering into the Credit Facility, the Firm terminated in its entirety its previous credit facility. Under the Credit Facility, the Firm will have a maximum borrowing capacity of $300.0 million, which may, subject to certain conditions and the participation of the lenders, be increased up to an aggregate additional amount of $150.0 million (the “Commitment”), which will be available to the Firm in the form of revolving credit loans, swingline loans, and letters of credit. Letters of credit and swingline loans under the Credit Facility are subject to sublimits of $10.0 million. The maturity date of the Credit Facility is May 25, 2022. Revolving credit loans under the Credit Facility will bear interest at a rate equal to (a) the Base Rate (as described below) plus the Applicable Margin (as described below) or (b) the LIBOR Rate plus the Applicable Margin. Swingline loans under the Credit Facility will bear interest at a rate equal to the Base Rate plus the Applicable Margin. The Base Rate is the highest of: (i) the Wells Fargo Bank, National Association prime rate, (ii) the federal funds rate plus 0.50% or (iii) one-month LIBOR plus 1.00%, and the LIBOR Rate is reserve-adjusted LIBOR for the applicable interest period, but not less than zero. The Applicable Margin is based on the Firm’s total leverage ratio. The Applicable Margin for Base Rate loans ranges from 0.25% to 0.75% and the Applicable Margin for LIBOR Rate loans ranges from 1.25% to 1.75%. The Firm will pay a quarterly non-refundable commitment fee equal to the Applicable Margin on the average daily unused portion of the Commitment (swingline loans do not constitute usage for this purpose). The Applicable Margin for the commitment fee is based on the Firm’s total leverage ratio and ranges between 0.20% and 0.35%. The Firm will continually be subject to certain affirmative and negative covenants including (but not limited to), the maintenance of a fixed charge coverage ratio of no less than 1.25 to 1.00 and the maintenance of a total leverage ratio of no greater than 3.25 to 1.00. The numerator in the fixed charge coverage ratio is defined pursuant to the Credit Facility as earnings before interest expense, income taxes, depreciation and amortization, stock-based compensation expense and other permitted items pursuant to our Credit Facility (disclosed as “Consolidated EBITDA”), less cash paid for capital expenditures, income taxes and dividends. The denominator is defined as Kforce’s fixed charges such as interest expense and principal payments paid or payable on outstanding debt other than borrowings under the Credit Facility. The total leverage ratio is defined pursuant to the Credit Facility as total indebtedness divided by Consolidated EBITDA. Our ability to make distributions or repurchases of equity securities could be limited if an event of default has occurred. Furthermore, our ability to repurchase equity securities could be limited if (a) the total leverage ratio is greater than 2.75 to 1.00 and (b) the Firm’s availability, inclusive of unrestricted cash, is less than $25.0 million. As of September 30, 2017, Kforce was not limited in making distributions and executing repurchases of its equity securities. Borrowings under the Credit Facility are secured by substantially all of the assets of the Firm. As of September 30, 2017, $126.1 million was outstanding and $170.4 million was available under the Credit Facility, subject to the covenants described above. Kforce has $3.5 million of outstanding letters of credit at September 30, 2017 which, pursuant to the Credit Facility, reduce the availability. As of December 31, 2016, $111.5 million was outstanding under the previous credit facility. |
Employee Benefit Plans |
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Retirement Benefits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Employee Benefit Plans | Employee Benefit Plans Deferred Compensation Plans The Firm maintains various non-qualified deferred compensation plans, pursuant to which eligible management and highly compensated key employees, as defined by IRS regulations, may elect to defer all or part of their compensation to later years. These amounts are classified in Accounts payable and other accrued liabilities if payable within the next year or in Other long-term liabilities if payable after the next year or upon retirement or termination of employment in the accompanying Unaudited Condensed Consolidated Balance Sheets. At September 30, 2017 and December 31, 2016, amounts included in Accounts payable and other accrued liabilities related to the deferred compensation plans totaled $3.4 million and $2.7 million, respectively. At September 30, 2017 and December 31, 2016, amounts included in Other long-term liabilities related to the deferred compensation plans totaled $28.2 million and $27.5 million, respectively. Kforce maintains a Rabbi Trust and holds life insurance policies on certain individuals to assist in the funding of the deferred compensation liability. If necessary, employee distributions are funded through proceeds from the sale of assets held within our Rabbi Trust. The balance of the assets within the Rabbi Trust, including the cash surrender value of the Company-owned life insurance policies, was $30.3 million and $27.3 million as of September 30, 2017 and December 31, 2016, respectively, and is included in Other assets, net in the accompanying Unaudited Condensed Consolidated Balance Sheets. Supplemental Executive Retirement Plan Kforce maintains a Supplemental Executive Retirement Plan (the “SERP”) for the benefit of certain executive officers. The primary goals of the SERP are to create an additional wealth accumulation opportunity, restore lost qualified pension benefits due to government limitations and retain our covered executive officers. The SERP is a non-qualified benefit plan and does not include elective deferrals of covered executive officers’ compensation. The following table presents the components of net periodic benefit cost (in thousands):
The service cost is recorded in Selling, general and administrative expenses and the interest cost is recorded in Other expense, net in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income. The projected benefit obligation as of September 30, 2017 and December 31, 2016 was $14.1 million and $13.4 million, respectively, and is recorded in Other long-term liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheets. There is no requirement for Kforce to fund the SERP and, as a result, no contributions were made to the SERP during the nine months ended September 30, 2017. Kforce does not currently anticipate funding the SERP during the year ended December 31, 2017. |
Stock Incentive Plans |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Incentive Plans | Stock Incentive Plans On April 18, 2017, the Kforce shareholders approved the 2017 Stock Incentive Plan (“2017 Plan”). The 2017 Plan allows for the issuance of stock options, stock appreciation rights, stock awards (including restricted stock awards (“RSAs”) and restricted stock units (“RSUs”)) and other stock-based awards. The aggregate number of shares of common stock that are subject to awards under the 2017 Plan is approximately 3.0 million shares. The 2017 Plan terminates on April 18, 2027. Prior to the effective date of the 2017 Plan, the Company granted stock awards to eligible participants under our 2016 Stock Incentive Plan, 2013 Stock Incentive Plan and 2006 Stock Incentive Plan (collectively the “Prior Plans”). As of the effective date of the 2017 Plan, no additional awards may be granted pursuant to the Prior Plans; however, awards outstanding as of the effective date will continue to vest in accordance with the terms of the Prior Plans. During the three months ended September 30, 2017 and 2016, Kforce recognized total stock-based compensation expense of $1.8 million and $1.3 million, respectively. During the nine months ended September 30, 2017 and 2016, Kforce recognized total stock-based compensation expense of $5.7 million and $5.0 million, respectively. Restricted Stock Restricted stock (including RSAs and RSUs) are granted to executives and management either: (1) for awards related to Kforce’s annual long-term incentive (“LTI”) compensation program, or (2) as part of a compensation package and in order to retain directors, executives and management. The LTI award amounts are generally based on total shareholder return performance goals, which are established by Kforce’s Compensation Committee during the first quarter of the year of performance. Restricted stock granted during the nine months ended September 30, 2017 will vest over a period between one to ten years, with equal vesting annually. RSAs contain the same voting rights as other common stock as well as the right to forfeitable dividends in the form of additional RSAs at the same rate as the cash dividend on common stock and containing the same vesting provisions as the underlying award. RSUs contain no voting rights, but have the right to forfeitable dividend equivalents in the form of additional RSUs at the same rate as the cash dividend on common stock and containing the same vesting provisions as the underlying award. The distribution of shares of common stock for each RSU, pursuant to the terms of the Kforce Inc. Director’s Restricted Stock Unit Deferral Plan, can be deferred to a date later than the vesting date if an appropriate election was made. In the event of such deferral, vested RSUs have the right to dividend equivalents. The following table presents the restricted stock activity for the nine months ended September 30, 2017 (in thousands, except per share amounts):
As of September 30, 2017, total unrecognized stock compensation expense related to restricted stock was $22.8 million, which will be recognized over a weighted average remaining period of 4.26 years. |
Derivative Instrument and Hedging Activity |
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Sep. 30, 2017 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Derivative Instrument and Hedging Activity | Derivative Instrument and Hedging Activity Kforce is exposed to interest rate risk as a result of our corporate borrowing activities. The Firm uses an interest rate swap derivative as a risk management tool to mitigate the potential impact of interest rate risk on our financial results. On April 21, 2017, Kforce entered into a forward-starting interest rate swap agreement with Wells Fargo Bank, N.A. (the “Swap”). The Swap rate is 1.81%, which is added to our interest rate margin to determine the fixed rate that the Firm will pay to the counterparty during the term of the Swap based on the notional amount of the Swap. The effective date of the Swap is May 31, 2017 and the maturity date is April 29, 2022. The notional amount of the Swap is $65.0 million for the first three years and decreases to $25.0 million for years four and five. The Swap has been designated as a cash flow hedge and was effective as of September 30, 2017. The change in the fair value of the Swap was recorded as a component of Accumulated other comprehensive (loss) income, net of tax, on the Unaudited Condensed Consolidated Balance Sheets. As of September 30, 2017, the fair value of the Swap was insignificant. |
Fair Value Measurements |
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Fair Value Measurements | Fair Value Measurements Kforce’s financial statements include a contingent consideration liability related to a non-significant acquisition of a business within our Government Solutions (“GS”) reporting segment, which is measured on a recurring basis and is recorded at fair value, determined using the discounted cash flow method. The inputs used to calculate the fair value of the contingent consideration liability are considered to be Level 3 inputs due to the lack of relevant market activity and significant management judgment. An increase in future cash flows may result in a higher estimated fair value while a decrease in future cash flows may result in a lower estimated fair value of the contingent consideration liability. Remeasurements to fair value are recorded in Other expense, net within the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income. There was no activity during the period in our recurring Level 3 fair value measurements. The contingent consideration liability is recorded in Other long-term liabilities within the accompanying Unaudited Condensed Consolidated Balance Sheets. Kforce’s interest rate swap is measured at fair value using readily observable inputs, such as the LIBOR interest rate. The inputs used to calculate the fair value of the Swap derivative instrument are considered to be Level 2 inputs. The Swap is recorded in Other long-term liabilities within the accompanying Unaudited Condensed Consolidated Balance Sheets. See Note H - “Derivative Instrument and Hedging Activity” in the Notes to Unaudited Condensed Consolidated Financial Statements, included in this report for a complete discussion of the Firm’s derivative instrument. Certain assets, in specific circumstances, are measured at fair value on a non-recurring basis utilizing Level 3 inputs such as goodwill, other intangible assets and other long-lived assets. For these assets, measurement at fair value in periods subsequent to their initial recognition would be applicable if one or more of these assets were determined to be impaired. The estimated fair values on Kforce’s financial statements as of September 30, 2017 and December 31, 2016 were as follows (in thousands):
There were no transfers into or out of Level 1, 2 or 3 assets or liabilities during the nine months ended September 30, 2017. |
Reportable Segments |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reportable Segments | Reportable Segments Kforce’s reportable segments are as follows: (1) Technology (“Tech”); (2) Finance and Accounting (“FA”); and (3) GS. This determination is supported by, among other factors: the existence of individuals responsible for the operations of each segment and who also report directly to our chief operating decision maker (“CODM”), the nature of the segment’s operations and information presented to Kforce’s Board and our CODM. Kforce also reports Flex and Direct Hire revenues separately by segment, which has been incorporated into the table below. Historically, our Tech segment has included the results of operations for Kforce Global Solutions, Inc., (“Global”) a wholly-owned subsidiary located in Manila, Philippines. During the three months ended September 30, 2017, Kforce completed the sale of Global’s assets. This sale did not meet the definition of discontinued operations. Kforce recorded a $3.3 million gain on sale of Global’s assets, which was recorded in Selling, general and administrative expenses within the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income. Historically, and for the three and nine months ended September 30, 2017 and 2016, Kforce has generated only sales and gross profit information on a segment basis. We do not report total assets or income separately by segment as our operations are largely combined. The following table provides information concerning the operations of our segments (in thousands):
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Supplemental Cash Flow Information |
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Supplemental Cash Flow Information | Supplemental Cash Flow Information Supplemental cash flow information is as follows (in thousands):
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Summary of Significant Accounting Policies (Policies) |
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Accounting Policies [Abstract] | |
Basis of Presentation | The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC regarding interim financial reporting. Accordingly, certain information and footnotes normally required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements have been condensed or omitted pursuant to those rules and regulations, although Kforce believes that the disclosures made are adequate to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2016 Annual Report on Form 10-K. In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation. The Unaudited Condensed Consolidated Balance Sheet as of December 31, 2016 was derived from our audited Consolidated Balance Sheet as of December 31, 2016, as presented in our 2016 Annual Report on Form 10-K. Our quarterly operating results are affected by the number of billing days in a quarter and the seasonality of our customers’ businesses. 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 U.S. state and federal employment tax resets. Thus, the results of operations for any interim period may be impacted by these factors and are not necessarily indicative of, nor comparable to, the results of operations for a full year. |
Principles of Consolidation | The unaudited condensed consolidated financial statements include the accounts of Kforce Inc. and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. References in this document to “Kforce,” “the Company,” “we,” “the Firm,” “management,” “our” or “us” refer to Kforce Inc. and its subsidiaries, except where the context indicates otherwise. |
Use of Estimates | The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most important of these estimates and assumptions relate to the following: allowance for doubtful accounts, fallouts and other accounts receivable reserves; accounting for goodwill and identifiable intangible assets; self-insured liabilities for workers’ compensation and health insurance; obligations for pension plans and accounting for income taxes. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates. |
Derivative Instrument | Kforce’s interest rate swap derivative instrument is recorded at fair value on the Unaudited Condensed Consolidated Balance Sheets. The derivative instrument has been designated as a cash flow hedge; the effective portion of the gain or loss on the derivative instrument is recorded as a component of accumulated other comprehensive income, net of tax, and reclassified into earnings when the hedged item affects earnings and into the line item of the hedged item. Any ineffective portion of the gain or loss is recognized immediately into Other expense, net on the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income. Cash flows from the derivative instrument are classified in the Unaudited Condensed Consolidated Statements of Cash Flows in the same category as the hedged item. |
Stock-Based Compensation | Kforce accounts for stock-based compensation by measuring the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost is recognized over the requisite service period. Effective January 1, 2017, as a result of our adoption of a recently issued accounting standard, the Firm changed its accounting policy regarding forfeitures and elected to recognize as incurred. |
Income Taxes | Effective January 1, 2017, as a result of our adoption of a recently issued accounting standard, excess tax benefits or deficiencies of deductions attributable to employees’ vesting of restricted stock are reflected in Income tax expense in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income. |
Health Insurance | Except for certain fully insured health insurance lines of coverage, Kforce retains the risk of loss for each health insurance plan participant up to $350 thousand in claims annually. Additionally, for all claim amounts exceeding $350 thousand, Kforce retains the risk of loss up to an aggregate annual loss of those claims of $700 thousand. For its partially self-insured lines of coverage, health insurance costs are accrued using estimates to approximate the liability for reported claims and incurred but not reported 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. |
Earnings per Share | Basic earnings per share is computed as earnings divided by the weighted average number of common shares outstanding (“WASO”) during the period. WASO excludes unvested shares of restricted stock. Diluted earnings per common share is computed by dividing the earnings attributable to common shareholders by diluted WASO. Diluted WASO includes the dilutive effect of stock options and other potentially dilutive securities such as unvested shares of restricted stock using the treasury stock method, except where the effect of including potential common shares would be anti-dilutive. |
New Accounting Standards | Recently Adopted Accounting Standards In March 2017, the FASB issued authoritative guidance requiring that an employer disaggregate the service cost component from the other components of net periodic benefit cost for defined benefit pension plans. The amendments also provide explicit guidance on how to present the service cost component and the other components of net periodic benefit cost in the income statement. The guidance is to be applied for annual periods beginning after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. The guidance should be applied retrospectively for the presentation of the service cost component and the other components of net periodic benefit cost in the income statements. We elected to early adopt this guidance as of January 1, 2017 due to the ease of implementation. The impact of early adoption resulted in a retrospective adjustment to the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income to reclass the interest cost component of net periodic benefit cost from Selling, general and administrative expenses to Other expense, net. The amount of the reclassification was approximately $0.1 million for the three months ended September 30, 2017 and 2016, respectively. The amount of the reclassification was approximately $0.4 million and $0.3 million for the nine months ended September 30, 2017 and 2016, respectively. In January 2017, the FASB issued authoritative guidance simplifying the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under this guidance, an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The guidance is to be applied for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The guidance requires companies to apply the requirements prospectively. We elected to early adopt this guidance as of January 1, 2017 in order to simplify our processes. The adoption of this guidance did not have an impact on the Firm’s consolidated financial statements. In March 2016, the FASB issued authoritative guidance regarding the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liability, and classification in the statement of cash flows. This guidance was effective for us on January 1, 2017. The impact of this guidance resulted in the following: •All excess tax benefits and deficiencies will be recognized as income tax benefit or expense in the income statement. Prior to the effective date, they were recognized as a change to additional paid-in capital. The Firm will apply this amendment prospectively. For the three and nine months ended September 30, 2017, the Firm recorded approximately $0.1 million and $0.3 million, respectively, of excess tax benefits as a reduction to Income tax expense in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income. This resulted in a reduction to our effective tax rate of 0.6% and an increase to our diluted earnings per share of $0.01 for the nine months ended September 30, 2017. This accounting standard guidance is likely to create volatility in the Firm’s effective tax rate in the future, though the impact is uncertain and based upon future stock price changes. •Excess tax benefits and deficiencies will be classified as an operating activity in the statement of cash flows. Prior to the effective date, they were included in financing activities in the statement of cash flows. The Firm elected to apply this amendment retrospectively. This change increased our net cash provided by operating activities by $0.3 million for each of the nine months ended September 30, 2017 and 2016 in the accompanying Unaudited Condensed Consolidated Statements of Cash Flows. •An entity is allowed to make a policy election as to whether it will include an estimate for awards expected to be forfeited or whether it will account for forfeitures as they occur. The Firm elected to change its policy on accounting for forfeitures and to account for them as they occur in order to simplify our processes. This policy election is to be applied using a modified retrospective approach with a cumulative-effect adjustment to retained earnings as of the effective date. The impact to the beginning balance of retained earnings was $0.5 million, which is net of taxes of $0.3 million. In November 2015, the FASB issued authoritative guidance requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This guidance was effective for us on January 1, 2017. The Firm elected to apply this guidance retrospectively. As a result, $4.8 million of current deferred tax assets, net was reclassified to noncurrent deferred tax assets, net as of December 31, 2016. Accounting Standards Not Yet Adopted In August 2017, the FASB issued authoritative guidance targeting improvements to accounting for hedging activities by simplifying the rules around hedge accounting and improving the disclosure requirements. The guidance is to be applied for annual periods beginning after December 15, 2018, including interim periods within those annual periods, and early adoption is permitted in any interim period. The hedge accounting guidance should be implemented using a modified retrospective approach for any hedges that exist on the date of adoption, while the presentation and disclosure requirements must be applied prospectively. Kforce is currently evaluating the potential impact on the consolidated financial statements. In June 2016, the FASB issued authoritative guidance on accounting for credit losses on financial instruments, including trade receivables. The guidance requires the application of a current expected credit loss model, which measures credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts. The guidance is to be applied for annual periods beginning after December 15, 2019, and interim periods within those annual periods, and early adoption is permitted no sooner than annual periods beginning after December 15, 2018. The guidance requires companies to apply the requirements using a modified retrospective approach. Kforce is currently evaluating the potential impact on the consolidated financial statements. In February 2016, the FASB issued authoritative guidance regarding the accounting for leases. The guidance is to be applied for annual periods beginning after December 15, 2018, and interim periods within those annual periods, and early adoption is permitted. The guidance requires companies to apply the requirements retrospectively to all prior periods presented, including interim periods. Kforce elected not to adopt this standard early. The Firm has made progress with assessing contractual arrangements that may be impacted by the new standard. Kforce anticipates that the adoption of this standard will have a significant impact to its consolidated balance sheet as it will result in recording substantially all operating leases as a right-to-use asset and lease obligation. Kforce continues to assess all potential impacts of the standard, especially with respect to our disclosures. In May 2014, the FASB issued authoritative guidance regarding revenue from contracts with customers, which specifies that revenue should be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued authoritative guidance deferring the effective date of the new revenue standard by one year for all entities. The one-year deferral results in the guidance being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 and entities are not permitted to adopt the standard earlier than the original effective date. Since May 2014, the FASB has issued additional and amended authoritative guidance regarding revenue from contracts with customers to clarify and improve the understanding of the implementation guidance. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. We have selected the modified retrospective transition method. Based on our preliminary assessment, we believe that the timing of our revenue recognition will not be impacted for at least 95% of our revenues. The remainder of our revenues are derived from Government Solutions (“GS”) fixed-price contracts. We are reviewing these contracts in order to determine if there may be any change to the timing of revenue recognition. We are continuing to evaluate various items that may impact our revenue transaction prices. Furthermore, we do anticipate an increase in the level of disclosure around our arrangements and resulting revenue recognition. |
Accounts Payable and Other Accrued Liabilities (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||
Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accounts Payable and Accrued Liabilities | Accounts payable and other accrued liabilities consisted of the following (in thousands):
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Accrued Payroll Costs (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Accrued Payroll Costs | Accrued payroll costs consisted of the following (in thousands):
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(Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retirement Benefits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Net Periodic Benefit Cost | The following table presents the components of net periodic benefit cost (in thousands):
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Stock Incentive Plans (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Restricted Stock Activity | The following table presents the restricted stock activity for the nine months ended September 30, 2017 (in thousands, except per share amounts):
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Fair Value Measurements (Tables) |
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis | The estimated fair values on Kforce’s financial statements as of September 30, 2017 and December 31, 2016 were as follows (in thousands):
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Reportable Segments (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operations of Segments | The following table provides information concerning the operations of our segments (in thousands):
|
Supplemental Cash Flow Information (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Cash Flow Elements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Details of Supplemental Cash Flow Information | Supplemental cash flow information is as follows (in thousands):
|
Accounts Payable and Other Accrued Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Payables and Accruals [Abstract] | ||
Accounts payable | $ 19,287 | $ 20,321 |
Accrued liabilities | 15,189 | 16,909 |
Total Accounts payable and other accrued liabilities | $ 34,476 | $ 37,230 |
Accrued Payroll Costs (Details) - USD ($) $ in Thousands |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Payables and Accruals [Abstract] | ||
Payroll and benefits | $ 43,254 | $ 37,409 |
Health insurance liabilities | 4,183 | 2,790 |
Payroll taxes | 2,466 | 2,640 |
Workers’ compensation liabilities | 1,232 | 1,298 |
Total Accrued payroll costs | $ 51,135 | $ 44,137 |
Employee Benefit Plans - Additional Information (Details) - USD ($) |
9 Months Ended | |
---|---|---|
Sep. 30, 2017 |
Dec. 31, 2016 |
|
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items] | ||
Current deferred compensation liability | $ 3,400,000 | $ 2,700,000 |
Deferred compensation plan | 28,200,000 | 27,500,000 |
Deferred compensation plan assets | 30,300,000 | 27,300,000 |
Supplemental Executive Retirement Plan | ||
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items] | ||
Supplemental executive retirement plan | 14,100,000 | $ 13,400,000 |
Employer contributions to benefit plans | 0 | |
Expected funding of the SERP in the current year | $ 0 |
Employee Benefit Plans - Components of Net Periodic Benefit Cost (Details) - Supplemental Executive Retirement Plan - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items] | ||||
Service cost | $ 79 | $ 328 | $ 239 | $ 984 |
Interest cost | 134 | 113 | 403 | 339 |
Net periodic benefit cost | $ 213 | $ 441 | $ 642 | $ 1,323 |
Stock Incentive Plans - Summary of Restricted Stock Activity (Details) - Restricted Stock $ / shares in Units, shares in Thousands, $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2017
USD ($)
$ / shares
shares
| |
Number of Restricted Stock | |
Outstanding, as of beginning of period (in shares) | shares | 1,708 |
Granted (in shares) | shares | 133 |
Forfeited/Canceled (in shares) | shares | (182) |
Vested (in shares) | shares | (290) |
Outstanding, as of end of period (in shares) | shares | 1,369 |
Weighted Average Grant Date Fair Value | |
Outstanding, as of beginning of period (in dollars per share) | $ / shares | $ 21.86 |
Granted (in dollars per share) | $ / shares | 21.57 |
Forfeited/Canceled (in dollars per share) | $ / shares | 21.90 |
Vested (in dollars per share) | $ / shares | 21.13 |
Outstanding, as of end of period (in dollars per share) | $ / shares | $ 21.97 |
Vested, total intrinsic value of restricted stock vested | $ | $ 6,501 |
Derivative Instrument and Hedging Activity (Details) - Designated as Hedging Instrument - Interest Rate Swap - USD ($) |
May 31, 2021 |
May 31, 2020 |
May 31, 2019 |
May 31, 2018 |
Sep. 30, 2017 |
May 31, 2017 |
---|---|---|---|---|---|---|
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||||||
Derivative rate | 1.81% | |||||
Derivative, notional amount | $ 65,000,000 | |||||
Derivative liability | $ 0 | |||||
Scenario, Forecast | ||||||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||||||
Derivative, notional amount | $ 25,000,000 | $ 25,000,000 | $ 65,000,000 | $ 65,000,000 |
Fair Value Measurements - Additional Information (Details) |
9 Months Ended |
---|---|
Sep. 30, 2017
USD ($)
| |
Fair Value Disclosures [Abstract] | |
Transfers into or out of Level 1, 2 or 3 assets | $ 0 |
Reportable Segments - Additional Information (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |
---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Segment Reporting Information [Line Items] | |||
Gain on sale of Global's assets | $ 3,148 | $ 0 | |
Tech | Kforce Global Solutions, Inc | Disposal Group, Disposed of by Sale, Not Discontinued Operations | |||
Segment Reporting Information [Line Items] | |||
Gain on sale of Global's assets | $ 3,300 |
Supplemental Cash Flow Information (Details) - USD ($) $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Cash paid during the period for: | ||
Income taxes, net | $ 15,204 | $ 16,023 |
Interest, net | 2,714 | 1,569 |
Non-cash transaction information: | ||
Employee stock purchase plan | 399 | 528 |
Equipment acquired under capital leases | 465 | 1,123 |
Receivable for sale of Global's assets | $ 1,979 | $ 0 |
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