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, 2016

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 000-26058

_________________________________________________________________

Kforce Inc.

(Exact name of registrant as specified in its charter)

_________________________________________________________________

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)

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) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.):    Yes  ¨    No  x

The number of shares outstanding of the registrant’s common stock as of October 28, 2016 was 27,119,027.

KFORCE INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2016

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements.	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	27
Item 4.	Controls and Procedures.	27
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings.	28
Item 1A.	Risk Factors.	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	28
Item 3.	Defaults Upon Senior Securities.	29
Item 4.	Mine Safety Disclosures.	29
Item 5.	Other Information.	29
Item 6.	Exhibits.	29
SIGNATURES		30

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

References in this document to “the Registrant,” “Kforce,” “the Company,” “we,” “the Firm,” “our” or “us” refer to Kforce Inc. and its subsidiaries, except where the context otherwise requires or indicates.

This report, particularly Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and Part II. Item 1A. Risk Factors, and the documents we incorporate into this report contain certain statements that are, or may be deemed to be, forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are made in reliance upon the protections provided by such acts for forward-looking statements. Such statements may include, but may not be limited to, projections of revenue, income, losses, cash flows, capital expenditures, future prospects, our beliefs regarding potential government actions, the impact of changes in laws and regulations, anticipated costs and benefits of proposed (or future) acquisitions, integration of acquisitions, transition of divestitures, plans for future operations, capabilities of business operations, effects of interest rate variations, our ability to obtain financing and favorable terms, financing needs or plans, plans relating to services of Kforce, estimates concerning the effects of litigation or other disputes, estimates concerning our ability to collect on our accounts receivable, expectations of the overall economic outlook, developments within the staffing sector including, but not limited to, the penetration rate (the percentage of temporary staffing to total employment) and growth in temporary staffing, a reduction in the supply of candidates for temporary employment or the Firm’s ability to attract such candidates, the success of the Firm in attracting and retaining revenue-generating talent, estimates concerning goodwill impairment, risk of contract performance, delays or termination or the failure to obtain awards, task orders or funding under contracts, changes in client demand for our services such as the resulting impact of any significant organizational changes within our largest clients, as well as assumptions as to any of the foregoing and all statements that are not based on historical fact but rather reflect our current expectations concerning future results and events. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the Risk Factors and MD&A sections. In addition, when used in this discussion, the terms “anticipate,” “assume,” “estimate,” “expect,” “intend,” “plan,” “believe,” “will,” “may,” “could,” “should,” “suggest” 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 cannot 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. Kforce 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.

2

PART I - FINANCIAL INFORMATION

Item 1.        Financial Statements.

KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

	Three Months Ended					Nine Months Ended
	September 30, 2016			September 30, 2015		September 30, 2016			September 30, 2015
Net service revenues	$	336,460		$	341,575	$	993,708		$	991,539
Direct costs of services	231,080			231,754		684,857			680,940
Gross profit	105,380			109,821		308,851			310,599
Selling, general and administrative expenses	87,918			84,167		259,073			249,714
Depreciation and amortization	2,075			2,579		6,654			7,402
Income from operations	15,387			23,075		43,124			53,483
Other expense, net	663			463		1,936			1,907
Income before income taxes	14,724			22,612		41,188			51,576
Income tax expense	5,704			9,067		17,654			20,653
Net income	9,020			13,545		23,534			30,923
Other comprehensive (loss) income:
Defined benefit pension plans, net of tax	(2		)	1		(7		)	3
Comprehensive income	$	9,018		$	13,546	$	23,527		$	30,926
Earnings per share – basic	$	0.35		$	0.49	$	0.90		$	1.10
Earnings per share – diluted	$	0.34		$	0.48	$	0.89		$	1.09
Weighted average shares outstanding – basic	25,996			27,811		26,287			28,072
Weighted average shares outstanding – diluted	26,173			28,132		26,449			28,318
Dividends declared per share	$	0.12		$	0.11	$	0.36		$	0.33

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

3

KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

	September 30, 2016			December 31, 2015
ASSETS
Current Assets:
Cash and cash equivalents	$	925		$	1,497
Trade receivables, net of allowances of $2,027 and $2,121, respectively	209,430			198,933
Income tax refund receivable	739			526
Deferred tax assets, net	4,927			4,518
Prepaid expenses and other current assets	11,732			9,060
Total current assets	227,753			214,534
Fixed assets, net	42,355			37,476
Other assets, net	29,591			28,671
Deferred tax assets, net	19,176			20,938
Intangible assets, net	3,729			4,235
Goodwill	45,968			45,968
Total assets	$	368,572		$	351,822
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and other accrued liabilities	$	36,101		$	39,227
Accrued payroll costs	52,419			46,125
Other current liabilities	1,577			1,287
Income taxes payable	1,350			1,107
Total current liabilities	91,447			87,746
Long-term debt – credit facility	101,330			80,472
Long-term debt – other	3,658			3,351
Other long-term liabilities	43,147			40,626
Total liabilities	239,582			212,195
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, 70,897 and 70,558 issued, respectively	709			705
Additional paid-in capital	426,317			420,276
Accumulated other comprehensive income	311			318
Retained earnings	168,909			155,096
Treasury stock, at cost; 43,785 and 42,130 shares, respectively	(467,256		)	(436,768		)
Total stockholders’ equity	128,990			139,627
Total liabilities and stockholders’ equity	$	368,572		$	351,822

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

4

KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT

OF CHANGES IN STOCKHOLDERS’ EQUITY

(IN THOUSANDS)

	Nine Months Ended September 30, 2016
Common stock – shares:
Shares at beginning of period	70,558
Issuance for stock-based compensation and dividends, net of forfeitures	324
Exercise of stock options	15
Shares at end of period	70,897
Common stock – par value:
Balance at beginning of period	$	705
Issuance for stock-based compensation and dividends, net of forfeitures	4
Exercise of stock options	0
Balance at end of period	$	709
Additional paid-in capital:
Balance at beginning of period	$	420,276
Issuance for stock-based compensation and dividends, net of forfeitures	321
Exercise of stock options	172
Income tax benefit from stock-based compensation	265
Stock-based compensation expense	5,042
Employee stock purchase plan	241
Balance at end of period	$	426,317
Accumulated other comprehensive (loss) income:
Balance at beginning of period	$	318
Defined benefit pension plans, net of tax	(7		)
Balance at end of period	$	311
Retained earnings:
Balance at beginning of period	$	155,096
Net income	23,534
Dividends, net of forfeitures ($0.36 per share)	(9,721		)
Balance at end of period	$	168,909
Treasury stock – shares:
Shares at beginning of period	42,130
Repurchases of common stock	1,682
Employee stock purchase plan	(27		)
Shares at end of period	43,785
Treasury stock – cost:
Balance at beginning of period	$	(436,768	)
Repurchases of common stock	(30,775		)
Employee stock purchase plan	287
Balance at end of period	$	(467,256	)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

5

KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

	Nine Months Ended
	September 30, 2016			September 30, 2015
Cash flows from operating activities:
Net income	$	23,534		$	30,923
Adjustments to reconcile net income to cash provided by operating activities:
Deferred income tax provision, net	1,353			874
Provision for bad debts on accounts receivable	575			1,861
Depreciation and amortization	6,702			7,411
Stock-based compensation expense	5,042			4,261
Defined benefit pension plans expense	1,398			1,395
Excess tax benefit attributable to stock-based compensation	(329		)	(408		)
Loss on deferred compensation plan investments, net	411			192
Contingent consideration liability remeasurement	—			524
Other	179			262
(Increase) decrease in operating assets
Trade receivables, net	(11,072		)	(13,229		)
Income tax refund receivable	(214		)	1,097
Prepaid expenses and other current assets	(2,672		)	496
Other assets, net	24			(322		)
(Decrease) increase in operating liabilities
Accounts payable and other current liabilities	(2,114		)	1,872
Accrued payroll costs	6,822			12,067
Income taxes payable	509			3,129
Other long-term liabilities	(813		)	2,751
Cash provided by operating activities	29,335			55,156
Cash flows from investing activities:
Capital expenditures	(9,409		)	(7,731		)
Proceeds from the disposition of assets held within the Rabbi Trust	—			445
Purchase of assets held within the Rabbi Trust	—			(481		)
Cash used in investing activities	(9,409		)	(7,767		)
Cash flows from financing activities:
Proceeds from credit facility	677,788			443,195
Payments on credit facility	(656,930		)	(455,635		)
Proceeds from other financing arrangements	856			—
Payments on other financing arrangements	(1,371		)	(956		)
Proceeds from exercise of stock options	172			381
Excess tax benefit attributable to stock-based compensation	329			408
Payments of deferred financing fees	(158		)	—
Repurchases of common stock	(31,787		)	(24,883		)
Cash dividend	(9,397		)	(9,261		)
Other	—			(630		)
Cash used in financing activities	(20,498		)	(47,381		)
Change in cash and cash equivalents	(572		)	8
Cash and cash equivalents at beginning of period	1,497			1,238
Cash and cash equivalents at end of period	$	925		$	1,246

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

6

KFORCE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note A - 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 2015 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 2015 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, 2015 was derived from our audited Consolidated Balance Sheet as of December 31, 2015, as presented in our 2015 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 “the Registrant,” “Kforce,” “the Company,” “we,” “the Firm,” “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; stock-based compensation; obligations for pension plans; accounting for income taxes and expected annual commission rates. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.

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 $450 thousand. For its partially self-insured lines of coverage, health insurance costs are accrued using estimates to approximate the liability for reported claims and 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.

7

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 for the period by WASO during the period plus the dilutive effect of stock options and other potentially dilutive securities such as unvested shares of restricted stock using the treasury stock method, except where the effect of including potential common shares would be anti-dilutive.

For the three and nine months ended September 30, 2016, there were 177 thousand and 162 thousand common stock equivalents included in the diluted weighted average shares outstanding as compared to the three and nine months ended September 30, 2015 of 321 thousand and 246 thousand, respectively. For the three and nine months ended September 30, 2016 and 2015, there was an insignificant amount of common stock equivalents excluded from the weighted average diluted common shares based on the fact that their inclusion would have had an anti-dilutive effect on earnings per share.

New Accounting Standards

In August 2016, the FASB issued authoritative guidance clarifying eight cash flow classification issues that are not currently addressed or unclear under current GAAP and thereby reducing the current and potential future diversity in practice. The guidance is to be applied for annual periods beginning after December 15, 2017 and interim periods within those annual periods, and early adoption is permitted. The guidance requires companies to apply the requirements retrospectively, unless it is impracticable to apply the requirements retrospectively at which the requirements should be applied prospectively as of the earliest date practicable. Kforce elected not to adopt this standard early. Kforce does not anticipate that this guidance will have an impact on its consolidated financial statements as the cash flow classification issues are either not applicable or we are currently accounting for them in accordance with the clarified guidance.

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 liabilities, and classification on the statement of cash flows. The guidance is to be applied for annual periods beginning after December 15, 2016 and interim periods within those annual periods, and early adoption is permitted. The guidance requires companies to apply the requirements retrospectively, modified retrospectively, or prospectively depending on the amendment(s) applied. Kforce elected not to adopt this standard early. Upon adoption, Kforce anticipates a prospective impact to our income tax expense line within our consolidated statements of operations and comprehensive income, the amount of which will depend on the vesting activity in any given period. Additionally, we expect a retrospective change in the presentation of excess tax benefits from a financing to operating activity within our consolidated statements of cash flows.

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. Kforce is currently evaluating the potential impact on the consolidated financial statements.

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 is to be applied for annual periods beginning after December 15, 2016, and interim periods within those annual periods, and early adoption is permitted. Kforce elected not to adopt this standard early. Kforce anticipates a change to the presentation of the deferred tax liabilities and assets on the consolidated balance sheets upon adoption.

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 in order 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 not yet selected a transition method. We do not currently anticipate a material impact to the consolidated financial statements upon adoption; however, we do anticipate an increase in the level of disclosure around our arrangements and resulting revenue recognition.

8

Note B - 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 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. We intend to vigorously defend each of the plaintiff’s claims. At this stage in the litigation it is not feasible to predict the outcome of this matter or reasonably estimate a range of loss, should a loss occur, from this proceeding; however, based on our current knowledge, we believe that the final outcome of this matter is unlikely 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. Kforce’s liability at September 30, 2016 would be approximately $44.7 million if, following a change in control, all of the executives under contract were terminated without good cause by the employer or if the executives resigned for good reason and $20.2 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.

Kforce has not recorded any liability related to the employment agreements as no events have occurred that would require payment under the agreements.

Note C - Credit Facility

On September 20, 2011, Kforce entered into a Third Amended and Restated Credit Agreement, with a syndicate led by Bank of America, N.A. This was amended on March 30, 2012 through the execution of a Consent and First Amendment, on December 27, 2013 through the execution of a Second Amendment and Joinder, and further amended on December 23, 2014 through the execution of a Third Amendment (as amended to date, the “Credit Facility”) resulting in a maximum borrowing capacity of $170.0 million, as well as an accordion option of $50.0 million. The maximum borrowings available to Kforce under the Credit Facility, absent Kforce exercising all or a portion of the accordion, are limited to: (a) a revolving Credit Facility of up to $170.0 million and (b) a $15.0 million sub-limit included in the Credit Facility for letters of credit.

Available borrowings under the Credit Facility are limited to 85% of the net amount of eligible accounts receivable (billed and unbilled), plus 80% of the net amount of eligible employee placement accounts, plus 80% of the appraised market value of the Firm’s corporate headquarters reduced each subsequent quarter by an amount equal to 1/80th of the initial amount, minus certain minimum availability reserves. 

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Borrowings under the Credit Facility are secured by substantially all of the assets of the Firm, including the Firm’s corporate headquarters property.

Outstanding borrowings under the revolving Credit Facility bear interest at a rate of: (a) LIBOR plus an applicable margin based on various factors; or (b) the higher of (1) the prime rate, (2) the federal funds rate plus 0.50% or (3) LIBOR plus 1.25%. Fluctuations in the ratio of unbilled to billed receivables could result in material changes to availability from time to time. Letters of credit issued under the Credit Facility require Kforce to pay a fronting fee equal to 0.125% of the amount of each letter of credit issued, plus a per annum fee equal to the applicable margin for LIBOR loans based on the total letters of credit outstanding. To the extent that Kforce has unused availability under the Credit Facility, an unused line fee is required to be paid on a monthly basis equal to: (a) if the average daily aggregate revolver outstanding are less than 35% of the amount of the commitments, 0.35% or (b) if the average daily aggregate revolver outstanding are greater than 35% of the amount of the commitments, 0.25% times the amount by which the maximum revolver amount exceeded the sum of the average daily aggregate revolver outstanding, during the immediately preceding month or shorter period if calculated for the first month hereafter or on the termination date.

Under the Credit Facility, Kforce is subject to certain affirmative and negative covenants including, but not limited to, a fixed charge coverage ratio, which is only applicable in the event that the Firm’s availability under the Credit Facility falls below the greater of (a) 10% of the aggregate amount of the commitment of all of the lenders under the Credit Facility and (b) $11 million. 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, including the amortization of stock-based compensation expense (disclosed as “Adjusted EBITDA”), less cash paid for capital expenditures. The denominator is defined as Kforce’s fixed charges such as interest expense, principal payments paid or payable on outstanding debt other than borrowings under the Credit Facility, income taxes payable, and certain other payments. This financial covenant, if applicable, requires that the numerator be equal to or greater than the denominator.

Our ability to repurchase equity securities could be limited if the Firm’s availability is less than the greater of (a) 15.0% of the aggregate amount of the commitment of all lenders under the Credit Facility or (b) $15.0 million. Also, our ability to make distributions could be limited if the Firm’s availability is less than the greater of (a) 12.5% of the aggregate amount of the commitment of all lenders under the Credit Facility or (b) $20.6 million. Since Kforce had availability under the Credit Facility of $52.1 million as of September 30, 2016, the fixed charge coverage ratio covenant was not applicable nor was Kforce limited in making distributions or executing repurchases of its equity securities. Kforce believes that it will be able to maintain these minimum availability requirements; however, in the event that Kforce is unable to do so, Kforce could fail the fixed charge coverage ratio, which would constitute an event of default, or we could be limited in our ability to make distributions or repurchase equity securities. The Credit Facility expires December 23, 2019.

As of September 30, 2016, $101.3 million was outstanding under the Credit Facility. As of October 28, 2016, $89.5 million was outstanding and $63.9 million was available under the Credit Facility.

Note D - Employee Benefit Plans

Deferred Compensation Plans

Kforce has a Non-Qualified Deferred Compensation Plan and a Kforce Non-Qualified Deferred Compensation Government Practice Plan (collectively the “Deferred Compensation Plans”), pursuant to which eligible management and certain highly compensated employees, as defined by IRS regulations, may elect to defer all or part of their compensation to later years. At September 30, 2016 and December 31, 2015, amounts payable within the next year are included in Accounts payable and other accrued liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheets and totaled $3.7 million and $2.3 million, respectively. At September 30, 2016 and December 31, 2015, amounts payable after the next year, upon retirement or termination of employment are included in Other long-term liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheets and totaled $25.8 million and $24.2 million, respectively.

Employee distributions are being funded through proceeds from the sale of assets held within our Rabbi Trust. The fair value of the assets within the Rabbi Trust, including the cash surrender value of the Company-owned life insurance policies and money-market funds, as of September 30, 2016 and December 31, 2015 was $27.0 million and $25.5 million, respectively, and is included in Other assets, net in the accompanying Unaudited Condensed Consolidated Balance Sheets.

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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 represents the components of net periodic benefit cost (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Service cost	$	328	$	330	$	984	$	990
Interest cost	113		96		339		288
Net periodic benefit cost	$	441	$	426	$	1,323	$	1,278

The projected benefit obligation as of September 30, 2016 and December 31, 2015 was $12.7 million and $11.3 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, 2016. Kforce does not currently anticipate funding the SERP during the year ended December 31, 2016.

Note E - Fair Value Measurements

There were no transfers into or out of Level 1, 2 or 3 assets or liabilities during the nine months ended September 30, 2016.

Kforce’s financial statements include a contingent consideration liability related to a non-significant acquisition of a business within our Government Solutions 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 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 Unaudited Condensed Consolidated Balance Sheets and the estimated fair value as of September 30, 2016 and December 31, 2015 was $798 thousand.

Note F - Stock Incentive Plans

On April 19, 2016, the Kforce shareholders approved the 2016 Stock Incentive Plan (“2016 Plan”). The 2016 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 2016 Plan is approximately 1.6 million shares. The 2016 Plan terminates on April 19, 2026. Prior to the effective date of the 2016 Plan, the Company granted stock awards to eligible participants under our 2013 Stock Incentive Plan (“2013 Plan”) and 2006 Stock Incentive Plan (“2006 Plan”). As of the effective date of the 2016 Plan, no additional awards may be granted pursuant to the 2013 Plan and 2006 Plan; however, awards outstanding as of the effective date will continue to vest in accordance with the terms of the 2013 Plan and 2006 Plan, respectively.

During the three months ended September 30, 2016 and 2015, Kforce recognized total stock-based compensation expense of $1.3 million and $1.4 million, respectively. During the nine months ended September 30, 2016 and 2015, Kforce recognized total stock-based compensation expense of $5.0 million and $4.3 million, respectively.

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Restricted Stock

Kforce’s annual restricted stock (including RSAs and RSUs) granted to executives and management are generally based on the extent by which annual long-term incentive performance goals, which are established by Kforce’s Compensation Committee during the first quarter of the year of performance, have been met, as determined by the Compensation Committee. Additionally, Kforce, with the approval of the Compensation Committee, grants restricted stock in varying amounts as determined appropriate during the year to retain directors, executives and management. Restricted stock granted during the nine months ended September 30, 2016 will vest over a period of between one to ten years, with equal vesting annually.

RSAs contain the same voting rights as other common stock as well as the right to forfeitable dividends in the form of additional RSAs at the same rate as the cash dividend on common stock and containing the same vesting provisions as the underlying award. RSUs contain no voting rights, but have the right to forfeitable dividend equivalents in the form of additional RSUs at the same rate as the cash dividend on common stock and containing the same vesting provisions as the underlying award. The distribution of shares of common stock for each RSU issued under the 2016 Plan 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, 2016 (in thousands, except per share amounts):

	Number of Restricted Stock		Weighted Average Grant Date Fair Value		Total Intrinsic Value of Restricted Stock Vested
Outstanding as of December 31, 2015	1,293		$	20.89
Granted	639		$	22.08
Forfeited/Canceled	(315	)	$	21.44
Vested	(250	)	$	20.83	$	5,790
Outstanding as of September 30, 2016	1,367		$	21.32

The fair market value of restricted stock is determined based on the closing stock price of Kforce’s common stock at the date of grant, and is amortized on a straight-line basis over the requisite service period. As of September 30, 2016, total unrecognized compensation expense related to restricted stock was $23.1 million, which will be recognized over a weighted average remaining period of 4.6 years.

Note G - Reportable Segments

Kforce’s reportable segments are as follows: (1) Technology (“Tech”); (2) Finance and Accounting (“FA”); and (3) Government Solutions (“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 the Board and our CODM. Kforce also reports Flexible billings and Direct Hire fees separately by segment, which has been incorporated into the table below.

Historically, and for the three and nine months ended September 30, 2016 and 2015, Kforce has generated only sales and gross profit information on a segment basis. Substantially all operations and long-lived assets are located in the United States. We do not report total assets or income separately by segment as our operations are largely combined.

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The following table provides information concerning the operations of our segments (in thousands):

	Tech		FA		GS		Total
Three Months Ended September 30,
2016
Net service revenues:
Flexible billings	$	220,376	$	76,290	$	26,818	$	323,484
Direct Hire fees	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
2015
Net service revenues:
Flexible billings	$	226,381	$	76,707	$	24,351	$	327,439
Direct Hire fees	5,732		8,404		—		14,136
Total net service revenues	$	232,113	$	85,111	$	24,351	$	341,575
Gross profit	$	69,128	$	31,710	$	8,983	$	109,821
Operating expenses							87,209
Income before income taxes							$	22,612
Nine Months Ended September 30,
2016
Net service revenues:
Flexible billings	$	650,997	$	228,365	$	75,231	$	954,593
Direct Hire fees	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
2015
Net service revenues:
Flexible billings	$	660,692	$	215,674	$	74,515	$	950,881
Direct Hire fees	17,224		23,434		—		40,658
Total net service revenues	$	677,916	$	239,108	$	74,515	$	991,539
Gross profit	$	197,982	$	87,229	$	25,388	$	310,599
Operating expenses							259,023
Income before income taxes							$	51,576

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Note H - Supplemental Cash Flow Information

Supplemental cash flow information is as follows (in thousands):

	Nine Months Ended
	September 30,
	2016		2015
Cash paid during the period for:
Income taxes, net	$	16,023	$	15,592
Interest, net	$	1,569	$	1,234
Non-cash transaction information:
Employee stock purchase plan	$	528	$	435
Equipment acquired under capital leases	$	1,123	$	553
Unsettled repurchase of common stock	$	—	$	1,011
Acquisition of fixed assets through accounts payable	$	19	$	86

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Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Kforce Inc., our operations, and our present business environment. This MD&A should be read in conjunction with Item 1. Financial Statements of this report on Form 10-Q.

EXECUTIVE SUMMARY

The following is an executive summary of what Kforce believes are highlights as of and for the nine months ended September 30, 2016, which should be considered in the context of the additional discussions herein and in conjunction with the unaudited condensed consolidated financial statements and notes thereto.

• Net service revenues for the nine months ended September 30, 2016increased0.2% to $993.7 million from $991.5 million in the comparable period in 2015.

• Flex revenues for the nine months ended September 30, 2016increased0.4% to $954.6 million from $950.9 million in the comparable period in 2015. Tech Flex revenues for the nine months ended September 30, 2016 decreased 1.5%, over the comparable period in 2015. FA Flex revenues for the nine months ended September 30, 2016 increased 5.9%, over the comparable period in 2015. GS Flex revenues for the nine months ended September 30, 2016increased 1.0%, over the comparable period in 2015.

• Direct Hire revenues for the nine months ended September 30, 2016decreased3.8% to $39.1 million from $40.7 million in the comparable period in 2015.

• Flex gross profit margin for the nine months ended September 30, 2016decreased10 basis points to 28.3% from 28.4% in the comparable period in 2015. Flex gross profit margin decreased 10 basis points for both Tech and FA and 80 basis points for GS, primarily as a result of higher benefits costs.

• Selling, general and administrative (“SG&A”) expenses as a percentage of revenues for the nine months ended September 30, 2016increased to 26.1% from 25.2% in the comparable period in 2015. The 90 basis point increase was primarily driven by approximately $6.0 million, or 60 basis points, in severance costs that were recorded during 2016 associated with realignment activities focused on further streamlining our organization. In addition, we have made targeted investments in information technology as well as our revenue-generating talent during 2016, which has negatively impacted SG&A as a percentage of revenue.

• Net income for the nine months ended September 30, 2016decreased23.9% to $23.5 million from $30.9 million in the comparable period in 2015 primarily driven by the aforementioned $6.0 million in severance costs ($3.6 million after-tax) as well as certain tax adjustments of $1.7 million during the nine months ended September 30, 2016.

• Diluted earnings per share for the nine months ended September 30, 2016 decreased to $0.89 from $1.09 per share in the comparable period in 2015. The decline was primarily driven by the after-tax impact of the severance costs and tax adjustments, which impacted diluted earnings per share by $0.20.

• During the nine months ended September 30, 2016, Kforce repurchased 1.6 million shares of common stock on the open market at a total cost of approximately $29.1 million.

• The Firm declared and paid three quarterly dividends of $0.12 per share during the nine months ended September 30, 2016, resulting in a total cash payout of $9.4 million.

• The total amount outstanding under our Credit Facility increased$20.8 million to $101.3 million as of September 30, 2016 as compared to $80.5 million as of December 31, 2015. This increase was primarily driven by the return of capital to our shareholders in the form of dividends and common stock repurchases, which aggregated $38.5 million.

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OUR BUSINESS AT A GLANCE

Kforce provides professional staffing services and solutions to customers in the Tech, FA, and GS segments and on both a temporary and permanent basis. Kforce is backed by nearly 3,000 associates and more than 11,000 consultants on assignment. Kforce operates through its corporate headquarters in Tampa, Florida and 61 field offices located throughout the United States, as well as an office in Manila, Philippines.

Kforce serves clients from the Fortune 1000, the Federal Government, state and local governments, local and regional companies and small to mid-sized companies.

INDUSTRY ECONOMIC FACTORS

From an economic standpoint, temporary employment figures and trends are important indicators of staffing demand, which continued to be positive during 2016, based on data published by the Bureau of Labor Statistics (“BLS”) and Staffing Industry Analysts (“SIA”). A September 2016 report published by SIA stated that temporary technology staffing is expected to experience growth of 5% for 2016 and an additional 6% in 2017 and that finance and accounting staffing is expected to experience growth of 7% in 2016 and an additional 6% in 2017. The penetration rate (the percentage of temporary staffing to total employment) in September 2016 was at 2.03%, a slight decline from the December 2015 high of 2.06%. The rate has changed nominally in recent months, exceeding 2.0% for nearly two years and remains above the prior cycle high of 1.95%. While the macro-employment picture remains uncertain, it has continuously improved, with the unemployment rate at 5.0% as of September 2016, and non-farm payroll expanding approximately 576 thousand jobs in the period July through September 2016. Also, the college-level unemployment rate, which we believe serves as a proxy for professional employment and we believe is a metric of the candidate population that Kforce serves, was at 2.5% in September 2016. Management believes that uncertainty in the overall U.S. economic outlook related to the political landscape, potential tax changes, geo-political risk and continuing impact of health care reform, may continue to fuel growth in temporary staffing as employers may be reluctant to increase permanent hiring. Additionally, we believe the increasing costs and government regulation of employment may be driving a secular shift to an increased use of temporary staff as a percentage of total workforce. If the penetration rate of temporary staffing experiences growth in the coming months and years, we believe our Flex revenues may grow even in a relatively modest growth macro-economic environment. Kforce remains optimistic about the growth prospects of the temporary staffing industry, the penetration rate, and in particular, our revenue portfolio; however, the economic environment includes considerable uncertainty and volatility and therefore no reliable predictions can be made about the general economy, the staffing industry as a whole, or specialty staffing in particular.

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RESULTS OF OPERATIONS

Three and Nine Months Ended September 30, 2016 and 2015

Net Service Revenues. The following table presents, as a percentage of net service revenues, certain items in our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Net Service Revenues by Segment:
Tech	67.0	%	68.0	%	67.1	%	68.4	%
FA	25.0		24.9		25.3		24.1
GS	8.0		7.1		7.6		7.5
Net service revenues	100.0	%	100.0	%	100.0	%	100.0	%
Revenues by Type:
Flex	96.1	%	95.9	%	96.1	%	95.9	%
Direct Hire	3.9		4.1		3.9		4.1
Net service revenues	100.0	%	100.0	%	100.0	%	100.0	%
Gross profit	31.3	%	32.2	%	31.1	%	31.3	%
Selling, general and administrative expenses	26.1	%	24.6	%	26.1	%	25.2	%
Depreciation and amortization	0.6	%	0.8	%	0.7	%	0.7	%
Income before income taxes	4.4	%	6.6	%	4.1	%	5.2	%
Net income	2.7	%	4.0	%	2.4	%	3.1	%

The following table presents net service revenues for Flex and Direct Hire by segment and percentage change from the prior period (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016		Increase (Decrease)		2015		2016		Increase (Decrease)		2015
Tech
Flex	$	220,376	(2.7	)%	$	226,381	$	650,997	(1.5	)%	$	660,692
Direct Hire	5,148		(10.2	)%	5,732		15,673		(9.0	)%	17,224
Total Tech	$	225,524	(2.8	)%	$	232,113	$	666,670	(1.7	)%	$	677,916
FA
Flex	$	76,290	(0.5	)%	$	76,707	$	228,365	5.9	%	$	215,674
Direct Hire	7,828		(6.9	)%	8,404		23,442		—	%	23,434
Total FA	$	84,118	(1.2	)%	$	85,111	$	251,807	5.3	%	$	239,108
GS
Flex	$	26,818	10.1	%	$	24,351	$	75,231	1.0	%	$	74,515
Total GS	$	26,818	10.1	%	$	24,351	$	75,231	1.0	%	$	74,515
Total Flex	$	323,484	(1.2	)%	$	327,439	$	954,593	0.4	%	$	950,881
Total Direct Hire	12,976		(8.2	)%	14,136		39,115		(3.8	)%	40,658
Total Net Service Revenues	$	336,460	(1.5	)%	$	341,575	$	993,708	0.2	%	$	991,539

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Flex Revenues. The primary drivers of Flex revenues are the number of consultant hours worked, the consultant bill rate per hour and, to a limited extent, the amount of billable expenses incurred by Kforce. Our quarterly operating results are affected by the number of billing days in a quarter and the seasonality of our clients’ businesses. For the three months ended September 30, 2016 and 2015, there were 64 billing days each.

Flex revenues for our largest segment, Tech, decreased during the three and nine months ended September 30, 2016 by 2.7% and 1.5%, respectively, as compared to the same periods in 2015. Our year-over-year growth rates in the first half of 2015 were partially enabled by significant growth in several large clients, which subsequently began to decline after certain significant organizational changes occurred within these clients in mid-2015 causing them to decrease their spending with the Firm. This resulted in challenging year-over-year comparisons in the first half of 2016. We experienced sequential growth in Flex revenues within our Tech segment in Q2 2016 of 3.9% and Q3 2016 of 0.4% though our Flex revenues declined on a year-over-year basis against challenging comparisons. We experienced sequential growth in Q3 2016 within the clients referenced above, which suggests that the impact related to the shift in spend with these clients was temporary in nature and may be improving. We believe that broad-based drivers to the demand in technology staffing such as cloud-computing, data analytics, mobility and cybersecurity will continue and that we are well positioned in this space. We expect Tech Flex revenues to increase sequentially on a billing day basis (the fourth quarter of 2016 is expected to have 61 billing days) and increase on a year-over-year basis in the fourth quarter of 2016. 

Our FA segment experienced a decrease in Flex revenues of 0.5% during the three months ended September 30, 2016, as compared to the same period in 2015, and an increase of 5.9% during the nine months ended September 30, 2016, as compared to the same period in 2015. Our year-over-year quarterly growth rates in FA Flex during 2015 each exceeded 15% so we expected our 2016 year-over-year growth rates to slow against these challenging comparisons. We expect FA Flex revenues to increase sequentially on a billing day basis (the fourth quarter of 2016 is expected to have 61 billing days) but be flat to slightly down on a year-over-year basis in the fourth quarter of 2016.

Our GS segment experienced an increase in revenues of 10.1% and 1.0% during the three and nine months ended September 30, 2016, as compared to the same periods in 2015 and increased sequentially by 6.0%. The sequential and year-over-year growth was driven by growth in our product-based business as well as strength in service revenues. GS was one of 12 large businesses, along with 16 small businesses, that was awarded a prime contract with the U.S. Department of Veterans Affairs (“VA”) on its T4 Next Gen contract vehicle, which will be focused on procuring services for the VA in areas that include information technology infrastructure improvements, cyber security and operations and network management. This contract vehicle has an overall program ceiling of $22 billion, which is expected to be released over a period of 10 years. We believe that the T4 Next Gen contract vehicle could result in growth in GS over the next several years. We expect GS revenues to decline sequentially but increase on a year-over-year basis in the fourth quarter of 2016.

The following table presents the key drivers for the change in Flex revenues for our Tech and FA segments over the prior period (in thousands):

	Three Months Ended September 30, 2016						Nine Months Ended September 30, 2016
	Tech			FA			Tech			FA
Volume	$	(5,256	)	$	(220	)	$	(9,660	)	$	15,243
Bill rate	(596		)	(186		)	795			(2,483		)
Billable expenses	(153		)	(11		)	(830		)	(69		)
Total	$	(6,005	)	$	(417	)	$	(9,695	)	$	12,691

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The following table presents total Flex hours for our Tech and FA segments and percentage change over the prior period (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016	Increase (Decrease)		2015	2016	Increase (Decrease)		2015
Tech	3,254	(2.3	)%	3,332	9,583	(1.5	)%	9,726
FA	2,343	(0.3	)%	2,350	7,028	7.1	%	6,564
Total hours	5,597	(1.5	)%	5,682	16,611	2.0	%	16,290

As the GS segment primarily provides integrated business solutions as compared to staffing services, Flex hours are not presented above.

Direct Hire Fees. The primary drivers of Direct Hire fees are the number of permanent placements and the fee for these placements. Direct Hire fees also include conversion revenues (conversions occur when consultants initially assigned to a client on a temporary basis are later converted to a permanent placement). Our GS segment does not make permanent placements.

Direct Hire revenues decreased 8.2% and 3.8% during the three and nine months ended September 30, 2016, as compared to the same periods in 2015.

The following table presents the key drivers for the change in Direct Hire revenues over the prior period (in thousands):

	Three Months Ended September 30, 2016			Nine Months Ended September 30, 2016
Volume	$	(960	)	$	(832	)
Placement fee	(200		)	(711		)
Total	$	(1,160	)	$	(1,543	)

The following table presents total placements for our Tech and FA segments and percentage change over the prior period:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016	Increase (Decrease)		2015	2016	Increase (Decrease)		2015
Tech	297	(15.9	)%	353	931	(13.2	)%	1,072
FA	643	(2.0	)%	656	1,915	4.4	%	1,834
Total placements	940	(6.8	)%	1,009	2,846	(2.1	)%	2,906

The following table presents the average fee per placement for our Tech and FA segments and percentage change over the prior period:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016		Increase (Decrease)		2015		2016		Increase (Decrease)		2015
Tech	$	17,343	6.7	%	$	16,247	$	16,837	4.8	%	$	16,072
FA	12,169		(5.0	)%	12,815		12,240		(4.2	)%	12,780
Total average placement fee	$	13,802	(1.5	)%	$	14,015	$	13,744	(1.8	)%	$	13,994

Gross Profit. Gross profit on Flex billings is determined by deducting the direct cost of services (primarily flexible personnel payroll wages, payroll taxes, payroll-related insurance and certain fringe benefits, as well as subcontractor costs) from net Flex service revenues. In addition, consistent with industry practices, gross profit dollars from Direct Hire fees are generally equal to revenues, because there are usually no direct costs associated with such revenues.

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The following table presents the gross profit percentage (gross profit as a percentage of revenues) for each segment and percentage change over the prior period:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016		Increase (Decrease)		2015		2016		Increase (Decrease)		2015
Tech	28.9	%	(3.0	)%	29.8	%	29.0	%	(0.7	)%	29.2	%
FA	36.2	%	(2.9	)%	37.3	%	36.0	%	(1.4	)%	36.5	%
GS	36.4	%	(1.4	)%	36.9	%	33.3	%	(2.3	)%	34.1	%
Total gross profit percentage	31.3	%	(2.8	)%	32.2	%	31.1	%	(0.6	)%	31.3	%

Kforce also monitors the Flex gross profit percentage (Flex gross profit as a percentage of Flex revenues). This provides management with helpful insight into the other drivers of total gross profit percentage such as changes in volume evidenced by changes in hours billed for Flex and changes in the spread between the bill rate and pay rate for Flex. As noted above, our GS segment does not make permanent placements; as a result, its Flex gross profit percentage is the same as its gross profit percentage.

The following table presents the Flex gross profit percentage for each segment and percentage change over the prior period:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016		Increase (Decrease)		2015		2016		Increase (Decrease)		2015
Tech	27.2	%	(2.9	)%	28.0	%	27.3	%	(0.4	)%	27.4	%
FA	29.6	%	(2.6	)%	30.4	%	29.5	%	(0.3	)%	29.6	%
GS	36.4	%	(1.4	)%	36.9	%	33.3	%	(2.3	)%	34.1	%
Total Flex gross profit percentage	28.6	%	(2.1	)%	29.2	%	28.3	%	(0.4	)%	28.4	%

During the three and nine months ended September 30, 2016, Flex gross profit percentage decreased 60 basis points and 10 basis points, respectively, as compared to the same periods in 2015. These decreases were due primarily to an increase in benefit costs. In addition, in Q3 2016 we experienced an increase in the revenue concentration within our large client portfolio in Tech Flex, which resulted in a reduction in the Flex gross profit percentage, and spread compression within certain of these clients that are trading volume for rate. A continued focus for Kforce is optimizing the spread between bill rates and pay rates by providing our associates with tools, economic knowledge and defined programs to drive improvement in the effectiveness of our pricing strategy around the staffing services we provide. We believe this strategy will serve to balance the desire for optimal volume, rate, effort and duration of assignment, while ultimately maximizing the benefit for our clients, our consultants and Kforce.

The following table presents the key drivers for the change in Flex gross profit over the prior period (in thousands):

	Three Months Ended September 30, 2016			Nine Months Ended September 30, 2016
Volume	$	(1,155	)	$	1,054
Rate	(2,126		)	(1,259		)
Total	$	(3,281	)	$	(205	)

SG&A Expenses. For the three and nine months ended September 30, 2016, total commissions, compensation, payroll taxes, and benefit costs as a percentage of SG&A represented 86.4% and 85.5%, respectively, as compared to 84.5% and 84.0% for the comparable period in 2015. Commissions, certain revenue-generating bonuses and related payroll taxes and benefit costs are variable costs driven primarily by revenue and gross profit levels, and associate performance. Therefore, as gross profit levels change, these expenses would also generally be anticipated to change, but remain relatively consistent as a percentage of revenues.

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The following table presents these components of SG&A along with an “other” caption, which includes bad debt expense, lease expense, professional fees, travel, telephone, computer and certain other expenses, as an absolute amount and as a percentage of total net service revenues (in thousands):

	2016		% of Revenues		2015		% of Revenues
Three Months Ended September 30,
Compensation, commissions, payroll taxes and benefits costs	$	75,949	22.6	%	$	71,145	20.8	%
Other	11,969		3.5	%	13,022		3.8	%
Total SG&A	$	87,918	26.1	%	$	84,167	24.6	%
Nine Months Ended September 30,
Compensation, commissions, payroll taxes and benefits costs	$	221,416	22.3	%	$	209,837	21.2	%
Other	37,657		3.8	%	39,877		4.0	%
Total SG&A	$	259,073	26.1	%	$	249,714	25.2	%

SG&A as a percentage of net service revenues increased 150 and 90 basis points for the three and nine months ended September 30, 2016 as compared to the same periods in 2015. These increases were primarily driven by approximately $6.0 million, or 60 basis points, in severance costs that were recorded during 2016 associated with realignment activities focused on further streamlining our organization. In addition, we have made targeted investments in information technology as well as our revenue-generating talent during 2016, which has negatively impacted SG&A as a percentage of revenue.

Depreciation and Amortization. The following table presents depreciation and amortization expense and percentage change over the prior period by major category (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016		Increase (Decrease)		2015		2016		Increase (Decrease)		2015
Fixed asset depreciation	$	1,652	(8.8	)%	$	1,812	$	4,969	(1.2	)%	$	5,027
Capitalized software amortization	302		(47.6	)%	576		1,179		(34.5	)%	1,800
Intangible asset amortization	121		(36.6	)%	191		506		(12.0	)%	575
Total depreciation and amortization	$	2,075	(19.5	)%	$	2,579	$	6,654	(10.1	)%	$	7,402

Other Expense, Net. Other expense, net was $0.7 million and $1.9 million for the three and nine months ended September 30, 2016 which consisted primarily of interest expense related to outstanding borrowings under our Credit Facility. Other expense, net was $0.5 million and $1.9 million for the three and nine months ended September 30, 2015 which consisted primarily of interest expense related to outstanding borrowings under our Credit Facility and $0.5 million expense due to the remeasurement of our contingent consideration liability for the nine months ended September 30, 2015.

Income Tax Expense. Income tax expense as a percentage of income before income taxes (our “effective rate”) for the nine months ended September 30, 2016 and 2015 was 42.9% and 40.0%, respectively. Kforce’s effective rate during the nine months ended September 30, 2016 was negatively impacted by certain one-time non-cash adjustments; the rate excluding these adjustments would have been 38.8%.

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Non-GAAP Measures

Adjusted EBITDA. “Adjusted EBITDA”, a non-GAAP financial measure, is based on the definition in our Credit Facility and is a key metric in our covenant calculations, as described in Note C - “Credit Facility.” Adjusted EBITDA should not be considered a measure of financial performance under GAAP. Items excluded from Adjusted EBITDA are significant components in understanding and assessing our past and future financial performance, and this presentation should not be construed as an inference by us that our future results will be unaffected by those items excluded from Adjusted EBITDA. Adjusted EBITDA is a key measure used by management to assess our ability to generate cash flows and our ability to repay our debt obligations and provides a good metric of our core profitability in comparing our performance to our competitors. Consequently, management believes it is useful information to investors. The measure should not be considered in isolation or as an alternative to net income, cash flows or other financial statement information presented in the unaudited condensed consolidated financial statements as indicators of financial performance or liquidity. The measure is not determined in accordance with GAAP and is thus susceptible to varying calculations. Also, Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies.

In addition, although we excluded amortization of stock-based compensation expense (which we expect to continue to incur in the future) because it is a non-cash expense, the associated stock issued may result in an increase in our outstanding shares of stock, which may result in the dilution of our stockholder ownership interest.

The following table presents Adjusted EBITDA and includes a reconciliation of Adjusted EBITDA to net income (in thousands):

	2016		2015
Three Months Ended September 30,
Net income	$	9,020	$	13,545
Depreciation and amortization	2,102		2,579
Stock-based compensation expense	1,336		1,348
Interest expense and other	644		458
Income tax expense	5,704		9,067
Adjusted EBITDA	$	18,806	$	26,997
Nine Months Ended September 30,
Net income	$	23,534	$	30,923
Depreciation and amortization	6,702		7,402
Stock-based compensation expense	5,042		4,261
Interest expense and other	1,951		1,486
Income tax expense	17,654		20,653
Adjusted EBITDA	$	54,883	$	64,725

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Free Cash Flow. “Free Cash Flow”, a non-GAAP financial measure, is defined by Kforce as net cash provided by (used in) operating activities determined in accordance with GAAP, less capital expenditures. Management believes this provides an additional way of viewing our liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows and is useful information to investors. Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. Therefore, we believe it is important to view free cash flow as a complement to our Unaudited Condensed Consolidated Statements of Cash Flows.

The following table presents Free Cash Flow (in thousands):

	Nine Months Ended
	September 30,
	2016			2015
Net income	$	23,534		$	30,923
Non-cash provisions and other	15,331			16,372
Changes in operating assets/liabilities	(9,530		)	7,861
Capital expenditures	(9,409		)	(7,731		)
Free cash flow	19,926			47,425
Change in debt	20,858			(12,440		)
Repurchases of common stock	(31,787		)	(24,883		)
Cash dividend	(9,397		)	(9,261		)
Other	(172		)	(833		)
Change in cash	$	(572	)	$	8

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LIQUIDITY AND CAPITAL RESOURCES

To meet our capital and liquidity requirements, we primarily rely on operating cash flow, as well as borrowings under our existing Credit Facility. At September 30, 2016, Kforce had $136.3 million in working capital compared to $126.8 million at December 31, 2015.

The accompanying Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 provide a more detailed description of our cash flows. Currently, Kforce is principally focused on achieving the appropriate balance in the following areas of cash flow: (1) achieving positive cash flow from operating activities; (2) returning capital to our shareholders through our quarterly dividends and common stock repurchase program; (3) maintaining an appropriate outstanding balance on our Credit Facility; (4) investing in our infrastructure to allow sustainable growth via capital expenditures; and (5) having sufficient liquidity for the possibility of completing an acquisition or for an unexpected necessary expense.

We believe that existing cash and cash equivalents, cash flow from operations, and available borrowings under our Credit Facility will be adequate to meet the capital expenditure and working capital requirements of our operations for at least the next 12 months. However, a material deterioration in the economic environment or market conditions, among other things, could negatively impact operating results and liquidity, as well as the ability of our lenders to fund borrowings.

Actual results could also differ materially from those indicated as a result of a number of factors, including the use of currently available resources for possible acquisitions and possible additional stock repurchases.

The following table presents a summary of our net cash flows from operating, investing and financing activities (in thousands):

	Nine Months Ended
	September 30,
	2016			2015
Cash provided by (used in):
Operating activities	$	29,335		$	55,156
Investing activities	(9,409		)	(7,767		)
Financing activities	(20,498		)	(47,381		)
Net (decrease) increase in cash and cash equivalents	$	(572	)	$	8

Operating Activities

The significant variations in cash provided by operating activities and net income are principally related to adjustments to net income for certain non-cash charges such as depreciation and amortization expense, and stock-based compensation expense. These adjustments are more fully detailed in our Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015. Our largest source of operating cash flows is the collection of trade receivables and our largest use of operating cash flows is the payment of our employee and consultant populations’ compensation, which includes base salary, commissions and bonuses. When comparing cash flows from operating activities, the decrease in cash provided by operating activities during the nine months ended September 30, 2016 as compared to the same period in 2015 is primarily a result of the timing of payment of our employee and consultant populations’ compensation, payments of certain severance costs associated with realignment activities focused on further streamlining our organization, investments in information technology as well as our revenue-generating talent and certain tax adjustments of $1.7 million during the nine months ended September 30, 2016.

Investing Activities

Capital expenditures for the nine months ended September 30, 2016 and 2015 were $9.4 million and $7.7 million, respectively, which excludes equipment acquired under capital leases.

We expect to continue to selectively invest in our infrastructure in order to support the expected future growth in our business. We believe that we have sufficient cash and availability under the Credit Facility to make any expected necessary capital expenditures in the foreseeable future. In addition, we continually review our portfolio of businesses and their operations in comparison to our internal strategic and performance objectives. As part of this review, we may acquire other businesses and further invest in, fully divest and/or sell parts of our current businesses.

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Financing Activities

During the nine months ended September 30, 2016, the Firm paid cash for repurchases of common stock totaling $31.8 million, which was composed of approximately $30.1 million of open market common stock repurchases and $1.7 million of common stock repurchases attributable to shares withheld for statutory minimum tax withholding requirements pertaining to the vesting of restricted stock awards. Of the $30.1 million of open market common stock repurchases, $1.0 million of the cash paid during the nine months ended September 30, 2016 related to the settlement of 2015 repurchases. Kforce currently expects to continue repurchasing common stock on the open market; however, the level of future repurchases may be impacted by changes in economic conditions or the level of our operating cash flows.

During the three and nine months ended September 30, 2016, Kforce declared and paid quarterly dividends of $3.1 million, or $0.12 per share, and $9.4 million, or $0.36 per share, respectively. The declaration, payment and amount of future dividends are discretionary and will be subject to determination by Kforce’s Board each quarter following its review of, among other things, the Firm’s financial performance and its legal ability to pay dividends.

Credit Facility

See Note C – “Credit Facility” in the Notes to Unaudited Condensed Consolidated Financial Statements, included in this report for a complete discussion of our Credit Facility. The Credit Facility includes a maximum borrowing capacity of $170.0 million, as well as an accordion option of $50.0 million. The maximum borrowings available to Kforce under the Credit Facility, absent Kforce exercising all or a portion of the accordion, are limited to: (a) a revolving Credit Facility of up to $170.0 million and (b) a $15.0 million sub-limit included in the Credit Facility for letters of credit. As of September 30, 2016, $101.3 million was outstanding under the Credit Facility. As of October 28, 2016, $89.5 million was outstanding and $63.9 million was available under the Credit Facility.

Stock Repurchases

As of December 31, 2015, $53.0 million of the Board-authorized common stock repurchase program remained available for future repurchases. On July 29, 2016, our Board of Directors approved an increase in our stock repurchase authorization bringing the available authorization to $75.0 million. During the nine months ended September 30, 2016, Kforce repurchased approximately 1.6 million shares of common stock on the open market at a total cost of approximately $29.1 million. As of September 30, 2016, $65.7 million remained available for future repurchases.

Off-Balance Sheet Arrangements

There have been no material changes during the period covered by this Quarterly Report on Form 10-Q to our off-balance sheet arrangements previously disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Contractual Obligations and Commitments

Other than those changes described elsewhere in this Quarterly Report, there have been no material changes during the period covered by this report on Form 10-Q to our contractual obligations previously disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

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CRITICAL ACCOUNTING ESTIMATES

Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our unaudited condensed consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amount of assets, liabilities, revenues, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends, and other factors that management believes to be relevant at the time our unaudited condensed consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, estimates, assumptions and judgments to ensure that our unaudited condensed consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Please refer to Note 1 – “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” in our 2015 Annual Report on Form 10-K for a more detailed discussion of our significant accounting policies and critical accounting estimates.

NEW ACCOUNTING STANDARDS

See Note A - “Summary of Significant Accounting Policies” in the Notes to Unaudited Condensed Consolidated Financial Statements, included in Item 1. Financial Statements of this report for a discussion of new accounting standards.

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Item 3.        Quantitative and Qualitative Disclosures About Market Risk.

With respect to our quantitative and qualitative disclosures about market risk, there have been no material changes to the information included in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Item 4.        Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of September 30, 2016, we carried out an evaluation required by Rules 13a-15 and 15d-15 under the Exchange Act (the “Evaluation”) under the supervision and with the participation of our CEO and CFO, of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15 and 15d-15 under the Exchange Act (“Disclosure Controls”). Based on the Evaluation, our CEO and CFO concluded that the design and operation of our Disclosure Controls were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding disclosure.

Changes in Internal Control over Financial Reporting

Management has evaluated, with the participation of our CEO and CFO, whether any changes in our internal control over financial reporting that occurred during our last fiscal quarter have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on the evaluation we conducted, management has concluded that no such changes have occurred.

Inherent Limitations of Internal Control Over Financial Reporting

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

CEO and CFO Certifications

Exhibits 31.1 and 31.2 are the Certifications of the CEO and the CFO, respectively. The Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This Item of this report, which you are currently reading, is the information concerning the Evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

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PART II - OTHER INFORMATION

Item 1.     Legal Proceedings.

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 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. We intend to vigorously defend each of the plaintiff’s claims. At this stage in the litigation it is not feasible to predict the outcome of this matter or reasonably estimate a range of loss, should a loss occur, from this proceeding; however, based on our current knowledge, we believe that the final outcome of this matter is unlikely to have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows.

Item 1A.     Risk Factors.

There are no material changes in the risk factors previously disclosed in our 2015 Annual Report on Form 10-K.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

Purchases of Equity Securities by the Issuer

The following table presents information with respect to our repurchases of Kforce common stock during the three months ended September 30, 2016:

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, 2016 to July 31, 2016	—	$	—	—	$	75,000,000
August 1, 2016 to August 31, 2016	504,840	$	19.02	490,406	$	65,683,119
September 1, 2016 to September 30, 2016	—	$	—	—	$	65,683,119
Total	504,840	$	19.02	490,406	$	65,683,119

(1) Includes 14,434 shares of stock received upon vesting of restricted stock to satisfy statutory minimum tax withholding requirements for the period August 1, 2016 through August 31, 2016.

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Item 3.        Defaults Upon Senior Securities.

None.

Item 4.     Mine Safety Disclosures.

None.

Item 5.     Other Information.

None.

Item 6.        Exhibits.

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.
3.1a	Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (File No. 333-111566) filed with the SEC on February 9, 2004, as amended.
3.1b	Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (File No. 333-111566) filed with the SEC on February 9, 2004, as amended.
3.1c	Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (File No. 333-111566) filed with the SEC on February 9, 2004, as amended.
3.1d	Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on May 17, 2000.
3.1e	Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-26058) filed with the SEC on March 29, 2002.
3.2	Amended & Restated Bylaws, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on April 29, 2013.
10.1	Amended and Restated Employment Agreement, dated as of January 1, 2013, between Kforce Inc. and Kye L. Mitchell.
31.1	Certification by the Chief Executive Officer of Kforce Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by the Chief Financial Officer of Kforce Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification by the Chief Executive Officer of Kforce Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification by the Chief Financial Officer of Kforce Inc. pursuant to 18 U.S.C. Section 2350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.1	Part I, Item 1 of this Form 10-Q formatted in XBRL.

29

SIGNATURES

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

Kforce Inc.
(Registrant)
Date: November 2, 2016	By:	/s/    DAVID M. KELLY
		David M. Kelly
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)
Date: November 2, 2016	By:	/s/    JEFFREY B. HACKMAN
		Jeffrey B. Hackman
		Senior Vice President, Finance and Accounting
		(Principal Accounting Officer)

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EX-10.1

Exhibit 10.1

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is entered into and effective as of January 1, 2013 at 12:01 a.m., between Kforce Inc., a Florida corporation (the "Employer"), and Kye L. Mitchell (the "Executive").

BACKGROUND

The Employer desires to continue to obtain the benefit of services by the Executive, and the Executive desires to continue to render services to the Employer.

The Compensation Committee of the Board of Directors of the Employer has determined that it is in the Employer's best interest and that of its shareholders to recognize the substantial contribution that the Executive has made and is expected to make in the future to the Employer's business and to continue to retain Executive’s services in the future.

The Employer and the Executive desire to set forth in this Agreement the terms and conditions of the Executive's employment with the Employer. Accordingly, in consideration of the mutual covenants and representations set forth below, the sufficiency of which is hereby acknowledged, the Employer and the Executive agree as follows:

TERMS

1.EMPLOYMENT.

The Executive agrees to continue employment with the Employer (and one or more of the Employer's subsidiary corporations if and when assigned by Employer) to render the services specified in this Agreement upon the terms and conditions and for the compensation provided in this Agreement, and Employer agrees to so employ Executive. All compensation paid to the Executive by the Employer or any subsidiary of the Employer, and all benefits and perquisites received by the Executive from the Employer or any of its subsidiaries, will be aggregated in determining whether the Executive has received the compensation and benefits provided for in this Agreement.

2.TERM OF EMPLOYMENT.

(a)End of Term. The term of the employment of the Executive under this Agreement will be for the period commencing on the date of this Agreement and ending on the earliest of:

(i)one year after notice of termination of this Agreement is given by the Employer to the Executive;

(ii)the date of termination of the Executive’s employment by the Executive at Executive’s election and without “Good Reason” (as defined in Section 9 of this Agreement);

(iii)the date of termination of the Executive’s employment by the Employer for “Cause”) (as defined in Section 8 of this Agreement) or by the Employer without Cause in accordance with Section 9 or by the Executive for Good Reason pursuant to Section 9;

(iv)the date of the Executive’s death; or

(v)the Disability Effective Date (as such term is defined in Section 5 of this Agreement) following the Executive’s Disability (as such term is defined in Section 5 of this Agreement).

It is understood that at each and every moment of time the remaining term of employment hereunder shall be one year, unless this Agreement or Executive’s employment is terminated in accordance with the provisions of this Section 2.

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(b)Date of Termination. As used in this Agreement the term "Date of Termination" means (i) if the Executive’s employment is terminated by the Employer pursuant to clause (i) of Section 2(a) above, the date that is one year after the date of the Executive’s receipt of the notice of termination of this Agreement or any later date specified in such notice, as the case may be, (ii) if the Executive terminates Executive’s employment at Executive’s election and without Good Reason pursuant to clause (ii) of Section 2(a), the date of the Employer’s receipt of the notice of termination from the Executive or any later date specified in such notice, as the case may be, (iii) if the Executive’s employment is terminated by the Employer for Cause or by the Employer without Cause pursuant to Section 9 of this Agreement, or by the Executive for Good Reason, fifteen days after the date of receipt of the notice of termination by the Executive or the Employer, respectively, or any later date specified in such notice, as the case may be, (iv) if the Executive's employment terminates by reason of the Executive's voluntary retirement, the date that such retirement becomes effective in accordance with the Employer's plans and policies; and (v) if the Executive's employment is terminated by reason of death or Disability, the date of death of the Executive or the Disability Effective Date (as that term is defined in Section 5 of this Agreement).

3.SERVICES TO BE RENDERED; EXCLUSIVITY.

(a)Service. During the term of the Executive's employment under this Agreement, the Executive shall perform the duties of Chief Operations Officer, East, or any reasonably comparable duties that may be assigned to the Executive from time to time.

(b)Full Time Efforts. During the term of this Agreement and excluding any periods of vacation, family or sick leave or holidays to which the Executive is entitled, the Executive shall devote Executive’s full business time and energy to the business, affairs and interests of the Employer and its subsidiaries, and matters related thereto, and shall use Executive’s reasonable commercial efforts and ability to promote the interests of the Employer and its subsidiaries. The Executive agrees that he/she will diligently endeavor to promote the business, affairs and interests of the Employer and its subsidiaries and that Executive will perform services contemplated hereby in accordance with the policies established by the Employer from time to time. The Executive shall serve without additional remuneration in such senior executive capacities for one or more direct or indirect subsidiaries of the Employer as the Employer may from time to time request, subject to appropriate authorization by the subsidiary or subsidiaries involved and any limitations under applicable law and indemnification on the same terms as the Executive is indemnified by the Employer. The failure of the Executive to discharge an order or perform a function because the Executive reasonably and in good faith believes such would violate a law or regulation or be dishonest shall not be deemed a breach by Executive of Executive’s obligations or duties under this Agreement and shall not entitle the Employer to terminate this Agreement pursuant to any of its provisions.

(c)Certain Permissible Activities. The Executive may serve as a director or in any other capacity of any business enterprise, including an enterprise whose activities may involve or relate to the business of the Employer or any of its subsidiaries but only if such service is expressly approved by the Employer in writing. The Executive may (i) make and manage personal business investments of Executive’s choice, (ii) teach at educational institutions and deliver lectures, and (iii) serve in any capacity with any civic, educational or charitable organization, or any governmental entity or trade association, in each such case without seeking or obtaining approval by the Employer so long as such activities and service do not materially interfere or conflict with the performance of Executive’s duties under this Agreement. It is agreed that to the extent that the Employer shall have approved any service of the Executive pursuant to the first sentence of this Section 3(c) prior to a Change in Control Date (as defined in Section 10 below), or to the extent that the Executive may have engaged in activities pursuant to the second sentence of this Section 3(c) prior to such Change in Control Date, the continued conduct of such activities or the conduct of activities similar in nature and scope thereto during the two years subsequent to such Change in Control Date shall be permissible and not in violation of any provisions of this Agreement and the previously obtained Employer approval may not be revoked or limited in any material respect during the two years following such Change in Control Date.

4.COMPENSATION AND BENEFITS.

(a)Base Salary. The Employer agrees that the Executive will be paid for Executive’s services under this Agreement a salary at the annual rate of at least $300,000, payable in periodic installments in accordance with the Employer's normal salary payment dates for the Executive. Such salary as in effect from time to time is referred to in this Agreement as the Executive's "Base Salary."

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(b)Additional Benefits. The Executive shall also be entitled during the term of this Agreement to all rights and benefits for which Executive is otherwise eligible under any bonus plan, stock incentive plan, stock purchase plan, participation or extra compensation plan, supplemental executive retirement plan, deferred compensation plan, profit-sharing plan, life, medical and dental insurance policy, director and officer liability insurance plan or indemnification program, vacation, sick leave, family leave and holiday program or plan, or plans that confer the use of automobiles or condominiums (and pay the related expenses thereof) or that pay for club membership fees or tax or financial counseling or other plans or benefits, in any such case, which the Employer or any of its subsidiaries (i) may provide for the Executive or (ii) provided the Executive is eligible to participate therein, may provide generally to officers of the Employer (collectively, "Additional Benefits"). This Agreement shall not affect adversely (from the perspective of the Executive) the provisions of any other compensation, retirement or other benefit program or plan of the Employer or any of its subsidiaries and shall not be considered to be a guarantee that the Executive will receive any awards or other benefits under any plans, policies or arrangements which are performance-related. Moreover, Executive's participation in any such plan shall be subject to the provisions of applicable law, including the Employee Retirement Income Security Act of 1974, as amended.

(c)Individual Benefits. The Employer shall continue to provide to the Executive such individual perquisites as are in effect for Executive as of the first day of Executive’s employment under this agreement.

(d)Expense Reimbursement. The Employer agrees to reimburse the Executive in full for all such reasonable and necessary business, entertainment and travel expenses incurred or expended by Executive in connection with the performance of Executive’s duties under this Agreement; provided the Executive submits to the Employer vouchers or expense statements satisfactorily evidencing such expenses as may be reasonably required by the Employer and such expenses are in accordance with any applicable corporate policy.

(e)Limitations on Reductions. The Employer shall have the right to reduce one or more Additional Benefits but only in conjunction with a corollary reduction of such benefits applicable to all of the Employer's officers. Any increase in the Executive's Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement.

5.TERMINATION UPON DISABILITY.

(a)Continuation of Benefits upon Disability. If the Executive becomes totally and permanently unable to perform Executive’s duties because of any Disability (as defined below) during the term of Executive’s employment under this Agreement, the Executive's full-time employment under this Agreement shall terminate effective on the thirtieth day after the Executive's receipt of written notice of termination from the Employer (such thirtieth day being referred to in this Agreement as the "Disability Effective Date"). In addition to the payments specified in Section 6 below, in the event of termination of the Executive's employment pursuant to this Section 5, the Employer shall continue to pay or provide the Executive the following:

(i)until the earliest to occur of the Executive's death, the Executive's 65th birthday, two years after the Disability Effective Date, or the date of the Executive's return to full-time employment hereunder pursuant to Section 5(f) (such earliest day being referred to herein as the "Disability Termination of Benefits Date") the Base Salary, medical, dental and other insurance and welfare type Additional Benefits in which the Executive was participating immediately prior to the Disability Effective Date (including, without limitation, medical, dental, life and disability insurance), each such benefit to be continued in a manner no less favorable to the Executive than the benefit to which Executive was entitled immediately prior to the Disability Effective Date; provided, however, if the Executive's death occurs during the two years after the Disability Effective Date, the Employer shall continue to pay the Base Salary and to pay or provide medical, dental and other insurance and welfare type benefits, on the basis described in this clause (i), to the Executive's family members who were covered for such benefits immediately prior to the Executive's death for the balance of such two year period;

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(ii)until the Disability Effective Date, a continuation of vesting of all unvested stock options, restricted stock, or other equity grants, and all other long-term incentive grants or awards granted by the Employer to the Executive, such vesting to occur in accordance with the terms of each such grant as in effect on the Disability Effective Date and upon the assumption that no termination of employment had occurred; provided, however, if the Executive's death occurs during the two years immediately after the Disability Effective Date or if a Change in Control occurs prior to the Disability Effective Date, such vesting shall include any vesting which would occur upon the Executive's death or a Change in Control during employment with the Employer; and provided, further, that, if and to the extent further vesting is prohibited by the terms of any one or more of such grants or otherwise, the Executive shall be entitled to in-lieu cash payments from the Employer on each date (each a "Vesting Date") when vesting would have occurred absent such prohibition, but in no event beyond two years following the Disability Effective Date, equal to the spread on such Vesting Date between the exercise price and fair market value of stock subject to stock options that would have otherwise vested on such Vesting Date or in the case of restricted stock in lieu cash payments equal to the fair market value of such stock on Vesting Date; and provided, further, that if, after the Disability Effective Date, it is or becomes impossible on any date to continue to calculate any future in-lieu cash payments based on such continuation of vesting, the Executive shall thereupon be entitled immediately to the additional vesting which would normally have occurred during such two year period following the Disability Effective Date with respect to the affected type of in-lieu cash payments described above and shall be entitled immediately to receive payment of the amount specified for such type of in-lieu cash payments based on such additional vesting as of such date; and

(iii)until the Disability Termination of Benefits Date, if the Executive is a participant in such plans on the Executive's Disability Effective Date, a continuation of crediting of additional years of cumulative service (for all purposes, including for purposes of accrual and vesting of benefits and equity-based incentives) under any Executive Retirement Plan, Deferred Compensation Plan and/or Senior Supplemental Executive Retirement Plan (collectively, the "SERP") in accordance with the terms of the SERP and upon the assumption that no termination of employment had occurred; provided, however, that if the Disability Termination of Benefits Date occurs due to the Executive's death during the two years immediately after the Disability Effective Date or if a Change in Control occurs prior to the Disability Termination of Benefits Date, such continuation shall include any further accrual and vesting which would occur upon the Executive's death or a Change in Control during employment with the Employer; and

(b)Offset. The obligations of the Employer to make payments under this Agreement to the Executive, pursuant to this Section 5, following Executive’s Disability shall be reduced prospectively to the extent that the Executive receives payment of amounts under any salary continuation or similar feature contained in any disability insurance policy covering the Executive or under any salary continuation or similar feature under Social Security or any similar federal, state or local program. In addition, any medical, dental and other insurance and welfare type Additional Benefits to be provided by the Employer pursuant to clause (i) of Section 5(a) shall be secondary to any similar benefits provided by Social Security, Medicare, any private insurance maintained by or covering the Executive or any other similar plan or program covering the Executive. The Executive shall provide to the Employer upon written request from time to time a certification as to the types and amounts of the benefits referred to in the first two sentences of this Section 5(b) received by the Executive or to which Executive is entitled.

(c)Substitution of Benefits. If the Executive's full-time services are terminated due to Executive’s Disability and the Executive is entitled under the terms of this Agreement to, but is no longer eligible under the relevant plan for, Additional Benefits because of such termination, the Executive (or in the event of Executive’s death prior to the date that is two years after the Disability Effective Date, Executive’s designated Beneficiaries (as defined in Section 7 below)) shall be entitled to, and the Employer shall provide, to the extent required by in this Agreement, benefits substantially equivalent to such Additional Benefits to which the Executive was entitled immediately prior to Executive’s Disability and shall do so for the period during which Executive remains entitled to receive such Additional Benefits as provided in this Section 5.

(d)Partial Disability. In the event of a partial Disability of the Executive, it is understood that the Executive will provide such part-time services as may be consistent with the nature and extent of such Disability and Executive’s position, duties, responsibilities and status specified in Section 3(a) of this Agreement, the Employer shall not be entitled to terminate the Executive's employment under this Agreement as a result of such partial Disability (provided that despite such partial disability, the Executive is able to substantially perform most of Executive’s duties), and the terms and conditions of this Agreement shall remain in full force and effect after such partial Disability.

(e)Definition of Disability. As used in this Agreement, the term “Disability” means the Executive meets one of the following requirements:

(i)The Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve months; or

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(ii)The Executive is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Employer."

6.DEATH OF THE EXECUTIVE.

(a)Vesting. If the Executive dies while an employee of the Employer or while receiving any payments on account of a Disability as set forth in Section 5 above and during the term of this Agreement, all stock options, restricted stock or other equity grants, and all other long-term incentive grants or awards standing in the name of the Executive shall immediately fully vest and must be exercised, in the case of options, within 90 days of the date of the Executive's death by the appropriate beneficiary.

(b)Continuation of Base Salary and Benefits. If the Executive dies while an employee of the Employer and during the term of this Agreement, the Employer shall continue to pay the Base Salary and to pay or provide medical, dental and other insurance and welfare type benefits, on the basis described in Section 5(a)(i), to the Executive's family members who were covered for such benefits immediately prior to the Executive's death, for a period of one year following Executive’s death.

7.PAYMENTS AND BENEFITS UPON TERMINATION OF EMPLOYMENT.

On the Date of Termination of the Executive’s employment under this Agreement for any reason whatsoever, the Executive’s Base Salary will cease thereafter to accrue except as specifically provided in Sections 5, 6 or 9 and the Executive (or in the event of Executive’s death, Executive’s designated beneficiaries, Executive’s personal representative, or the executor or administrator of Executive’s estate (Executive’s "Beneficiaries")) will be entitled to such rights and benefits under the Employer's compensation and benefit plans, policies and arrangements in which the Executive is then a participant as may be provided for under such plans, policies and arrangements (which shall not be modified adversely to the Executive or Executive’s Beneficiaries after Executive’s Date of Termination):

(a)pay and deliver to the Executive (or, in the event of Executive’s death, to Executive’s Beneficiaries) not later than thirty days after Executive’s Date of Termination, all amounts of money and all stock or other property owed to Executive by the Employer as of the Date of Termination, including but not limited to Executive’s accrued Base Salary, any amounts payable in lieu of accrued vacation, amounts payable to Executive under any expense reimbursement plans or policies for expenses incurred through the Date of Termination, the amount of any bonus due under any incentive plan to the Executive for any bonus period or performance measurement cycle of the Employer that ended prior to the Date of Termination which remained unpaid on the Date of Termination and any compensation previously deferred by the Executive and any accrued interest on earnings on such deferred compensation to the extent not previously paid to the Executive;

(b)cause the trustee of any trusteed plan of the Employer to pay and deliver, and the Employer shall pay and deliver under any similar non-trusteed plan of the Employer, to the Executive (or, in the event of Executive’s death, to Executive’s Beneficiaries), at the earliest practicable date after payments become due under such plan, all money, stock and other property which such plans require to be paid or delivered or are otherwise payable or deliverable to Executive after the termination of Executive’s employment;

(c)continue to insure the Executive (or, in the event of Executive’s death, Executive’s Beneficiaries) with respect to Executive’s activities as a director, officer or Executive of the Employer or any of its subsidiaries, for a period of three years after such Date of Termination, under such policies of director and officer liability insurance as Employer shall provide for its senior officers generally; provided, however, that if a Change in Control shall have occurred prior to such Date of Termination or shall thereafter occur, such policies of insurance shall be no less favorable to the Executive than such policies as may have been in effect for the Executive at any time during the one hundred twenty day period immediately preceding the Change in Control Date; and

(d)continue to honor such rights to indemnification as the Executive (or, in the event of Executive’s death, Executive’s Beneficiaries) may be entitled pursuant to any plan of indemnification or indemnification agreement in effect at the Date of Termination.

(e)The Executive immediately waives any right or entitlement to the payments and benefits described in Section 7(a)-(d) above in the event that the Executive breaches any term or provision of this Agreement or the Confidentiality Agreement and Restrictive Covenant and in the event of such breach the Executive will pay to the Employer any damages the Employer may be able to recover, in addition to any other relief to which Employer may be entitled.

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8.TERMINATION OF EMPLOYMENT BY EMPLOYER FOR CAUSE.

(a)Definition of Cause. The Employer may terminate the Executive's employment under this Agreement if the termination is for Cause. For purposes of this Agreement, the Employer shall have "Cause" to terminate the Executive's employment under this Agreement if, and only if, any of the following shall occur:

(i)The Executive's conviction by a court of competent jurisdiction or entry of a guilty plea or a plea of nolo contendere for an act on the Executive's part constituting any felony; or

(ii)a willful breach by the Executive of any provisions of this Agreement if such breach results in demonstrably material injury to the Employer.

(iii)the Executive’s willful dishonesty or fraud with respect to business or affairs of the Employer if such dishonesty or fraud results in demonstrable material injury to Employer.

(b)Procedural Requirements. The Executive's employment under this Agreement shall not be subject to termination for Cause without: (i) reasonable notice to the Executive setting forth the reasons for Employer's intention to terminate and specifying the particulars thereof in detail, and (ii) an opportunity for the Executive to cure any such breach, if possible, within thirty days after receipt of such notice.

9.TERMINATION OF EMPLOYMENT BY THE EXECUTIVE FOR GOOD REASON OR BY EMPLOYER WITHOUT CAUSE.

(a)Definition of Good Reason. The Executive may terminate Executive’s employment under this Agreement and all of Executive’s obligations under this Agreement to the Employer accruing after the date of such termination (other than Executive’s obligations under Sections 11, 12, 13, 18, and 26), if the termination is for "Good Reason," which for purposes of this Agreement is defined as:

(i)failure by the Employer to perform any of its obligations hereunder (including, but not limited to, Employer's obligations under Sections 3 and 4) other than an isolated, insubstantial and inadvertent failure not occurring in bad faith; or

(ii)the diminution of the Executive's salary and or a material diminution of the Executive's benefits, except in connection with the termination of the Executive's employment for permanent disability, Cause, as a result of the Executive's death or termination by the Executive other than for Good Reason;

(iii)any failure by the Employer to obtain the assumption of this Agreement by any successor or assignee of the Employer;

(iv)any attempt by the Employer to terminate the Executive for Cause which does not result in a valid termination for Cause.

The Executive's termination of employment will not constitute a termination for Good Reason unless the Executive first provides written notice to the Employer of the existence of the Good Reason within ninety days following the effective date of the occurrence of the Good Reason, and the Good Reason remains uncorrected by the Employer for more than thirty days following such written notice of the Good Reason from the Executive to the Employer, and the effective date of the Executive's termination of employment is within six months following the effective date of the occurrence of the Good Reason.

(b)Employer's Termination Without Cause. The Employer may terminate the Executive's employment under this Agreement without Cause (as defined above) by written notice to the Executive. Any such termination shall become effective upon fifteen days prior written notice from the Employer to the Executive.

(c)Compensation and Benefits Upon Section 9 Termination. In addition to the payments specified in Section 7 of this Agreement, in the event of termination of the Executive's employment pursuant to this Section 9, the Employer shall continue to pay or provide to the Executive the following:

(i)Salary through Date of Termination at the rate in effect immediately prior to the time a Notice of Termination is given plus any benefits and awards (including both cash and stock components) which pursuant to the terms of any Plans have been earned and otherwise payable, but which have not been paid;

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(ii)As severance pay, and in lieu of any further salary for any period subsequent to the Date of Termination, an amount in cash equal to the annual Base Salary on the Date of Termination plus the average of the Executive's last two years' bonuses (the "Severance Payment"). For the purposes of the definition of "Severance Payment" the Company shall compute the average of the Executive's last two years' bonuses by including the greater of (A) the bonus, if any, already earned by the Executive at the time of termination related to the calendar year of the termination or (B) the bonus, if any, earned in the second full calendar year preceding the termination of the Executive. For example, if the Executive is terminated on August 1, 2014 and this Section 9 is applicable, the Company shall include in the bonus calculation (i) the greater of (A) the bonus, if any, earned by the Executive during the period from January 1, 2014 to August 1, 2014, or (B) the bonus, if any, earned by the Executive in calendar year 2012 and (ii) the bonus, if any, earned by the Executive in calendar year 2013. Additionally, also for the purpose of the definition of "Severance Payment," in the event the Executive received stock, restricted stock, stock options, stock appreciation rights or an alternative long-term incentive during any relevant year (each a "Grant"), then the Company shall compute the average of the Executive's last two years' bonuses by including: (i) in the case of a Grant consisting of a stock grant, the amount reported by the Company to the Internal Revenue Service relating to such stock grant for the relevant year; (ii) in the case of a Grant consisting of restricted stock, the full grant price, computed for the purposes of this agreement by multiplying the number of granted restricted shares by the closing share price on the grant date; (iii) in the case of a Grant consisting of a stock option or stock appreciation right the imputed present value of such option or stock appreciation right at the time of the grant, defined for purposes of this agreement as 50% of the exercise price, and; (iv) in the case of a Grant consisting of a cash-based long-term incentive, the full grant value on the date of grant; provided, however, the amount attributed to (i), (ii), (iii) and (iv) above shall not exceed $200,000 in the aggregate. For example, if the Executive is terminated on October 1, 2014 (and this Section 9 is applicable) and the Executive received a bonus consisting of stock with a value reported to the Internal Revenue Service of $400,000 in 2012, and a bonus consisting of options with an option value of $125,000 in 2013, then the average bonus for calculating the Severance Payment will be $200,000. For the purposes of this Section, the relevant year for a Grant or bonus shall be the year in which the performance relates not the year it is actually granted or paid to the Executive, e.g., if the Executive receives a Grant for performance in calendar year 2014, but the Grant is actually issued in 2015, the value of the Grant shall be considered a 2014 Grant for purposes of calculating the Severance Payment. The Severance Payment shall be paid to the Executive not later than thirty days after Executive’s Date of Termination.

(iii)The Executive will have 90 days subsequent to the Date of Termination to exercise all stock options and restricted stock awards that have been granted and were vested at Date of Termination; and.

(iv)All salary and benefits shall cease at the time of such termination, subject to the terms of any benefit or compensation plan then in force and applicable to the Executive. The Executive immediately waives any right or entitlement to the Severance Payment in the event that the Executive breaches any term or provision of this Agreement or the Confidential Information Agreement and Restrictive Covenant and in the event of such breach the Executive will pay to the Employer an amount equal to any portion of the Severance Payment paid to the Executive prior the Executive's breach, in addition to any damages the Employer may be able to recover. The Employer shall not have any additional liability or obligation hereunder by reason of such termination.

(d)This Section 9 shall not apply to any termination of this Agreement with notice under Section 2(a)(i).

10.CHANGE IN CONTROL.

(a)Effectiveness of Section. If at any time during the term of the Executive's employment by the Employer pursuant to this Agreement, a Change in Control of the Employer (as defined below) shall occur, the provisions of this Section 10 shall become effective without any limitation on any other rights the Executive may have under this Agreement. Sections (c) and (d) of this Section 10 shall become ineffective with respect to such Change in Control on the first anniversary of the date on which such Change in Control occurs (the "Change in Control Date") unless the Executive's employment has theretofore been terminated for any reason; provided, however, that if another Change in Control occurs after such first anniversary, Sections 10(c) and (d) shall become effective once again with respect to such subsequent Change in Control. If the Executive's employment so terminates prior to such first anniversary, the provisions of Sections 10(c) and (d) shall survive so long as the Executive or Executive’s Beneficiaries are entitled to any benefits under this Agreement.

(b)Definition of Change in Control. For the purpose of this Agreement, a "Change in Control" shall mean:

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(i)the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning o Rule 13d-3 promulgated under the Exchange Act) of twenty-five percent (25%) or more of either (A) the then outstanding shares of common stock of the Employer (the "Outstanding Employer Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Employer entitled to vote generally in the election of directors (the "Outstanding Employer Voting Securities"); provided, however, that for purposes of this clause (i), the following acquisitions shall not constitute a Change in Control: (u) any acquisition directly from the Employer, (w) any acquisition by the Employer, (x) any acquisition by any executive benefit plan (or related trust) sponsored or maintained by the Employer or any corporation controlled by the Employer, (y) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of clause (iii) of this Section 10(b), or (z) any acquisition by David L. Dunkel or his family members; or

(ii)individuals who, as of the date of this Agreement, constitute the Board of Directors of the Employer (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Employer (the “Board”); provided, however, that any individual becoming a director subsequent to the date of this Agreement whose election, or nomination for election by the Employer's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(iii)consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Employer (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the Persons who were the beneficial owners, respectively, of the Outstanding Employer Common Stock and Outstanding Employer Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Employer or all or substantially all of the Employer's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Employer Common Stock and Outstanding Employer Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any executive benefit plan (or related trust) of the Employer or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, twenty-five percent or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(iv)approval by the shareholders of the Employer of a complete liquidation or dissolution of the Employer.

(c)Certain Restrictions and Events Following Change in Control. If a Change in Control of the Employer occurs, then the following provisions shall apply:

(i)the Employer shall not be entitled to reduce, terminate or adversely (from the Executive's point of view) affect, pursuant to Section 4(b), any Additional Benefits which are described in Section 4(b) to which the Executive shall thereafter be entitled even in connection with a reduction in such benefits applicable to all of the Employer's officers who are of a similar class and station as those of the Executive. If the continuation of any benefit provided to the Executive violates any law or statute the Employer shall pay to the Executive the cash equivalent of any benefit lost by the Executive;

(ii)the Employer shall not be entitled to reduce, terminate, or adversely (from the Executive's point of view) affect the Executive's individual perquisites, as described in Section 4(c) and must maintain these benefits as currently enjoyed by the Executive immediately prior to any Change in Control; and

(iii)all stock options, restricted stock awards, equity-based incentive plans, SERP and similar grants theretofore or thereafter made which are unvested shall immediately fully vest effective as of the Change in Control Date.

(d)Provisions Applicable to Termination of Employment. If a Change in Control shall occur and the Executive's employment is thereafter terminated at any time prior to the first anniversary of the Change in Control Date by the Employer for other than Cause, or by the Executive for Good Reason, then the Executive shall be entitled to receive the following:

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(i)the Executive shall be entitled to all payments and benefits provided in Section 7;

(ii)the payments required by the provisions of clause (i) of Section 9(c) shall be paid to the Executive in a lump sum in cash within ten days after the Date of Termination;

(iii)the Executive shall receive as severance pay, and in lieu of any further salary subsequent to the Date of Termination and any Severance Payment referenced in Section 9(c)(ii) above, an amount in cash equal to two times the annual Base Salary on the Date of Termination. In addition, all benefits enjoyed by the Executive on the Date of Termination shall continue for a period of one year and 364 days after the Date of Termination. In addition, the Executive will receive an amount in cash equal to two times the average of the last two years bonuses, which average shall be computed in the manner described in Section 9(c)(ii) above; provided, however, that the value of any Grant including for purposes of the average of the last two years’ bonuses shall not be limited to $200,000. The severance sum shall be paid to the Executive within 30 days of the Date of Termination. If the continuation of any benefit provided to the Executive violates any law or statute the Employer shall pay to the Executive the cash equivalent of any benefit lost by the Executive; and

(iv)the Employer shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in Executive’s sole reasonable discretion.

11.PROPERTY.

(a)All right, title and interest in and to Intellectual Property (as defined below) shall be and remain the sole and exclusive property of the Employer. During the term of this Agreement, the Executive shall not remove from the Employer's offices or premises any documents, records, notebooks, files, correspondence, reports, memoranda or similar materials of or containing proprietary information, or other materials or property of any kind belonging to the Employer unless necessary or appropriate in accordance with the duties and responsibilities required by or appropriate for Executive’s position and, in the event that such materials or property are removed, all of the foregoing shall be returned to their proper files or places of safekeeping as promptly as possible after the removal shall serve its specific purpose. The Executive shall not make, retain, remove and/or distribute any copies of any of the foregoing for any reason whatsoever except as may be necessary in the discharge of Executive’s assigned duties and shall not divulge to any third person the nature of and/or contents of any of the foregoing or of any other oral or written information to which Executive may have access or with which for any reason Executive may become familiar, except as disclosure shall be necessary in the performance of Executive’s duties. Upon the termination of the Executive's employment with the Employer, Executive shall leave with or return to the Employer all originals and copies of the foregoing then in Executive’s possession, whether prepared by the Executive or by others.

(b)The Executive agrees that all right, title and interest in and to any innovations, designs, systems, analyses, ideas for marketing programs, and all copyrights, patents, trademarks and trade names, or similar intangible personal property which have been or are developed or created in whole or in part by the Executive: (i) at any time and at any place while the Executive is employed by the Employer and which, in the case of any or all of the foregoing, are related to and used in connection with the business of the Employer; (ii) as a result of tasks assigned to the Executive by the Employer; or (iii) from the use of premises or personal property (whether tangible or intangible) owned, leased or contracted for by the Employer (collectively, the "Intellectual Property"), shall be and remain forever the sole and exclusive property of the Employer. The Executive shall promptly disclose to the Employer all Intellectual Property, and the Executive shall have no claim for additional compensation for the Intellectual Property.

(c)The Executive acknowledges that all the Intellectual Property that is copyrightable shall be considered a work made for hire under United States Copyright Law. To the extent that any copyrightable Intellectual Property may not be considered a work made for hire under the applicable provisions of the United States Copyright Law, or to the extent that, notwithstanding the foregoing provisions, the Executive may retain an interest in any Intellectual Property that is not copyrightable, the Executive hereby irrevocably assigns and transfers to the Employer any and all right, title, or interest that the Executive may have in the Intellectual Property under copyright, patent, trade secret and trademark law, in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration. The Employer shall be entitled to obtain and hold in its own name all copyrights, patents, trade secrets, and trademarks with respect thereto.

(d)The Executive further agrees to reveal promptly all information relating to the Intellectual Property to appropriate officers of the Employer and to cooperate with the Employer and execute such documents as may be necessary or appropriate (i) in the event that the Employer desires to seek copyright, patent or trademark protection, or other analogous protection relating to the Intellectual Property, and when such protection is obtained, to renew and restore the same, or (ii) to defend any opposition proceedings in respect of obtaining and maintaining such copyright, patent or trademark protection, or other analogous protection.

9

(e)In the event the Employer is unable after reasonable effort to secure the Executive's signature on any of the documents referenced in Section 12(d) above, whether because of the Executive's physical or mental incapacity or for any other reason whatsoever, the Executive hereby irrevocably designates and appoints the Employer and its duly authorized officers and agents as the Executive's agent and attorney-in-fact, to act for and in Executive’s behalf and stead to execute and file any such documents and to do all other lawfully permitted acts to further the prosecution and issuance of any such copyright, patent or trademark protection, or other analogous protection, with the same legal force and effect as if executed by the Executive.

12.CONFIDENTIAL INFORMATION AGREEMENT AND RESTRICTIVE COVENANT.

Acceptance of this Agreement requires the Executive's separate signature and acceptance of the Confidential Information Agreement and Restrictive Covenant attached to this Agreement as Exhibit A.

13.ASSUMPTION BY SUCCESSOR.

The Employer will require any successor (whether direct or indirect by purchase, merger, consolation or otherwise) to all or substantially all of the business and/or assets of the Employer to (i) expressly assume and agree to perform this Agreement in the same manner and the same extent the Employer would be required to perform it as if no such succession had taken place; and (ii) notify the Executive of the assumption of this Agreement within ten days of such assumption. Failure of the Employer to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this agreement. As used in this Agreement, "Employer" shall mean Kforce Inc. and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. However, this agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, and distributees, devisees and legatees.

14.NO SET-OFF.

Except as contemplated by Section 5(b), the Employer's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right, or action which the Employer may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable, or benefits to be provided, to the Executive under any of the provisions of this Agreement, and, except as expressly provided in Sections 5(c), such amounts shall not be reduced whether or not the Executive obtains other employment.

15.INDEMNIFICATION.

The Employer and the Executive acknowledge that the Executive's service as an officer of the Employer exposes the Executive to risks of personal liability arising from, and pertaining to, the Executive's participation in the management of the Employer. The Employer shall defend, indemnify and hold harmless the Executive from any actual cost, loss, damages, attorneys fees, or liability suffered or incurred by the Executive arising out of, or connected to, the Executive's service as an officer of the Employer. The Employer shall not be obligated to indemnify the Executive if the cost, loss, damage, or liability results from the Executive's violation of the Securities Exchange Act of 1934, as amended, the Executive's violation of criminal law, a transaction from which the Executive received an improper personal benefit, the Executive's violation of Section 607.0834 of the Florida Business Corporation Act (or any successor law), or the Executive's willful misconduct or a conscious disregard for the best interests of the Employer. The Employer will not have any obligation to the Executive under this section for any loss suffered if the Executive voluntarily pays, settles, compromises, confesses judgment for, or admits liability with respect to any matter without the approval of the Employer. Within thirty days after the Executive receives notice of any claim or action which may give rise to the application of this section, the Executive shall notify the Employer in writing of the claim or action. The Executive's failure to timely notify the Employer of the claim or action will relieve the Employer from any obligation to the Executive under this section.

16.PRIOR EMPLOYMENT AGREEMENTS.

The Executive represents that he/she has not executed any agreement with any previous employer which may impose restrictions on Executive’s employment with the Employer.

17.TRANSFERABILITY, SUCCESSORS AND ASSIGNS.

The rights and obligations of the Employer under this Agreement shall be transferable and all covenants and agreements hereunder shall inure to the benefit of and be enforceable by or against its successors and assigns. No rights or obligations of the Executive hereunder shall be transferable or assignable by the Executive to any third party.

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18.ATTORNEY'S FEES.

The prevailing party in any action brought to enforce the provisions of this Agreement shall be entitled, in addition to such other relief that may be granted, to a reasonable sum for attorney's fees and costs incurred by such party in enforcing this Agreement (including fees incurred on any appeal).

19.NO ORAL MODIFICATIONS.

No modifications or waivers of any provision hereof will be binding or valid unless in writing and executed by both parties.

20.WAIVER.

Either party's failure to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of any such provision or provisions, or prevent that party thereafter from enforcing each and every other provision of this Agreement. The rights granted the parties in this Agreement are cumulative and shall not constitute a waiver of either party's right to assert all other legal remedies available to it under the circumstances.

21.SEVERABILITY.

The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted.

22.GOVERNING LAW AND BINDING EFFECT.

This Agreement was entered into in the State of Florida and shall be interpreted and construed in accordance with the laws of Florida.

23.CAPTIONS.

Captions and section headings used herein are for convenience only, are not of this Agreement, and shall not be used in construing this Agreement.

24.COUNTERPARTS.

This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.

25.NOTICE.

Any notice required or permitted to be given under this Agreement shall be sufficient if it is in writing and sent by hand delivery or by United States Mail service to the parties at the following addresses:

To the Employer:	1001 E. Palm Ave
	Tampa, Florida 33605
	Attn: Joseph J. Liberatore
	President
To the Executive:	22020 Crested Quail Drive
	Ashburn, Virginia 20148
	Kye L. Mitchell

26.ARBITRATION.

Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Tampa, Florida in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered in the arbitrator's award in any court having jurisdiction. Such arbitration shall occur only after the parties have attempted to resolve the dispute or controversy by mediation under mutually agreeable terms.

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27.ENTIRE AGREEMENT.

This Agreement, and the Agreement attached Exhibit A, comprise the entire agreement between the Executive and the Employer. This Agreement supersedes all prior agreements and understandings between the parties with respect to the subject matter hereof and may not be modified or terminated orally. No modification, termination, or attempted waiver shall be valid unless it is in writing and is executed by each of the parties.

28.SECTION 409A.

With respect to the payments provided by this Agreement upon termination of the Executive's employment (the "Cash Severance Amount"), in the event the aggregate portion of the Cash Severance Amount payable during the first six months following the date of termination of the Executive's employment would exceed an amount (the "Minimum Amount") equal to two times the lesser of: (i) the Executive's annualized compensation as in effect for the calendar year immediately preceding the calendar year during which the Executive's termination of employment occurs, or (ii) the maximum amount that may be taken into account under a qualified retirement plan pursuant to Section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the "Code") for the calendar year during which the Executive's termination of employment occurs, then, to the extent necessary to avoid the imposition of additional income taxes or penalties or interest on the Executive under Section 409A of the Code, (x) the Employer shall pay during the first six months following the date of termination of the Executive's employment, at the time(s) and in the form(s) provided by the applicable sections of this Agreement, a portion of the Cash Severance Amount equal to the Minimum Amount, and (y) the Employer shall accumulate the portion of the Cash Severance Amount that exceeds the Minimum Amount and that the Executive would otherwise be entitled to receive during the first six months following the date of termination of the Executive's employment and shall pay such accumulated amount to the Executive in a lump sum on the first day of the seventh month following the date of termination of the Executive's employment, and (z) the Employer shall pay the remainder of the Cash Severance Amount, if any, on and after the first day of the seventh month following the date of termination of the Executive's employment at the time(s) and in the form(s) provided by the applicable section(s) of this Agreement.

IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the day and year first written above.

KFORCE INC.
By:	/s/    DAVID M. KELLY
	David M. Kelly
	Senior Vice President and Chief Financial Officer
	/s/    KYE L. MITCHELL
	Kye L. Mitchell

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EXHIBIT A

CONFIDENTIALITY AGREEMENT AND RESTRICTIVE COVENANT

THIS AGREEMENT ("Agreement") dated as of January 1, 2013 at 12:01 a.m., is entered into by and between Kforce Inc., a Florida corporation (the "Employer") and Kye L. Mitchell (the "Executive").

BACKGROUND

The Employer desires to employ or continue employing the Executive and the Executive wishes to accept or continue employment upon the terms and conditions set forth in the parties' Employment Agreement (the "Employment Agreement") and this Agreement. The Executive recognizes and agrees that because of Executive's employment with the Employer he/she has been and will be afforded an opportunity to learn confidential and proprietary information and to know of and/or become known to various customers, potential customers and employees of the Employer and to learn the Employer's business practices. The Executive recognizes that this is a valuable right, is of great personal benefit to Executive in Executive's career and therefore provides sufficient basis for the restrictive covenants contained in this Agreement. Also, as set forth in the Employment Agreement, the Employer agrees to pay the Executive significant severance pay under certain circumstances in consideration for the Executive's agreement not to compete with the Employer. Accordingly, in consideration of the mutual covenants and agreements set forth below, the parties agree as follows'

TERMS

1.Acknowledgement of Legitimate Business Interest of the Employer. The Executive acknowledges that as a result of Executive's employment with the Employer he/she has accepted and received trade secrets, valuable confidential business and professional information, substantial relationships with specific prospective or existing clients, contractors, or customers, and goodwill associated with the ongoing business of the Employer, all of which are of particular significance to the Employer and constitute legitimate business interests that the Employer has an interest in protecting. Therefore, the Executive agrees as follows:

(a)Confidential Information. Except for proper business purposes on Employer's behalf, at all times for the period of time commencing as of the date of this Agreement and ending on the second anniversary of the date of termination of the Executive's employment under the Employment Agreement (the "Restriction Period") the Executive agrees not to disclose or use any confidential information, including without limitation, information regarding research, strategy, developments, product designs or specifications, processes, "know-how," prices, suppliers, customers, contractors, candidates, clients, costs or any other knowledge or information with respect to confidential information or trade secrets of the Employer. The Executive acknowledges and agrees that all notes, lists, data, records, business forms, studies, marketing materials, training materials, reports, sketches, plans, unpublished memoranda and other documents (whether electronic or hardcopy) concerning any information relating to the Employer's business, held or created by the Executive, whether confidential or not, are the property of the Employer and will not be used or retained by Executive except on behalf of employer in the course of Executive's employment, and will not be retained by Executive upon termination of Executive's employment.

(b)Non-Solicitation. At all times during the Restriction Period, the Executive shall not, directly or indirectly, solicit, induce, influence, combine or conspire with, or attempt to induce, any executive, employee, vendor, client, contractor, or supplier of the Employer to terminate their employment, or other relationship with, or compete against the Employer or any present or future affiliates of the Employer in the Employer's industry (the "Business"). In particular, and without in any way limiting the forgoing, the Executive agrees that during the Restriction Period, whether the termination shall be voluntary or involuntary, with or without cause, or for any other reason whatsoever, the Executive shall not, directly or indirectly: (a) attempt to hire any other executive or employee of the Employer, including persons on assignment with clients, or otherwise encourage or attempt to encourage any other executive or employee of the Employer to leave employment or terminate an assignment with the Employer; or (b) in any manner or at any time, solicit or encourage any person, firm, corporation, or any business entity who are customers, clients, contractors, or prospective clients or contractors of the Employer to cease or refrain from doing business with the Employer. Executive further agrees, during the Restriction Period, to refrain from directly or indirectly soliciting business from any client of Employer with whom Executive had contact during the term of Executive's employment with Employer. In the event the Executive breaches any term contained in this Section, the Executive immediately waives any right or entitlement to the severance payments described in the Employment Agreement (which includes both the Severance Payment referenced in Section 9(c)(ii) of the Employment Agreement as well as any other severance payable pursuant to Section 10(d)(iii) of the Employment Agreement) and will pay to the Employer an amount equal to any portion of the severance payments paid to the Executive prior to the Executive's breach, in addition to any damages the Employer may be able to recover.

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(c)Exception. Notwithstanding anything to the contrary contained in this Agreement, in the event: (i) the Executive resigns for "Good Reason" (as such term is defined in Section 9(a) of the Employment Agreement) or is terminated without "Cause" (as such term is defined in Section 8 of the Employment Agreement), and (ii) the Executive delivers a written statement to the Company specifically releasing the Company from paying any Severance Payment as contemplated by Section 9(c)(ii) of the Employment Agreement (in a form reasonably acceptable to the Company), then the provisions of Section l(b) of this Agreement shall have no force or effect.

2.Severability and Specific Performance.

(a)If, in any judicial proceedings, a court shall refuse to enforce any of the covenants included in Paragraph l(a) and (b), above, then such unenforceable covenant shall be amended to relate to such lesser period or geographical area as shall be enforceable. In the event the Employer should bring any legal action or other proceeding against the Executive for enforcement of this Agreement, the calculation of the Restriction Period, if any, shall not include the period of time commencing with the filing of legal action or other proceeding to enforce this Agreement through the date of final judgment or final resolution including all appeals, if any, of such legal action or other proceeding unless the Employer is receiving the practical benefits of Paragraph 1(a) and/or (b), as applicable, during such time.

(b)The Executive hereby acknowledges that the restrictions on Executive's activity as set forth in Paragraphs 1(a) and (b) hereof are required for the Employer's reasonable protection and are a material inducement for the Employer to retain or continue to retain the services of Executive. The Executive hereby agrees that in the event of the violation by Executive of any such provisions of this Agreement, the Employer will suffer irreparable harm and will be entitled to equitable relief, including an order requiring specific performance of the terms hereof, in addition to any damages that may be recoverable.

3.Miscellaneous Provisions.

(a)Notice: All notices, requests, demands, claims, and other communications under this Agreement will be in writing. Any notice, request, demand, claim, or other communication under this Agreement shall be deemed duly given if delivered personally, telecopied (if confirmed), or sent by registered or certified mail (return receipt requested) addressed to the intended recipient as set forth below (or at such other address for a party as shall be specified by like notice)-

If to Executive-	22020 Crested Quail Drive
	Ashburn, Virginia 20148
	Attn: Kye L. Mitchell
If to the Employer	Kforce Inc.
	1001 East Palm Avenue
	Tampa, Florida 33605
	Attn: Joseph J. Liberatore, President

(b)Entire Agreement, Amendments. Except for the Employment Agreement and other agreements and writings expressly provided for therein, this Agreement contains the entire agreement and understanding of the parties to this Agreement relating to the subject matter of this Agreement, and supersedes any prior and contemporaneous understandings, agreements, or representations of every nature between the parties. This Agreement may not be changed or modified, except by an agreement in writing signed by each of the parties to this Agreement.

(c)Waiver. The waiver of the breach of any term or provision of this Agreement shall not operate as or be construed to be a waiver of any other or subsequent breach of this Agreement.

(d)Governing Law. This Agreement shall be construed and enforced in accordance with the laws of Florida, without regard to the conflict-of-laws provisions thereof.

(e)Invalidity. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the validity of any other provision of this Agreement, and such provision(s) shall be deemed modified to the extent necessary to make it or them enforceable.

14

(f)Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of such shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

KFORCE INC.
By:	/s/    DAVID M. KELLY
	David M. Kelly
	Senior Vice President and Chief Financial Officer
	/s/    KYE L. MITCHELL
	Kye L. Mitchell

15

EX-31.1

Exhibit 31.1

CERTIFICATIONS

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 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 2, 2016

/s/ DAVID L. DUNKEL

David L. Dunkel,

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, David M. Kelly, certify that:

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

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 2, 2016

/s/ DAVID M. KELLY

David M. Kelly,

Senior Vice President, Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

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. (“Kforce”) on Form 10-Q for the quarterly period ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), I, David L. Dunkel, Chief Executive Officer of Kforce, hereby 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 Kforce.

Date: November 2, 2016

/s/ DAVID L. DUNKEL

David L. Dunkel,

Chief Executive Officer

(Principal Executive Officer)

EX-32.2

Exhibit 32.2

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. (“Kforce”) on Form 10-Q for the quarterly period ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), I, David M. Kelly, Chief Financial Officer of Kforce, hereby 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 Kforce.

Date: November 2, 2016

/s/ DAVID M. KELLY

David M. Kelly,

Senior Vice President, Chief Financial Officer

(Principal Financial Officer)

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Oct. 28, 2016
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
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		27,119,027

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Statement [Abstract]
Net service revenues	$ 336,460	$ 341,575	$ 993,708	$ 991,539
Direct costs of services	231,080	231,754	684,857	680,940
Gross profit	105,380	109,821	308,851	310,599
Selling, general and administrative expenses	87,918	84,167	259,073	249,714
Depreciation and amortization	2,075	2,579	6,654	7,402
Income from operations	15,387	23,075	43,124	53,483
Other expense, net	663	463	1,936	1,907
Income before income taxes	14,724	22,612	41,188	51,576
Income tax expense	5,704	9,067	17,654	20,653
Net income	9,020	13,545	23,534	30,923
Other comprehensive (loss) income:
Defined benefit pension plans, net of tax	(2)	1	(7)	3
Comprehensive income	$ 9,018	$ 13,546	$ 23,527	$ 30,926
Earnings per share – basic (in dollars per share)	$ 0.35	$ 0.49	$ 0.90	$ 1.10
Earnings per share – diluted (in dollars per share)	$ 0.34	$ 0.48	$ 0.89	$ 1.09
Weighted average shares outstanding – basic (in shares)	25,996	27,811	26,287	28,072
Weighted average shares outstanding – diluted (in shares)	26,173	28,132	26,449	28,318
Dividends declared per share (in dollars per share)	$ 0.12	$ 0.11	$ 0.36	$ 0.33

XML

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Current Assets:
Cash and cash equivalents	$ 925	$ 1,497
Trade receivables, net of allowances of $2,027 and $2,121, respectively	209,430	198,933
Income tax refund receivable	739	526
Deferred tax assets, net	4,927	4,518
Prepaid expenses and other current assets	11,732	9,060
Total current assets	227,753	214,534
Fixed assets, net	42,355	37,476
Other assets, net	29,591	28,671
Deferred tax assets, net	19,176	20,938
Intangible assets, net	3,729	4,235
Goodwill	45,968	45,968
Total assets	368,572	351,822
Current Liabilities:
Accounts payable and other accrued liabilities	36,101	39,227
Accrued payroll costs	52,419	46,125
Other current liabilities	1,577	1,287
Income taxes payable	1,350	1,107
Total current liabilities	91,447	87,746
Long-term debt – credit facility	101,330	80,472
Long-term debt – other	3,658	3,351
Other long-term liabilities	43,147	40,626
Total liabilities	239,582	212,195
Commitments and contingencies
Stockholders’ Equity:
Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding	0	0
Common stock, $0.01 par; 250,000 shares authorized, 70,897 and 70,558 issued, respectively	709	705
Additional paid-in capital	426,317	420,276
Accumulated other comprehensive income	311	318
Retained earnings	168,909	155,096
Treasury stock, at cost; 43,785 and 42,130 shares, respectively	(467,256)	(436,768)
Total stockholders’ equity	128,990	139,627
Total liabilities and stockholders’ equity	$ 368,572	$ 351,822

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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Statement of Financial Position [Abstract]
Trade receivables, allowances	$ 2,027	$ 2,121
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)	70,897,000	70,558,000
Treasury stock, shares (in shares)	43,785,000	42,130,000

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - 9 months ended Sep. 30, 2016 - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive (Loss) Income	Retained Earnings	Treasury Stock
Shares at beginning of period (in shares) at Dec. 31, 2015		70,558				42,130
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance for stock-based compensation and dividends, net of forfeitures (in shares)		324
Exercise of stock options (in shares)		15
Repurchases of common stock (in shares)						1,682
Employee stock purchase plan (in shares)						(27)
Shares at end of period (in shares) at Sep. 30, 2016		70,897				43,785
Balance at beginning of period at Dec. 31, 2015	$ 139,627	$ 705	$ 420,276	$ 318	$ 155,096	$ (436,768)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance for stock-based compensation and dividends, net of forfeitures		4	321
Exercise of stock options		0	172
Income tax benefit from stock-based compensation			265
Stock-based compensation expense			5,042
Repurchases of common stock						(30,775)
Employee stock purchase plan	528		241			287
Defined benefit pension plans, net of tax	(7)			(7)
Net income	23,534				23,534
Dividends, net of forfeitures ($0.36 per share)					(9,721)
Balance at end of period at Sep. 30, 2016	$ 128,990	$ 709	$ 426,317	$ 311	$ 168,909	$ (467,256)

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Parenthetical)	9 Months Ended
	Sep. 30, 2016 $ / shares
Dividend (in dollars per share)	$ 0.36
Retained Earnings
Dividend (in dollars per share)	$ 0.36

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities:
Net income	$ 23,534	$ 30,923
Adjustments to reconcile net income to cash provided by operating activities:
Deferred income tax provision, net	1,353	874
Provision for bad debts on accounts receivable	575	1,861
Depreciation and amortization	6,702	7,411
Stock-based compensation expense	5,042	4,261
Defined benefit pension plans expense	1,398	1,395
Excess tax benefit attributable to stock-based compensation	(329)	(408)
Loss on deferred compensation plan investments, net	411	192
Contingent consideration liability remeasurement	0	524
Other	179	262
(Increase) decrease in operating assets
Trade receivables, net	(11,072)	(13,229)
Income tax refund receivable	(214)	1,097
Prepaid expenses and other current assets	(2,672)	496
Other assets, net	24	(322)
(Decrease) increase in operating liabilities
Accounts payable and other current liabilities	(2,114)	1,872
Accrued payroll costs	6,822	12,067
Income taxes payable	509	3,129
Other long-term liabilities	(813)	2,751
Cash provided by operating activities	29,335	55,156
Cash flows from investing activities:
Capital expenditures	(9,409)	(7,731)
Proceeds from the disposition of assets held within the Rabbi Trust	0	445
Purchase of assets held within the Rabbi Trust	0	(481)
Cash used in investing activities	(9,409)	(7,767)
Cash flows from financing activities:
Proceeds from credit facility	677,788	443,195
Payments on credit facility	(656,930)	(455,635)
Proceeds from other financing arrangements	856	0
Payments on other financing arrangements	(1,371)	(956)
Proceeds from exercise of stock options	172	381
Excess tax benefit attributable to stock-based compensation	329	408
Payments of deferred financing fees	(158)	0
Repurchases of common stock	(31,787)	(24,883)
Cash dividend	(9,397)	(9,261)
Other	0	(630)
Cash used in financing activities	(20,498)	(47,381)
Change in cash and cash equivalents	(572)	8
Cash and cash equivalents at beginning of period	1,497	1,238
Cash and cash equivalents at end of period	$ 925	$ 1,246

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2016

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 2015 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 2015 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, 2015 was derived from our audited Consolidated Balance Sheet as of December 31, 2015, as presented in our 2015 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 “the Registrant,” “Kforce,” “the Company,” “we,” “the Firm,” “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; stock-based compensation; obligations for pension plans; accounting for income taxes and expected annual commission rates. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.

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 $450 thousand. For its partially self-insured lines of coverage, health insurance costs are accrued using estimates to approximate the liability for reported claims and 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 for the period by WASO during the period plus the dilutive effect of stock options and other potentially dilutive securities such as unvested shares of restricted stock using the treasury stock method, except where the effect of including potential common shares would be anti-dilutive.

For the three and nine months ended September 30, 2016, there were 177 thousand and 162 thousand common stock equivalents included in the diluted weighted average shares outstanding as compared to the three and nine months ended September 30, 2015 of 321 thousand and 246 thousand, respectively. For the three and nine months ended September 30, 2016 and 2015, there was an insignificant amount of common stock equivalents excluded from the weighted average diluted common shares based on the fact that their inclusion would have had an anti-dilutive effect on earnings per share.

New Accounting Standards

In August 2016, the FASB issued authoritative guidance clarifying eight cash flow classification issues that are not currently addressed or unclear under current GAAP and thereby reducing the current and potential future diversity in practice. The guidance is to be applied for annual periods beginning after December 15, 2017 and interim periods within those annual periods, and early adoption is permitted. The guidance requires companies to apply the requirements retrospectively, unless it is impracticable to apply the requirements retrospectively at which the requirements should be applied prospectively as of the earliest date practicable. Kforce elected not to adopt this standard early. Kforce does not anticipate that this guidance will have an impact on its consolidated financial statements as the cash flow classification issues are either not applicable or we are currently accounting for them in accordance with the clarified guidance.

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 liabilities, and classification on the statement of cash flows. The guidance is to be applied for annual periods beginning after December 15, 2016 and interim periods within those annual periods, and early adoption is permitted. The guidance requires companies to apply the requirements retrospectively, modified retrospectively, or prospectively depending on the amendment(s) applied. Kforce elected not to adopt this standard early. Upon adoption, Kforce anticipates a prospective impact to our income tax expense line within our consolidated statements of operations and comprehensive income, the amount of which will depend on the vesting activity in any given period. Additionally, we expect a retrospective change in the presentation of excess tax benefits from a financing to operating activity within our consolidated statements of cash flows.

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. Kforce is currently evaluating the potential impact on the consolidated financial statements.

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 is to be applied for annual periods beginning after December 15, 2016, and interim periods within those annual periods, and early adoption is permitted. Kforce elected not to adopt this standard early. Kforce anticipates a change to the presentation of the deferred tax liabilities and assets on the consolidated balance sheets upon adoption.

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 in order 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 not yet selected a transition method. We do not currently anticipate a material impact to the consolidated financial statements upon adoption; however, we do anticipate an increase in the level of disclosure around our arrangements and resulting revenue recognition.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2016

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 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. We intend to vigorously defend each of the plaintiff’s claims. At this stage in the litigation it is not feasible to predict the outcome of this matter or reasonably estimate a range of loss, should a loss occur, from this proceeding; however, based on our current knowledge, we believe that the final outcome of this matter is unlikely 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. Kforce’s liability at September 30, 2016 would be approximately $44.7 million if, following a change in control, all of the executives under contract were terminated without good cause by the employer or if the executives resigned for good reason and $20.2 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.

Kforce has not recorded any liability related to the employment agreements as no events have occurred that would require payment under the agreements.

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Credit Facility

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

Credit Facility

Credit Facility

On September 20, 2011, Kforce entered into a Third Amended and Restated Credit Agreement, with a syndicate led by Bank of America, N.A. This was amended on March 30, 2012 through the execution of a Consent and First Amendment, on December 27, 2013 through the execution of a Second Amendment and Joinder, and further amended on December 23, 2014 through the execution of a Third Amendment (as amended to date, the “Credit Facility”) resulting in a maximum borrowing capacity of $170.0 million, as well as an accordion option of $50.0 million. The maximum borrowings available to Kforce under the Credit Facility, absent Kforce exercising all or a portion of the accordion, are limited to: (a) a revolving Credit Facility of up to $170.0 million and (b) a $15.0 million sub-limit included in the Credit Facility for letters of credit.

Available borrowings under the Credit Facility are limited to 85% of the net amount of eligible accounts receivable (billed and unbilled), plus 80% of the net amount of eligible employee placement accounts, plus 80% of the appraised market value of the Firm’s corporate headquarters reduced each subsequent quarter by an amount equal to 1/80th of the initial amount, minus certain minimum availability reserves. 

Borrowings under the Credit Facility are secured by substantially all of the assets of the Firm, including the Firm’s corporate headquarters property.

Outstanding borrowings under the revolving Credit Facility bear interest at a rate of: (a) LIBOR plus an applicable margin based on various factors; or (b) the higher of (1) the prime rate, (2) the federal funds rate plus 0.50% or (3) LIBOR plus 1.25%. Fluctuations in the ratio of unbilled to billed receivables could result in material changes to availability from time to time. Letters of credit issued under the Credit Facility require Kforce to pay a fronting fee equal to 0.125% of the amount of each letter of credit issued, plus a per annum fee equal to the applicable margin for LIBOR loans based on the total letters of credit outstanding. To the extent that Kforce has unused availability under the Credit Facility, an unused line fee is required to be paid on a monthly basis equal to: (a) if the average daily aggregate revolver outstanding are less than 35% of the amount of the commitments, 0.35% or (b) if the average daily aggregate revolver outstanding are greater than 35% of the amount of the commitments, 0.25% times the amount by which the maximum revolver amount exceeded the sum of the average daily aggregate revolver outstanding, during the immediately preceding month or shorter period if calculated for the first month hereafter or on the termination date.

Under the Credit Facility, Kforce is subject to certain affirmative and negative covenants including, but not limited to, a fixed charge coverage ratio, which is only applicable in the event that the Firm’s availability under the Credit Facility falls below the greater of (a) 10% of the aggregate amount of the commitment of all of the lenders under the Credit Facility and (b) $11 million. 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, including the amortization of stock-based compensation expense (disclosed as “Adjusted EBITDA”), less cash paid for capital expenditures. The denominator is defined as Kforce’s fixed charges such as interest expense, principal payments paid or payable on outstanding debt other than borrowings under the Credit Facility, income taxes payable, and certain other payments. This financial covenant, if applicable, requires that the numerator be equal to or greater than the denominator.

Our ability to repurchase equity securities could be limited if the Firm’s availability is less than the greater of (a) 15.0% of the aggregate amount of the commitment of all lenders under the Credit Facility or (b) $15.0 million. Also, our ability to make distributions could be limited if the Firm’s availability is less than the greater of (a) 12.5% of the aggregate amount of the commitment of all lenders under the Credit Facility or (b) $20.6 million. Since Kforce had availability under the Credit Facility of $52.1 million as of September 30, 2016, the fixed charge coverage ratio covenant was not applicable nor was Kforce limited in making distributions or executing repurchases of its equity securities. Kforce believes that it will be able to maintain these minimum availability requirements; however, in the event that Kforce is unable to do so, Kforce could fail the fixed charge coverage ratio, which would constitute an event of default, or we could be limited in our ability to make distributions or repurchase equity securities. The Credit Facility expires December 23, 2019.

As of September 30, 2016, $101.3 million was outstanding under the Credit Facility. As of October 28, 2016, $89.5 million was outstanding and $63.9 million was available under the Credit Facility.

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Employee Benefit Plans

9 Months Ended

Sep. 30, 2016

Compensation and Retirement Disclosure [Abstract]

Employee Benefit Plans

Employee Benefit Plans

Deferred Compensation Plans

Kforce has a Non-Qualified Deferred Compensation Plan and a Kforce Non-Qualified Deferred Compensation Government Practice Plan (collectively the “Deferred Compensation Plans”), pursuant to which eligible management and certain highly compensated employees, as defined by IRS regulations, may elect to defer all or part of their compensation to later years. At September 30, 2016 and December 31, 2015, amounts payable within the next year are included in Accounts payable and other accrued liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheets and totaled $3.7 million and $2.3 million, respectively. At September 30, 2016 and December 31, 2015, amounts payable after the next year, upon retirement or termination of employment are included in Other long-term liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheets and totaled $25.8 million and $24.2 million, respectively.

Employee distributions are being funded through proceeds from the sale of assets held within our Rabbi Trust. The fair value of the assets within the Rabbi Trust, including the cash surrender value of the Company-owned life insurance policies and money-market funds, as of September 30, 2016 and December 31, 2015 was $27.0 million and $25.5 million, 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 represents the components of net periodic benefit cost (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Service cost	$	328	$	330	$	984	$	990
Interest cost	113		96		339		288
Net periodic benefit cost	$	441	$	426	$	1,323	$	1,278

The projected benefit obligation as of September 30, 2016 and December 31, 2015 was $12.7 million and $11.3 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, 2016. Kforce does not currently anticipate funding the SERP during the year ended December 31, 2016.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

There were no transfers into or out of Level 1, 2 or 3 assets or liabilities during the nine months ended September 30, 2016.

Kforce’s financial statements include a contingent consideration liability related to a non-significant acquisition of a business within our Government Solutions 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 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 Unaudited Condensed Consolidated Balance Sheets and the estimated fair value as of September 30, 2016 and December 31, 2015 was $798 thousand.

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Stock Incentive Plans

9 Months Ended

Sep. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Incentive Plans

Stock Incentive Plans

On April 19, 2016, the Kforce shareholders approved the 2016 Stock Incentive Plan (“2016 Plan”). The 2016 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 2016 Plan is approximately 1.6 million shares. The 2016 Plan terminates on April 19, 2026. Prior to the effective date of the 2016 Plan, the Company granted stock awards to eligible participants under our 2013 Stock Incentive Plan (“2013 Plan”) and 2006 Stock Incentive Plan (“2006 Plan”). As of the effective date of the 2016 Plan, no additional awards may be granted pursuant to the 2013 Plan and 2006 Plan; however, awards outstanding as of the effective date will continue to vest in accordance with the terms of the 2013 Plan and 2006 Plan, respectively.

During the three months ended September 30, 2016 and 2015, Kforce recognized total stock-based compensation expense of $1.3 million and $1.4 million, respectively. During the nine months ended September 30, 2016 and 2015, Kforce recognized total stock-based compensation expense of $5.0 million and $4.3 million, respectively.

Restricted Stock

Kforce’s annual restricted stock (including RSAs and RSUs) granted to executives and management are generally based on the extent by which annual long-term incentive performance goals, which are established by Kforce’s Compensation Committee during the first quarter of the year of performance, have been met, as determined by the Compensation Committee. Additionally, Kforce, with the approval of the Compensation Committee, grants restricted stock in varying amounts as determined appropriate during the year to retain directors, executives and management. Restricted stock granted during the nine months ended September 30, 2016 will vest over a period of between one to ten years, with equal vesting annually.

RSAs contain the same voting rights as other common stock as well as the right to forfeitable dividends in the form of additional RSAs at the same rate as the cash dividend on common stock and containing the same vesting provisions as the underlying award. RSUs contain no voting rights, but have the right to forfeitable dividend equivalents in the form of additional RSUs at the same rate as the cash dividend on common stock and containing the same vesting provisions as the underlying award. The distribution of shares of common stock for each RSU issued under the 2016 Plan 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, 2016 (in thousands, except per share amounts):

	Number of Restricted Stock		Weighted Average Grant Date Fair Value		Total Intrinsic Value of Restricted Stock Vested
Outstanding as of December 31, 2015	1,293		$	20.89
Granted	639		$	22.08
Forfeited/Canceled	(315	)	$	21.44
Vested	(250	)	$	20.83	$	5,790
Outstanding as of September 30, 2016	1,367		$	21.32

The fair market value of restricted stock is determined based on the closing stock price of Kforce’s common stock at the date of grant, and is amortized on a straight-line basis over the requisite service period. As of September 30, 2016, total unrecognized compensation expense related to restricted stock was $23.1 million, which will be recognized over a weighted average remaining period of 4.6 years.

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Reportable Segments

9 Months Ended

Sep. 30, 2016

Segment Reporting [Abstract]

Reportable Segments

Reportable Segments

Kforce’s reportable segments are as follows: (1) Technology (“Tech”); (2) Finance and Accounting (“FA”); and (3) Government Solutions (“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 the Board and our CODM. Kforce also reports Flexible billings and Direct Hire fees separately by segment, which has been incorporated into the table below.

Historically, and for the three and nine months ended September 30, 2016 and 2015, Kforce has generated only sales and gross profit information on a segment basis. Substantially all operations and long-lived assets are located in the United States. 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):

	Tech		FA		GS		Total
Three Months Ended September 30,
2016
Net service revenues:
Flexible billings	$	220,376	$	76,290	$	26,818	$	323,484
Direct Hire fees	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
2015
Net service revenues:
Flexible billings	$	226,381	$	76,707	$	24,351	$	327,439
Direct Hire fees	5,732		8,404		—		14,136
Total net service revenues	$	232,113	$	85,111	$	24,351	$	341,575
Gross profit	$	69,128	$	31,710	$	8,983	$	109,821
Operating expenses							87,209
Income before income taxes							$	22,612
Nine Months Ended September 30,
2016
Net service revenues:
Flexible billings	$	650,997	$	228,365	$	75,231	$	954,593
Direct Hire fees	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
2015
Net service revenues:
Flexible billings	$	660,692	$	215,674	$	74,515	$	950,881
Direct Hire fees	17,224		23,434		—		40,658
Total net service revenues	$	677,916	$	239,108	$	74,515	$	991,539
Gross profit	$	197,982	$	87,229	$	25,388	$	310,599
Operating expenses							259,023
Income before income taxes							$	51,576

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Supplemental Cash Flow Information

9 Months Ended

Sep. 30, 2016

Supplemental Cash Flow Elements [Abstract]

Supplemental Cash Flow Information

Supplemental Cash Flow Information

Supplemental cash flow information is as follows (in thousands):

	Nine Months Ended
	September 30,
	2016		2015
Cash paid during the period for:
Income taxes, net	$	16,023	$	15,592
Interest, net	$	1,569	$	1,234
Non-cash transaction information:
Employee stock purchase plan	$	528	$	435
Equipment acquired under capital leases	$	1,123	$	553
Unsettled repurchase of common stock	$	—	$	1,011
Acquisition of fixed assets through accounts payable	$	19	$	86

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2016

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 2015 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, 2015 was derived from our audited Consolidated Balance Sheet as of December 31, 2015, as presented in our 2015 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 “the Registrant,” “Kforce,” “the Company,” “we,” “the Firm,” “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; stock-based compensation; obligations for pension plans; accounting for income taxes and expected annual commission rates. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.

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 $450 thousand. For its partially self-insured lines of coverage, health insurance costs are accrued using estimates to approximate the liability for reported claims and 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 for the period by WASO during the period plus the dilutive effect of stock options and other potentially dilutive securities such as unvested shares of restricted stock using the treasury stock method, except where the effect of including potential common shares would be anti-dilutive.

For the three and nine months ended September 30, 2016, there were 177 thousand and 162 thousand common stock equivalents included in the diluted weighted average shares outstanding as compared to the three and nine months ended September 30, 2015 of 321 thousand and 246 thousand, respectively. For the three and nine months ended September 30, 2016 and 2015, there was an insignificant amount of common stock equivalents excluded from the weighted average diluted common shares based on the fact that their inclusion would have had an anti-dilutive effect on earnings per share.

New Accounting Standards

In August 2016, the FASB issued authoritative guidance clarifying eight cash flow classification issues that are not currently addressed or unclear under current GAAP and thereby reducing the current and potential future diversity in practice. The guidance is to be applied for annual periods beginning after December 15, 2017 and interim periods within those annual periods, and early adoption is permitted. The guidance requires companies to apply the requirements retrospectively, unless it is impracticable to apply the requirements retrospectively at which the requirements should be applied prospectively as of the earliest date practicable. Kforce elected not to adopt this standard early. Kforce does not anticipate that this guidance will have an impact on its consolidated financial statements as the cash flow classification issues are either not applicable or we are currently accounting for them in accordance with the clarified guidance.

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 liabilities, and classification on the statement of cash flows. The guidance is to be applied for annual periods beginning after December 15, 2016 and interim periods within those annual periods, and early adoption is permitted. The guidance requires companies to apply the requirements retrospectively, modified retrospectively, or prospectively depending on the amendment(s) applied. Kforce elected not to adopt this standard early. Upon adoption, Kforce anticipates a prospective impact to our income tax expense line within our consolidated statements of operations and comprehensive income, the amount of which will depend on the vesting activity in any given period. Additionally, we expect a retrospective change in the presentation of excess tax benefits from a financing to operating activity within our consolidated statements of cash flows.

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. Kforce is currently evaluating the potential impact on the consolidated financial statements.

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 is to be applied for annual periods beginning after December 15, 2016, and interim periods within those annual periods, and early adoption is permitted. Kforce elected not to adopt this standard early. Kforce anticipates a change to the presentation of the deferred tax liabilities and assets on the consolidated balance sheets upon adoption.

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 in order 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 not yet selected a transition method. We do not currently anticipate a material impact to the consolidated financial statements upon adoption; however, we do anticipate an increase in the level of disclosure around our arrangements and resulting revenue recognition.

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Employee Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2016

Compensation and Retirement Disclosure [Abstract]

Components of Net Periodic Benefit Cost

The following represents the components of net periodic benefit cost (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Service cost	$	328	$	330	$	984	$	990
Interest cost	113		96		339		288
Net periodic benefit cost	$	441	$	426	$	1,323	$	1,278

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Stock Incentive Plans (Tables)

9 Months Ended

Sep. 30, 2016

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, 2016 (in thousands, except per share amounts):

	Number of Restricted Stock		Weighted Average Grant Date Fair Value		Total Intrinsic Value of Restricted Stock Vested
Outstanding as of December 31, 2015	1,293		$	20.89
Granted	639		$	22.08
Forfeited/Canceled	(315	)	$	21.44
Vested	(250	)	$	20.83	$	5,790
Outstanding as of September 30, 2016	1,367		$	21.32

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Reportable Segments (Tables)

9 Months Ended

Sep. 30, 2016

Segment Reporting [Abstract]

Operations of Segments

The following table provides information concerning the operations of our segments (in thousands):

	Tech		FA		GS		Total
Three Months Ended September 30,
2016
Net service revenues:
Flexible billings	$	220,376	$	76,290	$	26,818	$	323,484
Direct Hire fees	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
2015
Net service revenues:
Flexible billings	$	226,381	$	76,707	$	24,351	$	327,439
Direct Hire fees	5,732		8,404		—		14,136
Total net service revenues	$	232,113	$	85,111	$	24,351	$	341,575
Gross profit	$	69,128	$	31,710	$	8,983	$	109,821
Operating expenses							87,209
Income before income taxes							$	22,612
Nine Months Ended September 30,
2016
Net service revenues:
Flexible billings	$	650,997	$	228,365	$	75,231	$	954,593
Direct Hire fees	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
2015
Net service revenues:
Flexible billings	$	660,692	$	215,674	$	74,515	$	950,881
Direct Hire fees	17,224		23,434		—		40,658
Total net service revenues	$	677,916	$	239,108	$	74,515	$	991,539
Gross profit	$	197,982	$	87,229	$	25,388	$	310,599
Operating expenses							259,023
Income before income taxes							$	51,576

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Supplemental Cash Flow Information (Tables)

9 Months Ended

Sep. 30, 2016

Supplemental Cash Flow Elements [Abstract]

Details of Supplemental Cash Flow Information

Supplemental cash flow information is as follows (in thousands):

	Nine Months Ended
	September 30,
	2016		2015
Cash paid during the period for:
Income taxes, net	$	16,023	$	15,592
Interest, net	$	1,569	$	1,234
Non-cash transaction information:
Employee stock purchase plan	$	528	$	435
Equipment acquired under capital leases	$	1,123	$	553
Unsettled repurchase of common stock	$	—	$	1,011
Acquisition of fixed assets through accounts payable	$	19	$	86

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Summary of Significant Accounting Policies - Additional Information (Details) - USD ($) shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Accounting Policies [Abstract]
Health insurance maximum risk of loss liability per employee insurance plan (up to)			$ 350,000
Health insurance maximum aggregate amount of risk of loss liability for employee insurance plans (up to)			$ 450,000
Common stock equivalents (in shares)	177	321	162	246

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Commitments and Contingencies - Additional Information (Details) $ in Millions	9 Months Ended
	Sep. 30, 2016 USD ($)
Other Commitments [Line Items]
Severance payment under agreement description	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 the employer or for good reason by the employee.
Employees under contract terminated by employer without good cause or change in control	$ 44.7
Employees under contract terminated by employer without good cause or in absence of change in control	$ 20.2
Minimum
Other Commitments [Line Items]
Period for providing minimum compensation salary and continuation of certain benefits to executives under employment agreements	6 months
Severance payment as a percentage of annual salary	100.00%
Severance payment as a percentage of annual bonus	50.00%
Maximum
Other Commitments [Line Items]
Period for providing minimum compensation salary and continuation of certain benefits to executives under employment agreements	3 years
Severance payment as a percentage of annual salary	300.00%
Severance payment as a percentage of annual bonus	300.00%

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Credit Facility (Details) - USD ($)	9 Months Ended
	Sep. 30, 2016	Oct. 28, 2016	Dec. 31, 2015
Line of Credit Facility [Line Items]
Line of credit maximum borrowing percentage of accounts receivable	85.00%
Line of credit maximum borrowing percentage of employee placement accounts	80.00%
Line of credit maximum borrowings percentage of corporate headquarters	80.00%
Quarterly reduction of additional corporate headquarters borrowing base	1.25%
Line of credit facility basis spread on variable rate under condition two	0.50%
Line of credit basis spread on variable rate under condition one	1.25%
Line of credit basis spread on variable rate under condition three	0.125%
Percentage of commitment of all lenders as condition to maintain min fixed charge coverage ratio	10.00%
Amount of commitment of all lenders as condition to maintain min fixed charge coverage ratio	$ 11,000,000
Line of credit remaining borrowing capacity	52,100,000
Long-term debt – credit facility	101,330,000		$ 80,472,000
Revolving Credit Facility
Line of Credit Facility [Line Items]
Line of credit maximum borrowing capacity	170,000,000
Line of credit current borrowing capacity available from amendment	$ 50,000,000
Line of credit unused capacity commitment fee percentage threshold	35.00%
Line of credit limit on equity security repurchases, max percent availability of borrowing capacity	15.00%
Line of credit limit on equity security repurchases availability of borrowing capacity	$ 15,000,000
Line of credit covenant limit on distributions max percent availability of borrowing capacity	12.50%
Line of credit covenant limit on distributions availability of borrowing capacity	$ 20,600,000
Revolving Credit Facility | Below Threshold
Line of Credit Facility [Line Items]
Line of credit unused capacity commitment fee percentage	0.35%
Revolving Credit Facility | Above Threshold
Line of Credit Facility [Line Items]
Line of credit unused capacity commitment fee percentage	0.25%
Letter of Credit
Line of Credit Facility [Line Items]
Line of credit sub limit for letters of credit	$ 15,000,000
Subsequent Event | Revolving Credit Facility
Line of Credit Facility [Line Items]
Line of credit remaining borrowing capacity		$ 63,900,000
Line of credit		$ 89,500,000

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Employee Benefit Plans - Additional Information (Details) - USD ($)	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Current deferred compensation liability	$ 3,700,000	$ 2,300,000
Deferred compensation plan	25,800,000	24,200,000
Deferred Compensation Plan Assets	27,000,000	25,500,000
Supplemental Executive Retirement Plan
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Supplemental executive retirement plan	12,700,000	$ 11,300,000
Employer contributions to benefit plans	$ 0

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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, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Service cost	$ 328	$ 330	$ 984	$ 990
Interest cost	113	96	339	288
Net periodic benefit cost	$ 441	$ 426	$ 1,323	$ 1,278

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Fair Value Measurements (Details) - USD ($)	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Fair Value Disclosures [Abstract]
Transfers into or out of Level 1, 2 or 3 assets	$ 0
Significant Unobservable Inputs (Level 3) | Recurring Basis
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Contingent consideration liability	$ 798,000	$ 798,000

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Stock Incentive Plans - Additional Information (Details) - USD ($) shares in Millions, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Apr. 19, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 1.3	$ 1.4	$ 5.0	$ 4.3
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation expenses	$ 23.1		$ 23.1
Weighted average period expected to be recognized			4 years 7 months 6 days
Minimum | Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock granted, vesting period			1 year
Maximum | Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock granted, vesting period			10 years
2016 Stock Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares available for grant (in shares)					1.6

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Stock Incentive Plans - Summary of Restricted Stock Activity (Details) - Restricted Stock $ / shares in Units, shares in Thousands, $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($) $ / shares shares
Number of Restricted Stock
Outstanding, as of beginning of period (in shares) | shares	1,293
Granted (in shares) | shares	639
Forfeited/Canceled (in shares) | shares	(315)
Vested (in shares) | shares	(250)
Outstanding, as of end of period (in shares) | shares	1,367
Weighted Average Grant Date Fair Value
Outstanding, as of beginning of period (in dollars per share) | $ / shares	$ 20.89
Granted (in dollars per share) | $ / shares	22.08
Forfeited/Canceled (in dollars per share) | $ / shares	21.44
Vested (in dollars per share) | $ / shares	20.83
Outstanding, as of end of period (in dollars per share) | $ / shares	$ 21.32
Vested, total intrinsic value of restricted stock vested | $	$ 5,790

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Reportable Segments - Operations of Segments (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Segment Reporting Information [Line Items]
Total net service revenues	$ 336,460	$ 341,575	$ 993,708	$ 991,539
Gross profit	105,380	109,821	308,851	310,599
Operating expenses	90,656	87,209	267,663	259,023
Income before income taxes	14,724	22,612	41,188	51,576
Flexible Billings
Segment Reporting Information [Line Items]
Total net service revenues	323,484	327,439	954,593	950,881
Direct Hire Fees
Segment Reporting Information [Line Items]
Total net service revenues	12,976	14,136	39,115	40,658
Tech
Segment Reporting Information [Line Items]
Total net service revenues	225,524	232,113	666,670	677,916
Gross profit	65,173	69,128	193,132	197,982
Tech | Flexible Billings
Segment Reporting Information [Line Items]
Total net service revenues	220,376	226,381	650,997	660,692
Tech | Direct Hire Fees
Segment Reporting Information [Line Items]
Total net service revenues	5,148	5,732	15,673	17,224
FA
Segment Reporting Information [Line Items]
Total net service revenues	84,118	85,111	251,807	239,108
Gross profit	30,439	31,710	90,695	87,229
FA | Flexible Billings
Segment Reporting Information [Line Items]
Total net service revenues	76,290	76,707	228,365	215,674
FA | Direct Hire Fees
Segment Reporting Information [Line Items]
Total net service revenues	7,828	8,404	23,442	23,434
GS
Segment Reporting Information [Line Items]
Total net service revenues	26,818	24,351	75,231	74,515
Gross profit	9,768	8,983	25,024	25,388
GS | Flexible Billings
Segment Reporting Information [Line Items]
Total net service revenues	26,818	24,351	75,231	74,515
GS | Direct Hire Fees
Segment Reporting Information [Line Items]
Total net service revenues	$ 0	$ 0	$ 0	$ 0

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Supplemental Cash Flow Information (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash paid during the period for:
Income taxes, net	$ 16,023	$ 15,592
Interest, net	1,569	1,234
Non-cash transaction information:
Employee stock purchase plan	528	435
Equipment acquired under capital leases	1,123	553
Unsettled repurchase of common stock	0	1,011
Acquisition of fixed assets through accounts payable	$ 19	$ 86