10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 0-26058

Kforce Inc.

(Exact name of registrant as specified in its charter)

FLORIDA	59-3264661
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)
1001 East Palm Avenue
TAMPA, FLORIDA	33605
(Address of principal executive offices)	(Zip-Code)

Registrant’s telephone number, including area code: (813) 552-5000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) had been subject to such filing requirements for the past 90 days.  YES  [X]    NO  [ ]

As of November 12, 2002 the registrant had 31,215,646 shares of common stock, $.01 par value per share, issued and outstanding.

ITEM 1. FINANCIAL STATEMENTS

KFORCE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

				September 30,			December 31,
				2002			2001
			Assets:
Current Assets:
Cash and cash equivalents				$	10,645		$	255
Trade receivables, net of allowance for doubtful accounts and fallouts of $6,274 and $5,470, respectively					68,650			71,133
Income tax refund receivables					726			5,233
Deferred tax asset, current					2,222			4,037
Prepaid expenses and other current assets					3,785			4,956
	Total current assets				86,028			85,614
Receivables from officers and related parties, net of allowance of $300					734			726
Fixed assets, net					11,524			15,367
Deferred tax asset, non-current					4			1,847
Other assets, net					12,176			23,414
Goodwill, net of accumulated amortization of $16,955					95,621			95,804
	Total assets			$	206,087		$	222,772
		Liabilities and Stockholders’ Equity:
Current Liabilities:
Bank overdrafts					4,753			6,974
Accounts payable and other accrued liabilities				$	13,221		$	14,231
Accrued payroll costs					22,391			21,326
	Total current liabilities				40,365			42,531
Long term debt					22,000			28,185
Other long-term liabilities					7,764			13,247
	Total liabilities				70,129			83,963
Commitments and contingencies
Stockholders’ Equity:
Preferred stock, par value $.01; 15,000 shares authorized, none issued and outstanding					—			—
Common stock, par value $.01; 250,000 shares authorized, 48,337 and 48,264 issued and outstanding, respectively					483			483
Additional paid-in-capital					196,584			195,177
Unamortized stock based compensation					(1,031	)		—
Accumulated other comprehensive loss					(556	)		(596	)
Retained earnings					32,095			34,275
Less reacquired stock at cost; 16,787 and 16,524 shares, respectively					(91,617	)		(90,530	)
	Total stockholders’ equity				135,958			138,809
	Total liabilities and stockholders’equity			$	206,087		$	222,772

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

KFORCE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

		THREE MONTHS ENDED						NINE MONTHS ENDED
		September 30,			September 30,			September 30,			September 30,
		2002			2001			2002			2001
Net service revenues		$	128,900		$	152,691		$	390,040		$	524,891
Direct costs of services			86,967			95,290			260,904			318,315
Gross profit			41,933			57,401			129,136			206,576
Selling, general and administrative expenses			39,290			52,021			123,701			182,343
Depreciation and amortization expense			2,386			4,645			7,613			13,237
Income (loss) from operations			257			735			(2,178	)		10,996
Other expense, net			537			660			1,529			2,390
(Loss) income before income taxes			(280	)		75			(3,707	)		8,606
(Benefit from) provision for income taxes			(404	)		35			(1,527	)		3,915
Net income (loss)			124			40			(2,180	)		4,691
Other comprehensive loss:
	Foreign currency translation		—			—			—			(15	)
	Change in fair value of cash flow hedges, net of taxes		(18	)		(270	)		(40	)		(332	)
Comprehensive income (loss)		$	106		$	(230	)	$	(2,220	)	$	4,344
Earnings (loss) per share – Basic		$	.00		$	.00		$	(.07	)	$	.15
Weighted average shares outstanding – Basic			31,695			31,635			31,789			31,992
Earnings (loss) per share – Diluted		$	.00		$	.00		$	(.07	)	$	.14
Weighted average shares outstanding – Diluted			31,881			32,397			31,789			32,518

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

KFORCE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

					NINE MONTHS ENDED
					September 30,			September 30,
					2002			2001
Cash flows from operating activities:
Net (loss) income					$	(2,180	)	$	4,691
Adjustments to reconcile net (loss) income to cash provided by operating activities:
	Depreciation and amortization					7,613			13,237
	Provision for (recovery of)fallouts and bad debts on accounts and notes receivable					1,474			(185	)
	Amortization of stock based compensation					170			—
	Loss on asset sales/disposals					23			7
	Loss on asset impairment					1,607			—
	Deferred compensation expense, net					(150	)		2,523
Decrease (increase) in operating assets:
	Trade receivables					1,009			33,194
	Prepaid expenses and other current assets					777			(4,758	)
	Income taxes, net					8,164			—
	Other assets, net					912			(1,716	)
	Deferred compensation plan, net					(12	)		—
(Decrease) increase in operating liabilities:
	Accounts payable and other accrued liabilities					(376	)		(3,487	)
	Accrued payroll costs					1,948			(10,077	)
	Bank overdrafts					(2,221	)		(3,734	)
	Income tax (payable) refund					—			(1,496	)
	Other long-term liabilities					(512	)		(2,293	)
			Cash provided by operating activities			18,246			25,906
Cash flows from investing activities:
	Capital expenditures, net					(375	)		(5,070	)
	Proceeds from sale of furniture and equipment					34			45
				Cash used in investing activities		(341	)		(5,025	)
Cash flows from financing activities:
	Repayments on bank line of credit					(6,185	)		(8,396	)
	Proceeds from exercise of stock options					247			135
	Repurchase of common stock					(1,577	)		(14,350	)
				Cash used in financing activities		(7,515	)		(22,611	)
Increase (decrease) in cash and cash equivalents						10,390			(1,730	)
Cumulative translation adjustment						—			(15	)
Cash and cash equivalents at beginning of period						255			1,865
Cash and cash equivalents at end of period					$	10,645		$	120
Supplemental Cash Flow Information
	Cash (refunded) paid during the period for:
		Income taxes			$	(9,640	)	$	5,405
		Interest				1,761			1,991
Supplemental Non Cash Flow Information
	401(k) matching contribution					—			847
	Deferred compensation plan contribution					—			788
	Employee stock purchase plan contribution					882			1,805
	Change in the fair value of cash flow hedges, net of taxes					40			(332	)
	Issuance of restricted stock					1,201			—

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

KFORCE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(AMOUNTS IN THOUSANDS)

			NINE MONTHS ENDED
			SEPTEMBER 30,
			2002			2001
Common stock – shares:
	Shares at beginning of period			48,264			46,959
	Exercise of stock options			73			39
		Shares at end of Period		48,337			46,998
Common stock – par value			$	483		$	470
Additional paid in capital:
	Balance at beginning of period		$	195,177		$	191,007
	Exercise of stock options			247			135
	Disqualifying dispositions			26			4
	401K matching contribution			—			(502	)
	Deferred compensation plan net contributions			(61	)		(571	)
	Employee stock purchase plan contribution			(6	)		(2,076	)
	Issuance of restricted stock			1,201			—
		Balance at end of Period	$	196,584		$	187,997
Unamortized stock based compensation:
Balance at beginning of period			$	—		$	—
	Issuance of restricted stock			(1,201	)		—
	Amortization of stock based compensation			170
		Balance at end of Period	$	(1,031	)	$	—
Accumulated other comprehensive loss:
	Balance at beginning of period		$	(596	)	$	(267	)
	Foreign currency translation adjustment			—			(15	)
	Change in fair value of cash flow hedges, net of taxes			40			(332	)
		Balance at end of Period	$	(556	)	$	(614	)
Retained earnings:
	Balance at beginning of period		$	34,275		$	46,363
	Net (loss) income			(2,180	)		4,691
		Balance at end of Period	$	32,095		$	51,054
Treasury stock – shares:
	Shares at beginning of period			16,524			14,802
	401K matching contribution			—			(242	)
	Deferred compensation plan net (contributions)/forfeitures			72			(246	)
	Employee stock purchase plan contribution			(162	)		(699	)
	Repurchase of common stock			353			2,899
		Shares at end of Period		16,787			16,514
Treasury stock – cost:
	Balance at beginning of period		$	(90,530	)	$	(82,536	)
	401K matching contribution			—			1,349
	Deferred compensation plan net (contributions)/forfeitures			(398	)		1,359
	Employee stock purchase plan contribution			888			3,881
	Repurchase of common stock			(1,577	)		(14,350	)
		Balance at end of Period	$	(91,617	)	$	(90,297	)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

KFORCE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The unaudited condensed consolidated financial statements include the accounts of Kforce Inc. and its wholly owned subsidiaries (the “Company”). All material intercompany transactions and balances have been eliminated in consolidation.

Interim Financial Information. The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in management’s opinion, include all adjustments necessary for a fair presentation of results for the periods presented. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by applicable SEC rules and regulations; however, the Company believes that the disclosures made are adequate to make the information presented not misleading.

Reclassification. Certain amounts reported for prior periods have been reclassified to be consistent with the current period presentation.

Revenue Recognition. Net service revenues consist of sales inclusive of billable expenses and net of credits, discounts and fallouts. The Company recognizes Flexible Billings based on hours worked by assigned personnel on a weekly basis. Search Fees are recognized when earned upon the successful completion of the assignment. The Company’s policy is to replace individuals who fail to continue employment (fallouts) for the period of time specified in the agreements for search placements, generally thirty to ninety days. Revenue from Search Fees is shown on the Consolidated Statements of Operations and Comprehensive Income (Loss) net of a reserve for candidates not fulfilling the contract requirements.

Allowance for Doubtful Accounts and Fallouts. The Company has established a reserve for expected credit losses and fallouts on trade receivables based on past experience and management believes the reserves are adequate. It is possible that the accuracy of the estimation process could be materially impacted as the composition of accounts receivable changes over time. We continually review and refine the estimation process to make it as reactive to these changes as possible.

Cash and Cash Equivalents. The Company classifies all highly-liquid investments with an initial maturity of three months or less as cash equivalents.

Self-insurance. The Company offers an employee benefit program for all eligible employees for which it is self-insured for a portion of the cost. The Company is liable for claims up to $150 per claim and aggregate claims up to a defined yearly payment limit. All full-time employees and full-time consultants are eligible to participate in the program. Self-insurance costs are accrued using estimates to approximate the liability for reported claims and claims incurred but not reported.

Income Taxes. The Company accounts for income taxes using an asset and liability approach for the recognition of deferred tax assets and liabilities for the expected future tax consequences of differences between the carrying amounts and the tax bases of other assets and liabilities. The tax benefits of deductions attributable to employees’ disqualifying dispositions of shares obtained from incentive stock options are reflected in additional paid-in capital. No valuation allowance has been recorded because the Company has determined that it is more likely than not that the deferred tax asset will be realized.

Earnings Per Share. Options to purchase 5,601 and 7,596 shares of common stock were not included in the computation of diluted earnings per share during the three and nine months ended September 30, 2002 as compared to 4,510 and 5,218 for the same periods in 2001, because these options were anti-dilutive. Options to purchase 1,212, 2,224 and 2,281 shares of common stock were included in the computation of diluted earnings per share during the three months ended September 30, 2002, and the three and nine months ended September 30, 2001, respectively.

Impairment. In accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which became effective for the Company as of January 1, 2002, the Company periodically reviews the carrying value of long-lived assets to determine if impairment has occurred. Impairment losses, if any, are recorded in the period identified. Significant judgment is required to determine whether or not impairment has occurred. The determination is made by evaluating expected future undiscounted cash flows or the anticipated recoverability of costs incurred and if necessary determining the amount of the loss, if any, by evaluating the fair value of the assets. During the quarter ended September 30, 2002 the Company began a review of its customer relationship management (CRM) software. Based on this review, it was determined that a significant redesign of the software is needed and that the current value of the Company’s CRM software was impaired. The Company recognized impairment losses of $800 relating to the CRM software during the quarter ended September 30, 2002. Impairment losses of $1,607 relating to capitalized software have been recognized by the Company for the nine months ended September 30, 2002.

Other Comprehensive Income (Loss). Other comprehensive income (loss) is comprised of foreign currency translation adjustments, which arise primarily from activities of the Company’s Canadian operations, and unrealized gains and losses from changes in the fair value of certain derivative instruments that qualify for hedge accounting under SFAS 133,“Accounting for Derivative Instruments and Hedging Activities”.

Foreign Currency Translation Adjustments. For the period ended June 30, 2001, the results of operations from the Company’s Canadian operations, which were sold in June 2001, were translated into U.S. dollars using the weighted average exchange rates during the period. Remaining assets and liabilities have been translated using current or historical rates depending upon the related assets. Resulting foreign currency translation adjustments have been recorded in Other Comprehensive Income (Loss).

Accounting for Derivatives. The Company accounts for derivatives under SFAS 133, as amended by SFAS 137 and 138, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It also requires that all derivatives and hedging activities be recognized as either assets or liabilities in the balance sheet and be measured at fair value. Gains or losses resulting from the changes in fair value of derivatives are recognized in net income (loss) or recorded in other comprehensive income (loss), and are recognized in the statement of operations when the hedged item affects earnings, depending upon the purpose of the derivatives and whether they qualify for hedge accounting treatment. The Company’s policy is to designate at a derivative’s inception the specific assets, liabilities, or future commitments being hedged and monitor the derivative to determine if it remains an effective hedge. The Company does not enter into or hold derivatives for trading or speculative purposes.

In April 2001, the Company entered into two fixed interest rate swap contracts, with terms expiring no later than May 2003, in relation to $22,000 of the Company’s outstanding debt under its Credit Facility for a total notional amount of $22,000. Effective October 24, 2001, the Company obtained a lower interest rate and extended the expiration date to October 2003 on $12,000 of the swaps contracts. The contracts, which have been classified as cash flow hedges, effectively convert a portion of the Company’s outstanding debt under its Credit Facility to a fixed rate basis, thus reducing the impact of interest rate changes on future income. The differential between floating rate receipts and fixed rate payments is accrued as market rates fluctuate and recognized as an adjustment to interest expense. Consistent with SFAS 133, the Company recorded the fair value of the interest rate swap contracts, approximately $332 and $332 net of income taxes of $222 and $221, in other liabilities and accumulated other comprehensive income (loss) as of September 30, 2002 and September 30, 2001, respectively.

Recent Accounting Pronouncements.

Effective January 1, 2002, the Company reclassified billable expenses to revenue based on the Emerging Issues Task Force, Issue No 01-14, “Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred. Historically the reimbursements were classified as direct costs of services in the Consolidated Statements of Operations and Comprehensive Income (Loss). All prior period information has been adjusted to comparably reflect the effects of this reclassification. Billable expenses were $2,872 and $2,508 for the three months ended September 30, 2002 and 2001 and $8,376 and $10,151 and for the nine months then ended, respectively.

In October 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which replaces SFAS 121, the accounting model for long lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30, “Reporting Results of Operations – Reporting the effects of Disposal of a Segment of a Business”, for the disposal of segments of business. SFAS 144 requires that those long-lived assets be measured at the lower of the carrying amount or fair value less cost to sell, whether reported in continuing operations or discontinued operations. SFAS 144 also broadens the reporting of discontinued operations to include all components of an entity with the operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The provisions in SFAS 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, are to be applied prospectively. Effective January 1, 2002, the Company adopted SFAS 144. There was no impact on the Company’s financial position or results of operations as a result of adopting this standard.

The FASB recently issued the following SFAS’s and the Company is currently determining the impact that these standards will have on its financial statements.

• In August 2001, the FASB issued SFAS 143, “Accounting for Asset Retirement Obligations”. SFAS 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it occurred. The standard is effective for fiscal years beginning after June 15, 2002.

• In April 2002, the FASB adopted SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB No. 13, and Technical Corrections (“SFAS No. 145”). SFAS No. 145 rescinds FASB No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, FASB No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. SFAS No. 145 also rescinds FASB No. 44, Accounting for Intangible Assets of Motor Carriers, and FASB No. 13, Accounting for Leases, eliminating an inconsistency between certain sale-leaseback transactions. The provisions of SFAS No. 145 are effective for fiscal years beginning after May 15, 2002.

• In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated With Exit or Disposal Activities”. Statement 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. SFAS No. 146 requires costs associated with exit or disposal activities to be recognized when the costs are incurred, rather than at a date of commitment to an exit or disposal plan. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002.

NOTE B – INTANGIBLE ASSETS

Effective July 1, 2001 the Company adopted SFAS 141, “Business Combinations”. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. The adoption of SFAS 141 did not have an impact on the results of operations, financial position or liquidity of the Company.

In July 2001, the FASB issued SFAS 142, “Goodwill and Other Intangible Assets”. The Company has adopted SFAS 142 as of January 1, 2002. SFAS 142 requires goodwill and intangible assets with indefinite useful lives to no longer be amortized, but instead to be tested for impairment on an annual basis.

SFAS 142 provides a six-month transitional period from the effective date of adoption for the Company to perform an assessment of whether there is an indication that goodwill is impaired. To the extent that an indication of impairment exists, the Company must perform a second test to measure the amount of the impairment. In the first step the Company identified its reporting units and determined the carrying value of each by assigning the Company’s assets and liabilities, including existing goodwill, to them as of January 1, 2002. The Company identified its reporting units as Information Technology, Finance and Accounting, Health and Life

Sciences and Human Resources. The Human Resources business line is part of the Information Technology reporting segment, but based on analysis under SFAS 142 the Company has determined that the business line meets the criteria for a reporting unit. The Company then determined the fair value of each reporting unit utilizing an independent appraiser, by using a combination of present value and several earning valuation techniques and comparing it to the carrying value of each reporting unit. The Company completed this first step, as of June 30, 2002, and determined that an impairment may exist in the Information Technology and Human Resources units.

In the second step the Company will compare the implied fair value of the affected reporting units’ goodwill to the carrying value to determine the amount of the impairment. The fair value of goodwill will be determined by allocating the reporting units fair value to all of its assets and liabilities in a manner similar to a purchase price allocation in accordance with SFAS 141. The Company will complete the second step no later then December 31, 2002. We estimate the potential impairment of goodwill for the two units could be as much as $35 million.

Conditions contributing to the goodwill impairment are negative industry and economic trends which have lowered profits and cash flows over the last 18 months and which continue to impact earnings forecasts.

In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill effective January 1, 2002. At December 31, 2001, goodwill, net of accumulated amortization, was $95,804. Goodwill amortization expense was $1,025 and $3,076, of which $250 and $750 is non-deductible, for the three and nine months ended September 30, 2001, respectively. A reconciliation of previously reported net (loss) income and earnings (loss) per share to the amounts adjusted for the exclusion of goodwill amortization, net of the related income (loss) tax effect follows. For purposes of the calculation of the tax effect, a 38% effective tax rate was applied to the deductible goodwill.

		Three months ended				Nine months ended
		September 30,				September 30,
		2002		2001		2002			2001
Reported net income (loss)		$	124	$	40	$	(2,180	)	$	4,691
Add: Goodwill amortization, net of income tax			—		731		—			2,194
Adjusted net income (loss)		$	124	$	771	$	(2,180	)	$	6,885
Earnings (loss) per share - Basic Reported earnings (loss)		$	.00	$	.00	$	(.07	)	$	.15
	Goodwill amortization, net of income tax		—		.02		—			.07
	Adjusted earnings (loss)	$	.00		.02	$	(.07	)	$	.22
Earnings (loss) per share – Diluted
	Reported earnings (loss)	$	.00	$	.00	$	(.07	)	$	.14
	Goodwill amortization, net of income tax		—		.02		—			.07
	Adjusted earnings (loss)	$	.00	$	.02	$	(.07	)	$	.21

Acquired intangible assets are summarized as follows at:

		Gross
		Carrying		Accumulated		Net Carrying
September 30, 2002		Amount		Amortization		Amount
Amortizable Intangible Assets
	Non-compete agreements	$	373	$	78	$	295
	Customer lists		1,304		272		1,032
	Subtotal		1,677		350		1,327
Unamortizable intangible assets
	Goodwill		112,576		16,955		95,621
Total		$	114,253	$	17,305	$	96,948

		Gross Carrying		Accumulated		Net Carrying
December 31, 2001		Amount		Amortization		Amount
Amortizable intangible Assets
	Non-compete agreements	$	373	$	—	$	373
	Customer lists		1,304		—		1,304
	Subtotal		1,677		—		1,677
Unamortizable intangible assets
	Goodwill		112,759		16,955		95,804
Total		$	114,436	$	16,955	$	97,481

The Company’s estimated amortization expense related to these acquired intangible assets is $419 for each of the four fiscal years beginning in 2002. Amortizable intangible assets are included in Other assets, net in the accompanying Unaudited Condensed Consolidated Balance Sheets.

The $183 reduction in gross carrying amount of goodwill between September 30, 2002 and December 31, 2001 is attributable to a change in the allocation of the purchase price for those acquisitions completed in December 2001.

NOTE C – CREDIT FACILITY

On November 3, 2000 the Company entered into a $90 million Amended and Restated Credit Facility with Bank of America (“the Credit Facility”). This Credit Facility has an initial term of three years. The Credit Facility provides for a maximum revolving credit facility of $90,000 (not to exceed 85% of our “Eligible Receivables” as such term is defined in the Credit Facility). Borrowings under the Credit Facility are secured by all of the assets of Kforce and its subsidiaries. Amounts borrowed under the Credit Facility bear interest at rates ranging from Prime to Prime plus 0.75% or LIBOR plus 1.75% to LIBOR plus 3.25%, pursuant to certain financial performance targets as set forth in the Credit Facility. As of September 30, 2002, one-month LIBOR was 1.80%. Pricing is changed quarterly based on the previous four quarters’ performance. Under the terms of the Credit Facility, we are prohibited from making any dividend distributions. The terms of the Credit Facility also include certain financial covenants should the total amount borrowed under the Credit Facility exceed specified amounts. These financial covenants include measurement of quarterly EBITDA as compared to our EBITDA projections. The amount available under the credit facility as of September 30, 2002 was $32,052. The amount available without triggering debt covenants as of September 30, 2002 was $12,052. We currently would not be in compliance with such financial covenants if such covenants were applicable and at certain times we have borrowed amounts that put us within approximately $1,000 of triggering these covenants. If we were subject to such financial covenants, we fail to comply with such covenants, and a default is declared under the Credit Facility, such default could result, among other things, in the acceleration of amounts borrowed under the Credit Facility. The Credit Facility also contains certain limitations on investments and acquisitions, and repurchases of our stock.

The Credit Facility contains a provision that limits the dollar amount of common stock the Company may repurchase. On August 5, 2002, this limit was increased by an additional $5 million. As of September 30, 2002, $5,896 was available under the authorization.

NOTE D — STOCKHOLDERS’ EQUITY

During the first quarter, the Company issued restricted stock to executive management, inside directors and certain other employees who voluntarily reduced their salary and cash bonus potential for fiscal 2002 in exchange for the restricted stock. Approximately 224 shares were issued under this program. The shares vest over a five-year period and have a vesting acceleration clause if certain of the Company’s common stock price thresholds are met.

Upon issuance of stock under the plan, unearned compensation of $1,201, which is equivalent to the market value at the date of grant, was charged to shareholders’ equity. Due to the time acceleration clause, the Company must make a determination at each reporting date whether it is probable that the performance criteria will be met for acceleration. If it is determined that, based on information available, it is probable the performance criteria will be achieved, the Company will recognize compensation cost over the shorter period. If it is determined that, based on information available, it is not probable the performance criteria will be achieved, the Company will continue to recognize compensation cost over the service period. As of September 30, 2002, the Company determined that the performance criteria was not met for acceleration. Accordingly the amount is currently being amortized over the five-year vesting period and approximately $170 was expensed during the nine months ended September 30, 2002.

NOTE E — SEGMENT ANALYSIS

The Company reports segment information in accordance with SFAS 131, “Disclosures about Segments of Enterprise and Related Information”. SFAS 131 requires a management approach in determining reportable segments of an organization. The management approach designates the internal organization that is used by management for making operation decisions and addressing performance as the source of determining the Company’s reportable segments. The Company’s internal reporting follows its three functional service offerings: Information Technology, Finance and Accounting, and Health and Life Sciences.

In January 2002, the Company reviewed the management of service revenue and determined that flexible billings and search services should be reported separately by segment. All prior period information has been adjusted to comparably reflect the effects of this change.

In January 2002, the Company reclassified billable expenses to revenue based on Emerging Issues Task Force Issue No. 01-14, “Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred”. Historically the reimbursements were classified as direct costs of services in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). All prior period information has been adjusted to comparably reflect the effects of this change.

The Company only generates revenue and gross profit information on a functional basis. As such, asset information by segment is not disclosed. Substantially all operations and long-lived assets are located in the U.S.

For the three months ended September 30,

				Information		Finance and		Health and
				Technology		Accounting		Life Sciences		TOTAL
2002
	Net Service Revenue
		Flexible Billings		$	54,720	$	23,895	$	41,310	$	119,925
		Search Fees			2,479		5,252		1,244		8,975
			Total Revenue		57,199		29,147		42,554		128,900
	Gross Profit				16,717		12,467		12,749		41,933
2001
	Net Service Revenue
		Flexible Billings			68,996		30,528		35,154		134,678
		Search Fees			5,756		10,832		1,425		18,013
			Total Revenue		74,752		41,360		36,579		152,691
	Gross Profit				23,998		20,680		12,723		57,401

For the nine months ended September 30,

				Information		Finance and		Health and
				Technology		Accounting		Life Sciences		TOTAL
2002
	Net Service Revenue
		Flexible Billings		$	161,901	$	74,522	$	122,770	$	359,193
		Search Fees			8,319		18,594		3,934		30,847
			Total Revenue		170,220		93,116		126,704		390,040
	Gross Profit				49,617		41,488		38,031		129,136
2001
	Net Service Revenue
		Flexible Billings			240,311		105,101		102,845		448,257
		Search Fees			28,461		43,170		5,003		76,634
			Total Revenue		268,772		148,271		107,848		524,891
	Gross Profit				91,528		77,390		37,658		206,576

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Report and prior period SEC reports can be obtained free of charge in the “About Us” section of the Company’s website at www.kforce.com.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, particularly with respect to the Liquidity and Capital Resources section of Management’s Discussion and Analysis of Financial Condition and Results of Operations. Additional written or oral forward-looking statements may be made by the Company from time to time, in filings with the SEC or otherwise. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements may include, but may not be limited to, projections of revenue, income, losses, cash flows, capital expenditures, plans for future operations, the effects of interest rate variations, financing needs or plans, plans relating to products or services of the Company, estimates concerning the effects of litigation or other disputes, as well as assumptions to any of the foregoing. In addition, when used in this discussion the words “anticipate”, “estimates”, “expects”, “intends”, “plans”, “believes” and variations thereof and similar expressions are intended to identify forward looking statements.

Forward-looking statements are inherently subject to risks and uncertainties, some of which can not be predicted. Future events and actual results could differ materially from those set forth in or underlying the forward looking statements. Readers are cautioned not to place undue reliance on any forward looking statements contained in this report which speak only as of the date of this report. The Company undertakes no obligation to publicly publish the results of any adjustments to these forward looking statements that may be made to reflect events on or after the date of this report or to reflect the occurrence of unexpected events.

CRITICAL ACCOUNTING POLICIES

In December 2001, the SEC requested that all registrants list their most “critical accounting policies” in MD&A. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of the Company’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We believe that our following accounting policies fit this definition:

Revenue recognition

Net service revenues consist of search fees and flexible billings inclusive of billable expenses and net of credits, discounts and fallouts. Flexible Billings are recognized based on hours worked by assigned personnel on a weekly basis. Search Fees are recognized when earned upon the successful completion of the placement assignment. Kforce’s policy is to replace individuals who fail to continue employment (fallouts) for the period of time specified in the agreements for search placements, generally thirty to ninety days. We have attempted to estimate credits, discounts and fallouts based on our analysis of current data and historical experience.

Allowance for doubtful accounts and fallouts

The Company has established a reserve for expected credit losses and fallouts on trade receivables based on our past experience. As a result of an ongoing analysis of factors including recent write off trends, changes in economic conditions, and concentration of accounts receivables among clients, we have increased the allowance as percentage of gross accounts receivable by 1.3% from 7.1% as of December 31, 2001 to 8.4% as of September 30, 2002. No single client has a receivable balance greater than 2.5% of the total accounts receivable balance. It is possible that the accuracy of our estimation process could be materially impacted as the composition of accounts receivable changes over time. We continually review and refine the estimation process to make it as reactive to these changes as possible. We cannot, however, guarantee that we will be able to accurately estimate credit losses on these accounts receivable.

Income taxes

The Company’s operating losses have resulted in net operating loss (NOL) carryforwards and other temporary differences for which the Company has recorded a deferred tax asset. Accounting principles generally accepted in the United States of America require that we record a valuation allowance against the deferred tax asset if it is “more likely than not” that we will not be able to utilize it to offset future taxes. We have not recorded a valuation allowance against our deferred tax asset because we believe it is more likely than not that we will be able to utilize our deferred tax asset to offset future taxes.

Accrued commissions

The Company pays commissions to its associates for successful placement of personnel. Commissions vary based on the estimated annual production of placement specialists and on the actual cash collections from the customer. We have estimated accrued commissions based on our analysis of actual data and historical experience of cash collections.

Impairment

In accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which became effective for the Company as of January 1, 2002, the Company periodically reviews the carrying value of long-lived assets to determine if impairment has occurred. Impairment losses, if any, are recorded in the period identified. Significant judgment is required to determine whether or not impairment has occurred. The determination is made by evaluating expected future undiscounted cash flows or the anticipated recoverability of costs incurred and if necessary determining the amount of the loss, if any, by evaluating the fair value of the assets. During the quarter ended September 30, the company identified impairment losses of $800,000 relating to the write down of the carrying value of capitalized software which will be redesigned by the Company.

Goodwill

Effective January 1, 2002, the Company adopted SFAS 142, “Goodwill and other Intangible Assets”. Accordingly, as of January 1, 2002, the Company discontinued amortizing goodwill. SFAS 142 also provides specific guidance for testing goodwill annually for impairment beginning with an initial transitional goodwill impairment test that is required to be completed within six months of the year of the initial adoption of SFAS 142. The Company has completed the initial transitional goodwill impairment test as of June 30, 2002. In the first step, the Company identified its reporting units and determined the carrying value of each by assigning the Company’s assets and liabilities, including existing goodwill, to them as of January 1, 2002. The Company then determined the fair value of each reporting unit utilizing an independent appraiser, by using a combination of present value and several earning valuation techniques and compared it to the carrying value of each reporting unit. The first step indicates that impairment may exist in the Information Technology and Human Resources units.

In the second step, the Company will compare the implied fair value of the affected reporting units’ goodwill to its carrying value to determine the amount of the impairment. The Company will complete the second step as soon as practicable and no later then December 31, 2002. We estimate the potential impairment of goodwill for the two units could be as much as $35 million.

The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States of America, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. See our audited consolidated financial statements and notes thereto included in Item 8 of our Annual Report on Form 10-K which contain accounting policies and other disclosures required by accounting principles generally accepted in the United States of America.

RESULTS OF OPERATIONS

The following table sets forth certain items in the Company’s unaudited condensed consolidated statements of operations, as a percentage of net service revenues, for the indicated periods:

		Three months ended						Nine months ended
		September 30,						September 30,
		2002			2001			2002			2001
Net Service Revenue by Segment:
	Information Technology		44.4	%		49.0	%		43.6	%		51.2	%
	Finance and Accounting		22.6			27.0			23.9			28.2
	Health and Life Sciences		33.0			24.0			32.5			20.6
Net service revenues			100.0			100.0			100.0			100.0
Revenue by Time:
	Flexible Billings		93.0	%		88.2	%		92.1	%		85.4	%
	Search Fees		7.0			11.8			7.9			14.6
Net service revenues			100.0			100.0			100.0			100.0
Gross profit			32.5			37.6			33.1			39.4
Selling, general, and administrative expenses			30.5			34.1			31.7			34.7
Income (loss) before taxes			(0.2	)		0.1			(0.9	)		1.6
Net income (loss)			0.1	%		0.0	%		(0.6	)%		0.9	%

Results of Operations for each of the Three and Nine Months Ended September 30, 2002 and 2001.

Net service revenues. Net service revenues decreased 15.6% and 25.7%, respectively, to $128.9 million and $390.0 million for the three and nine months ending September 30, 2002, as compared to $152.7 million and $524.9 million for the same periods in 2001. The decrease was comprised of a $9.0 million and a $45.8 million decrease in Search Services and a $14.8 million and a $89.1 million decrease in Flexible Billings for the three and nine months ending September 30, 2002, as described below.

Flexible Billings decreased 10.9% and 19.9%, respectively, to $119.9 million and $359.2 million for the three and nine months ending September 30, 2002, as compared to $134.7 million and $448.3 million for the same period in 2001. Search Fees decreased 50.2% and 59.7%, respectively, to $9.0 million and $30.8 million for the three and nine months ended September 30, 2002, as compared to $18.0 million and $76.6 million for the same periods in 2001. The decrease resulted from a 46.1% decrease in the number of placements made and a 7.9% decrease in the average fees for placements versus the same three month period in 2001. The changes by segment and revenue type are as follows (in thousands):

		Flex Revenue						Search Revenue
		Three months			Nine months			Three months			Nine months
		ended			ended			ended			ended
Information Technology
	2002 Revenue	$	54,720		$	161,901		$	2,479		$	8,319
	2001 Revenue		68,996			240,311			5,756			28,461
	Percent (Decrease)		(20.7	)%		(32.6	)%		(56.9	)%		(70.8	)%
Financial and Accounting
	2002 Revenue	$	23,895		$	74,522		$	5,252		$	18,594
	2001 Revenue		30,528			105,101			10,832			43,170
	Percent (Decrease)		(21.7	)%		(29.1	)%		(51.5	)%		(56.9	)%
Health and Life Sciences
	2002 Revenue	$	41,310		$	122,770		$	1,244		$	3,934
	2001 Revenue		35,154			102,845			1,425			5,003
	Percent Increase (Decrease)		17.5	%		19.4	%		(12.7	)%		(21.4	)%

We believe the decreases in all business unit Search revenues and in Flexible revenues for Information Technology and Finance and Accounting are primarily due to unfavorable economic conditions. The net increase in Flexible revenues for Health and Life Sciences is partially attributable to business acquisitions and disposals made in December 2001, which contributed an approximate $4.9 million and $15.4 million net increase in revenue for the three and nine months ended September 30, 2002 and 2001, respectively. In addition, during 2001, the Company closed or sold various businesses in its Information Technology segment that contributed $.7 million and $4.9 million in revenues for the three and nine months ended September 30, 2001.

Beginning in the first quarter 2002, the Company reclassified billable expenses to flexible billings based on the issuance of the Emerging Issues Task Force, Issue No. 01-14, “Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred”. Historically the reimbursements were classified as direct costs of services in the accompanying Unaudited Condensed Consolidated Statements of Operations. Results for the same period in 2001 have been adjusted for comparability. Billable expense reclasses were $2.9 million and $2.5 million for the three months ended September 30, 2002 and 2001, respectively and $8.4 million and $10.2 million for the nine months ended September 30, 2002 and 2001, respectively.

Gross profit. Gross profit decreased 26.9% and 37.5% respectively, to $41.9 million and $129.1 million during the three and nine months ended September 30, 2002, as compared to $57.4 million and $206.6 million for the same periods in 2001. Gross profit as a percentage of net service revenues decreased to 32.5% and 33.1% for the three and nine months ended in 2002, as compared to 37.6% and 39.4% for the same periods in 2001. The decrease was primarily attributable to the decrease in higher margin Search Services as a percent of total revenues from 11.8% and 14.6% for the three and nine months in 2001, to 7.0% and 7.9% for the same periods in 2002, and a change in the segment mix due to a decrease in higher margin Financial and Accounting flex revenues to lower margin Health and Life Sciences flex revenues.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased 24.5% and 32.2% to $39.3 million and $123.7 million for the three and nine months ended September 30, 2002, as compared to $52.0 million and $182.3 million for the same periods in 2001. Selling, general and administrative expenses as a percentage of net service revenues decreased to 30.5% and 31.7% for the three and nine months in 2002 compared to 34.1% and 34.7% for the same periods in 2001. The decrease in selling, general and administrative expense for the periods ended September 30, 2002 as compared to the same periods in the prior year is primarily due to a decrease in commissions and other compensation expense relating to the decrease in revenue; a decrease in bad debt write offs on accounts receivables due to improved collections activity; the benefits obtained from initiatives taken by management to re-engineer and streamline back-office operations; the realignment of the field management organization; and reductions in other selling, general and administrative expenses to better align expenses with revenue.

Depreciation and amortization expense. Depreciation and amortization expense decreased 48.6% and 42.5% to $2.4 million and $7.6 million for the three and nine months ended September 30, 2002 compared to $4.6 million and $13.2 million for the same periods in 2001. The decrease is due primarily to the decrease in depreciation on owned assets which were replaced by leased assets and the discontinuation of amortization of goodwill in accordance with SFAS 142, a new accounting pronouncement that the Company implemented on January 1, 2002. Goodwill amortization for the three and nine months ended September 30, 2001, was $1.0 and $3.1 million, respectively ($.7 million and $2.2 million net of tax).

Other expense, net. Other expense, net, decreased 18.6% and 36.0% for the three and nine months ended September 30, 2002, compared to the same periods in 2001. The decrease in other expense was primarily due to a decrease in interest expense as a result of a reduction in long term debt.

Income (loss) before taxes. Income (loss) before taxes for the three and nine months ended September 30, 2002, decreased to a loss before taxes of $.3 million and $3.7 million, as compared to income before taxes of $.1 million and $8.6 million for the same periods in 2001, primarily as a result of the decrease net service revenues, as discussed above.

(Benefit from) provision for income taxes. The income tax benefit for the three and nine months ended September 30, 2002, was $0.4 million and $1.5 million, compared to a tax

provision of $.0 million and $3.9 million for the same periods in 2001. The effective tax rate was 41.4% for the nine months ended September 30, 2002, compared to 45.5% for the same period in 2001. The difference was primarily the result of non-deductible goodwill amortization in 2001. The Company calculates the current quarter (benefit from) provision for income taxes using an anticipated full year effective tax rate. Any additional (benefit from) provision for income taxes related to prior quarters as a result of changes in the anticipated full year effective tax rate are reflected in the current quarter.

Net income (loss). Net income (loss) for the three and nine months ended September 30, 2002, was $.1 million and $(2.2) million, respectively, as compared to a net income of $.0 million and $4.7 million for the same periods in 2001, primarily as a result of the factors discussed above related to net service revenues.

The Company continues to evaluate its operating costs and balance sheet accounts to the extent its revenue base declines. Costs for the consolidation of offices, changing vendors of our outsourced data center, severance and streamlining of operations, impairment of assets and goodwill, and fees and costs associated with the proposed new Credit Facility could negatively affect net income for both the fourth quarter and the year by significant amounts.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2002, the Company’s sources of liquidity included $10.6 million in cash and cash equivalents, and $35.0 million in additional net working capital. In addition, we have approximately $22.0 million in debt outstanding.

Credit Facility

On November 3, 2000 the Company entered into a $90 million Amended and Restated Credit Facility with Bank of America (“the Credit Facility”). This Credit Facility had an initial term of three years. The Credit Facility provided for a maximum revolving credit facility of $90 million (not to exceed 85% of our “Eligible Receivables” as such term is defined in the Credit Facility). Borrowings under the Credit Facility are secured by all of the assets of the Company. Amounts borrowed under the Credit Facility bear interest at rates ranging from Prime to Prime plus 0.75% or LIBOR plus 1.75% to LIBOR plus 3.25%, pursuant to certain financial performance targets as set forth in the Credit Facility. As of September 30, 2002, one-month LIBOR was 1.80%. Pricing is changed quarterly based on the previous four quarters’ performance. Under the terms of the Credit Facility, we are prohibited from making any dividend distributions. The terms of the Credit Facility also include certain financial covenants should the total amount borrowed under the Credit Facility exceed specified amounts. These financial covenants include measurement of quarterly EBITDA as compared to our EBITDA projections. The amounts available under the credit facility as of September 30, 2002 and November 12, 2002 were $32.1 million and $37.4 million respectively. The amount available without triggering debt covenants as of September 30, 2002 and November 12, 2002 were $12.1 million and $17.4 million, respectively. We currently would not be in compliance with such financial covenants if such covenants were applicable and at certain times we have borrowed amounts that put us within approximately $1.0 million of triggering these covenants. If we were subject to such financial covenants, we fail to comply with such covenants, and a default is declared under the Credit Facility, such default could result, among other things, in the acceleration of amounts borrowed under the Credit Facility. The Credit Facility also contains certain limitations on investments and acquisitions, and repurchases of our stock.

The Credit Facility contains a provision that limits the dollar amount of its common stock the Company may repurchase. On August 5, 2002, this limit was increased by an additional $5 million. For the three month period ended September 30, 2002, the Company repurchased 352,800 shares of common stock for $1.6 million. As of November 12, 2002, for the period subsequent to September 30, 2002, the Company has repurchased as additional 334,700 shares. As of September 30, 2002 and November 12, 2002, $5.9 million and $4.8 million were available under the authorization.

The Company is currently in negotiations with a syndicate of lenders on a new $100 million credit facility that would expire in November 2005. The new facility would reduce the pricing and improve the flexibility for the Company to make acquisitions and repurchase stock. Though there can be no assurance that it will be completed, we anticipate execution of a new agreement prior to the end of 2002.

Interest Rate Swaps

In April 2001, the Company entered into two fixed interest rate swap contracts in relation

to a portion of its Credit Facility for a total notional amount of $22 million with terms expiring no later than May 2003. Effective October 24, 2001, the Company obtained a lower interest rate and extended the expiration date to October 2003 on $12 million of the swaps contracts. The contracts, which have been classified as cash flow hedges, effectively convert a portion of the Company’s outstanding debt under its Credit Facility to a fixed rate basis, thus reducing the impact of interest rate changes on future income. The differential between floating rate receipts and fixed rate payments is accrued as market rates fluctuate and recognized as an adjustment to interest expense. Consistent with SFAS 133, the Company recorded the fair value of the interest rate swap contracts, approximately $332,000 and $332,000 net of income taxes, in other liabilities and accumulated other comprehensive loss as of September 30, 2002 and September 30, 2001, respectively.

Restricted Stock Issuance

In January 2002, we announced that executive management, inside directors and certain other employees voluntarily reduced their salary and cash bonus potential in 2002 in exchange for restricted stock. Approximately 224,000 shares, valued at approximately $1.2 million, were issued under this program. The shares vest over a five year period with an acceleration clause if certain of the Company’s common stock price thresholds are met.

Registration Statement on Form S-3

On May 24, 2002, the Company filed a Registration Statement on form S-3 that will allow the issuance of up to $250 million of common stock and other equity and financial instruments for the financing of various corporate activities to potentially include funding for acquisitions and other business expansion opportunities, as well as compensation arrangements. No issuance of securities has been made under this registration statement as of November 12, 2002.

Income Tax Audits

The Company has received confirmation from the U.S. Internal Revenue Service that they have completed their income tax audit for the fiscal years ended December 31, 1999 and 1998, with no adverse findings and no additional liability.

Cash Flows

During the nine months ended September 30, 2002, cash flow provided by operations was $18.2 million resulting primarily from non-cash adjustments for depreciation, amortization and asset impairment write downs, a decrease in trade receivables, a decrease in income tax receivables due to cash received during the period, and an increase in payroll related liabilities. These items are partially offset by a decrease in accounts payable, bank overdrafts and other liabilities.

For the nine months ended September 30, 2002, cash flow used in investing activities was $0.3 million resulting from capital expenditures, net of proceeds on disposals.

During the nine months ended September 30, 2002, cash flow used by financing activities was $7.5 million, primarily from the repayment of $6.2 million of borrowings under the Company’s Credit Facility and the repurchase of 352,800 shares of common stock for $1.6 million.

The Company’s Board of Directors has authorized the repurchase of up to $115 million of its common stock on the open market, from time to time, depending on market condition. As of September 30 and November 12, 2002, the Company had repurchased approximately 17.7 million shares and 18.1 million shares, respectively. Approximately $16.2 million and $15.1 million was available under current board authorization and $5.9 million and $4.8 million was available under the current Credit Facility limitations as of September 30, 2002 and November 12, 2002, respectively. Additional stock repurchases may have a material impact on the Company’s cash flow requirements.

The Company believes that cash flow from operations and borrowings under our Credit Facility will be adequate to meet the working capital requirements of current operations for at least the next twelve months. However, further deterioration in the business environment and market conditions could negatively impact our operating results and liquidity. There is no assurance (i) that we will be able to obtain financing in amounts

sufficient to meet operating requirements or at terms which are satisfactory and which allow us to remain competitive, or (ii) that we will be able to meet the financial covenants contained in the Credit Facility. If we currently had borrowed sufficient funds to trigger the financial covenants in the Credit Facility, we would not be in compliance with such covenants. Our expectation that existing resources will fund working capital requirements is a forward-looking statement that is subject to risks and uncertainties. Actual results could differ from those indicated as a result of a number of factors, including the use of such resources for possible acquisitions and the announced stock repurchase plan.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to a variety of risks, including changes in interest rates on its borrowings. As of September 30, 2002 and November 12, 2002, the notional value of outstanding interest rate swap agreements of $22 million is equal to the amount outstanding under the Credit Facility. Therefore changes in interest rates will currently not affect the Company’s interest expense. The Company does not engage in trading market risk sensitive instruments for speculative purposes.

ITEM 4. CONTROLS AND PROCEDURES

Within the 90-day period prior to the filing of this report, evaluations were carried out under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934). Based upon those evaluations, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective. No significant changes have been made in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluations.

PART II — OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS
	None

ITEM 2.	CHANGES IN SECURITIES
	None

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES
	None

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	None

ITEM 5.	OTHER INFORMATION
	None

ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K
(a)	Exhibits

4.1	Fourth Amendment to the Amended and Restated Credit Agreement dated as of August 5, 2002
99.1	Certification Pursuant to 18 U.S.C. Section 1350 of David L. Dunkel
99.2	Certification Pursuant to 18 U.S.C. Section 1350 of William L. Sanders

SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Kforce Inc.
Date	November 13, 2002	By:
		/s/ William L. Sanders William L. Sanders, Senior Vice President, Chief Financial Officer
Date	November 13, 2002	By:
		/s/ David M. Kelly David M. Kelly, Vice President, Chief Accounting Officer

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

I, DAVID L. DUNKEL, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Kforce Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.

4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.)     designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b.)     evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c.)     presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a.)     all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b.)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.     The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002	/s/ David L. Dunkel
	David L. Dunkel, Chief Executive
	Officer

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

I, William L. Sanders, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Kforce Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.

4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.)     designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b.)     evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c.)     presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a.)     all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b.)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.     The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002	/s/ William L. Sanders
	William L. Sanders, Chief Financial
	Officer

EX-4.1

                                                                     EXHIBIT 4.1


                    FOURTH AMENDMENT TO AMENDED AND RESTATED
                                CREDIT AGREEMENT

         THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Fourth Amendment") dated as of August 5th, 2002, is made by and among Kforce
Inc., formerly known as kforce.com, Inc., a Florida corporation (the
"Borrower"), the Subsidiary Guarantors, the Lenders identified on the signature
pages hereof and Bank of America, N.A., as Administrative Agent for the Lenders
(in such capacity, the "Administrative Agent"). Terms used herein but not
otherwise defined herein shall have the meanings provided to such terms in the
Credit Agreement (as hereinafter defined).

                              W I T N E S S E T H

         WHEREAS, the Borrower, the Subsidiary Guarantors, the Lenders and Bank
of America, N.A., in its capacity as Administrative Agent, are parties to that
certain Amended and Restated Credit Agreement dated as of November 3, 2000, as
amended December 10, 2000, February 12, 2001, and January 23, 2002 (as at any
time further amended, modified, supplemented, extended or restated from time to
time, the "Credit Agreement"); and

         WHEREAS, the Borrower has requested and the Lenders have agreed to
amend certain terms of the Credit Agreement as set forth herein;

         NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

                  1.       The Credit Agreement is hereby amended by deleting
the definition of "Securities Repurchase Loan Conditions" set forth in Annex A
to the Credit Agreement and by restating such definition as follows:

                           "Securities Repurchase Loan Conditions" means in
         respect of each request for any Securities Repurchase Loan, each of
         the following:

                                    (i)      the Borrower shall have given
                           Administrative Agent at least two (2) days' prior
                           written notice of its intent to request a Securities
                           Repurchase Loan;

                                    (ii)     No Default or Event of Default
                           exists, and no Default or Event of Default would
                           exist after giving effect to the proposed Securities
                           Repurchase Loan;

                                    (iii)    After giving effect to the
                           requested Securities Repurchase Loan, the Borrower
                           shall have not less than $25,000,000 of Availability;



                           (iv)  the Capital Stock to be repurchased by the
                  Borrower is in connection with an Eligible Securities
                  Repurchase; and

                           (v)   the initial funded amount of all Securities
                  Repurchase Loans, together with the amount of any requested
                  Securities Repurchase Loan, shall not exceed $77,000,000 in
                  the aggregate.

         2.  Amendment Fee. Concurrently with its execution and delivery of
this Fourth Amendment, the Borrower shall pay to the Administrative Agent, for
the pro rata benefit of the Lenders, an amendment fee in the amount of $25,000.

         3.  Conditions Precedent. The effectiveness of this Fourth Amendment is
subject to the satisfaction of each of the following conditions (in form and
substance satisfactory to the Administrative Agent):

             (a)  The Administrative Agent shall have received executed
         counterparts of this Fourth Amendment duly executed by the Credit
         Parties, the Administrative Agent and the Lenders; and

             (b)  The Administrative Agent shall have received such additional
         agreements, certificates or documents as it may reasonably request in
         connection with this Fourth Amendment.

         4.  The Borrower and the Guarantors represent and warrant to the
Administrative Agent and the Lenders that (i) the representations and warranties
of the Credit Parties set out in Article 6 of the Credit Agreement are true and
correct as of the date hereof (except those which expressly relate to an earlier
period), (ii) no event has occurred and is continuing which constitutes a
Default or Event of Default and (iii) no Credit Party has any counterclaims,
offsets, credits or defenses to the Loan Documents and the performance of its
obligations thereunder, or if any Credit Party has any such claims,
counterclaims, offsets, credits or defenses to the Loan Documents or any
transaction related to the Loan Documents, same are hereby waived, relinquished
and released in consideration of the Lenders' execution and delivery of this
Fourth Amendment.

         5.  The Guarantors (i) acknowledge and consent to all of the terms and
conditions of this Fourth Amendment, (ii) affirm all of their obligations under
the Loan Documents and (iii) agree that this Fourth Amendment and all documents
executed in connection herewith do not operate to reduce or discharge the
Guarantors' obligations under Article 13 of the Credit Agreement or the other
Loan Documents.

         6.  The Borrower and the Guarantors hereby represent and warrant to the
Administrative Agent and the Lenders as follows:


                                      -2-

                  (1)      Each Credit Party has taken all necessary action to
         authorize the execution, delivery and performance of this Fourth
         Amendment.

                  (ii)    This Fourth Amendment has been duly executed and
         delivered by the Credit Parties and constitutes each of the Credit
         Parties' legal, valid and binding obligations, enforceable in
         accordance with its terms, except as such enforceability may be
         subject to (i) bankruptcy, insolvency, reorganization, fraudulent
         conveyance or transfer, moratorium or similar laws affecting
         creditors' rights generally and (ii) general principles of equity
         (regardless of whether such enforceability is considered in a
         proceeding at law or in equity).

                  (iii)   No consent, approval, authorization or order of, or
         filing, registration or qualification with, any court or governmental
         authority or third party is required in connection with the
         execution, delivery or performance by any Credit Party of this Fourth
         Amendment.

         7.       Except as modified hereby, all of the terms and provisions
of the Credit Agreement (including Schedules and Exhibits) and the other Loan
Documents, and the obligations of the Credit Parties under the Credit Agreement
and the other Loan Documents, are hereby ratified and confirmed and shall
remain in full force and effect.

         8.       This Fourth Amendment may be executed in any number of
counterparts, each of which when so executed and shall be deemed an
original and it shall not be necessary in making proof of this Fourth Amendment
to produce or account for more than one such counterpart.

         9.       This Fourth Amendment shall be deemed to be a contract made
under, and for all purposes shall be construed in accordance with, the laws of
the State of Georgia.

         WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Fourth Amendment to be duly executed and delivered as of the date first
above written.


BORROWER:                     KFORCE INC., formerly known as KFORCE.COM, INC.,
                              a Florida corporation



                              By:  /s/ Judy M. Genshino
                                  ---------------------------------------
                                  Name: Judy Genshino
                                  Title: Assistant Treasurer


                                      -3-

GUARANTORS:                   KFORCE AIRLINES, INC., a Florida corporation

                              By:  /s/ Judy M. Genshino
                                  ---------------------------------------
                                  Name: Judy Genshino
                                  Title: Assistant Treasurer




                              ROMAC INTERNATIONAL, INC., a Florida corporation

                              By:  /s/ Judy M. Genshino
                                  ---------------------------------------
                                  Name: Judy Genshino
                                  Title: Assistant Treasurer




                              KFORCE.COM, INC., formerly known as Kforce, Inc.

                              By:  /s/ Judy M. Genshino
                                  ---------------------------------------
                                  Name: Judy Genshino
                                  Title: Assistant Treasurer



                                      -4-


AGENT:                      BANK OF AMERICA, N.A., as
                            Administrative Agent


                            By: /s/ Patrick J. Wilson
                               ------------------------------------------------
                            Name: Patrick J. Wilson
                            Title: Senior Vice President



LENDERS:                    BANK OF AMERICA, N.A., individually in its capacity
                            as a Lender


                            By: /s/ Patrick J. Wilson
                               ------------------------------------------------
                            Name: Patrick J. Wilson
                            Title: Senior Vice President



                                      -5-


                            FLEET CAPITAL CORPORATION


                            By: /s/ Christopher Nairne
                               ------------------------------------------------
                            Name: Christopher Nairne
                            Title: Vice President



                                      -6-



                            Standard Federal Bank National Association,
                            formerly known as Michigan National Bank, as
                            successor in interest to Mellon Bank, N.A.

                            By: LaSalle Business Credit, Inc. as Agent for
                            Standard Federal Bank National Association


                            By: /s/ Roger Attix
                               ------------------------------------------------
                            Name: Roger Attix
                            Title: Vice President



                                      -7-


STATE OF GEORGIA

COUNTY OF FULTON

        AFFIDAVIT REGARDING EXECUTION AND DELIVERY OF CREDIT DOCUMENTS

         I HEREBY CERTIFY that on this day before me, the undersigned notary
public authorized to administer oaths and take acknowledgments in the state and
county aforesaid, personally appeared Judy Genshino (the "Affiant"), who, being
by me first duly sworn, stated under oath:

         1.       Affiant is the Assistant Treasurer of Kforce Inc., formerly
known as kforce.com, Inc. (the "Borrower") and the Subsidiary Guarantors and
has personal knowledge of the facts stated herein.

         2.       Affiant has on the date hereof in Fulton County, Georgia,
executed that certain Fourth Amendment to Amended and Restated Credit
Agreement, dated on or about the date hereof (the "Amendment"), by and among
the Borrower, the Subsidiary Guarantors, the Lenders from time to time party
thereto and Bank of America, N.A., as administrative agent (in such capacity,
the "Administrative Agent") Capitalized terms used herein, unless otherwise
defined, have the meanings provided in the Amendment.

         3.       Affiant has on the date hereof in Fulton County, Georgia,
executed the Amendment on behalf of each Credit Party thereto and delivered the
Amendment to the Administrative Agent in Fulton County, Georgia.

Dated: August 5th, 2002

                                           /s/ Judy M. Genshino
                                           -----------------------------
                                           Name: Judy M. Genshino

Sworn to and subscribed before me
this 5th day of August, 2002.


Zarah C. Elliott
- ---------------------------------
Notary Public
Print Name: Zarah C. Elliott

My Commission Expires:     Notary Public, DeKalb County, Georgia
                           My Commission Expires June 7, 2005


STATE OF GEORGIA

COUNTY OF FULTON


         AFFIDAVIT REGARDING EXECUTION AND DELIVERY OF CREDIT DOCUMENTS

         I HEREBY CERTIFY that on this day before me, the undersigned notary
public authorized to administer oaths and take acknowledgments in the state and
county aforesaid, personally appeared Mark Herdman of Atlanta, Georgia (the
"Affiant"), who, being by me first duly sworn, stated under oath:

         1.       Affiant is a Vice President of Bank of America, N.A. and has
personal knowledge of the facts stated herein.

         2.       Affiant has on the date hereof in Fulton County, Georgia,
executed that certain Fourth Amendment to Amended and Restated Credit Agreement
and Security Agreement dated as of January 1, 2002 (the "Amendment"), by and
among Kforce Inc, formerly known as kforce.com, Inc. (the "Borrower"), the
Subsidiary Guarantors, the Lenders from time to time party thereto and Bank of
America, N.A., as administrative agent (in such capacity, the "Administrative
Agent"). Capitalized terms used herein, unless otherwise defined, have the
meanings provided in the Amendment.

         3.       Affiant has on the date hereof in Fulton County, Georgia,
witnessed the execution, by each Credit Party thereto of the Amendment.

         4.       The Amendment was executed on behalf of the Borrower and Bank
of America, N.A., as a Lender and in its capacity as Administrative Agent and
was delivered to the Affiant in Fulton County, Georgia.

Dated: August 5, 2002


                                        Patrick J. Wilson
                                        -------------------------------------
                                        Name: Patrick J. Wilson

Sworn to and subscribed before me
this 5th day of August, 2002.


Zarah C. Elliott
- --------------------------------------
Notary Public
Print Name: Zarah C. Elliott

My Commission Expires:     Notary Public, DeKalb County, Georgia
                           My Commission Expires June 7, 2005



                           AUTHORIZATION CERTIFICATE
                           -------------------------

         The undersigned, being the Secretary of KFORCE INC., formerly known as
KFORCE.COM, Inc., a Florida corporation (the "Borrower"), hereby gives this
certificate to induce the lenders (collectively, "Lenders") party from time to
time to a certain Amended and Restated Credit Agreement, dated November 3, 2000
(as at any time amended, the "Credit Agreement"), among Borrower, certain
affiliates of Borrower, Lenders and BANK OF AMERICA, N.A., a national banking
association, as collateral and administrative agent for itself and Lenders
(together with its successors in such capacity, "Agent"), to enter into certain
amendments to the Credit Agreement.

         The undersigned hereby certifies that, to the best of his knowledge,
information and belief:

         (1)      He is the Secretary of the Borrower and the Subsidiary
Guarantors (as defined in the Credit Agreement);

         (2)      The Borrower and each of the Subsidiary Guarantors is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation, with full power and authority to
execute and deliver and to carry out and perform its obligations under the
Credit Agreement; and

         (3)      Judy M. Genshino is the Assistant Treasurer of the Borrower
and each of the Subsidiary Guarantors and each is duly elected, qualified to
act on behalf of the Borrower and the Subsidiary Guarantors as such;

         (4)      The Fourth Amendment to Amended and Restated Credit
Agreement, dated on or about the date hereof, has been duly authorized,
executed and delivered by and on behalf of the Borrower and the Subsidiary
Guarantors party thereto.

         IN WITNESS WHEREOF, the undersigned has set his hand as of August 2,
2002.


                                             /s/ William L. Sanders
                                             ------------------------------
                                             WILLIAM L. SANDERS, Secretary

EX-99.1

                                                                    Exhibit 99.1


                        CERTIFICATION PURSUANT TO
                         18 U.S.C. SECTION 1350,
                    AS ADOPTED PURSUANT TO SECTION 906
                     OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report of Kforce Inc. (the "Company") on Form
10-Q for the period ended September 30, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the 'Form 10-Q"), I, David L. Dunkel,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002,
that:

       (1) The Form 10-Q fully complies with the requirements of Section 13(a)
           or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or
           78o(d); and

       (2) The information contained in the Form 10-Q fairly presents, in all
           material respects, the financial condition and results of operations
           of the Company.


Dated: November 13, 2002



/s/ David L. Dunkel
_________________________________
David L. Dunkel
Chief Executive Officer

EX-99.2

                                                                    Exhibit 99.2





CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Kforce Inc. (the "Company") on Form
10-Q for the period ended September 30, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Form 10-Q"), I,  William L.
Sanders, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:

     (1)  The Form 10-Q fully complies with the requirements of Section 13
     (a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or
     78o(d)); and

     (2)  The information contained in the Form 10-Q fairly presents, in all
     material respects, the financial condition and results of operations of
     the Company.



Dated: November 13, 2002



/s/ William L. Sanders
_________________________________
William L. Sanders
Chief Financial Officer