KFORCE INC (Form: 10-K, Received: 02/23/2018 16:05:49)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth filer

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-K

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x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017



¨	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

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KFORCE INC.

(Exact name of Registrant as specified in its charter)

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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

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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:



TITLE OF EACH CLASS		NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $0.01 par value		The NASDAQ Stock Market LLC (NASDAQ Global Select Market)

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2017 , was $456,834,762 . For purposes of this determination, common stock held by each officer and director and by each person who owns 10% or more of the registrant’s outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares outstanding of the registrant’s common stock as of February 21, 2018 was 26,213,133 .

DOCUMENTS INCORPORATED BY REFERENCE:



Document		Parts Into Which Incorporated
Portions of Proxy Statement for the Annual Meeting of Shareholders scheduled to be held April 24, 2018 (“Proxy Statement”)		Part III

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KFORCE INC.

ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017

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PART I
Item 1.	Business.	4
Item 1A.	Risk Factors.	9
Item 1B.	Unresolved Staff Comments.	18
Item 2.	Properties.	18
Item 3.	Legal Proceedings.	18
Item 4.	Mine Safety Disclosures.	19
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	19
Item 6.	Selected Financial Data.	20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	21
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	35
Item 8.	Financial Statements and Supplementary Data.	36
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosures.	59
Item 9A.	Controls and Procedures.	59
Item 9B.	Other Information.	60
PART III
Item 10.	Directors, Executive Officers and Corporate Governance.	60
Item 11.	Executive Compensation.	60
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	60
Item 13.	Certain Relationships and Related Transactions, and Director Independence.	60
Item 14.	Principal Accounting Fees and Services.	60
PART IV
Item 15.	Exhibits, Financial Statement Schedules.	61
Item 16.	Form 10-K Summary	62
SIGNATURES		65

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

This report, particularly Item 1. Business, Item 1A. Risk Factors, and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), 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 financial or operational performance, our beliefs regarding potential government actions or changes in laws and regulations, anticipated costs and benefits of proposed acquisitions, divestitures and investments, effects of interest rate variations, financing needs or plans, estimates concerning the effects of litigation or other disputes, estimates concerning our ability to collect on our trade accounts receivable, 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 consultants and candidates or the Firm’s ability to attract such individuals, estimates concerning goodwill impairment, delays or termination or the failure to obtain awards, task orders or funding under contracts, changes in client demand for Firm services 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, refer to 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,” “likely,” “could,” “should,” “future” 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 update any forward-looking statements.

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PART I

ITEM 1. BUSINESS.

Company Overview

Kforce Inc. and its subsidiaries (collectively, “Kforce”) provide professional staffing services and solutions to clients through the following segments: Technology (“Tech”), Finance and Accounting (“FA”), and Government Solutions (“GS”). Kforce provides staffing services and solutions on both a temporary (“Flex”) and permanent (“Direct Hire”) basis. We operate through our corporate headquarters in Tampa, Florida and 59 field offices located throughout the U.S. Kforce was incorporated in 1994 but its predecessor companies have been providing staffing services since 1962. Kforce completed its Initial Public Offering in August 1995.

Kforce serves clients across many industries, geographies and our clients range in size from small to mid-sized companies to the largest companies in the Fortune 1000. We also provide services and solutions to the Federal Government as well as state and local governments, as a prime contractor and subcontractor. For perspective, our 10 largest clients represented approximately 25% of revenues and no single client accounted for more than 6% of revenues for the year ended December 31, 2017 .

Substantially all of our revenues are derived from U.S. domestic operations. Kforce Global Solutions, Inc., (“Global”) a wholly-owned subsidiary located in the Philippines, has historically contributed approximately 1% of net service revenues and was included in our Tech segment. In September 2017, we completed the sale of Global’s assets. This sale did not meet the definition of discontinued operations.

Our periodic operating results can be affected by:


•	the number of billing days in a particular quarter,


•	seasonality in our clients’ businesses,


•	increased holidays and vacation days taken, which is usually highest in the fourth quarter of each calendar year, and


•	increased costs as a result of certain annual U.S. state and federal employment tax resets that occur at the beginning of each calendar year, which negatively impacts our gross profit and overall profitability in the first fiscal quarter of each calendar year.

The following charts depict the percentage of our total revenues for each of our segments for the years ended December 31, 2017 , 2016 and 2015 :

For additional segment financial data see Note 13 – “Reportable Segments” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this report.

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Tech Segment

Our largest segment, Tech, provides both Flex and Direct Hire services to our clients, focusing primarily on areas of information technology such as systems/applications architecture and development, project management, enterprise data management, business intelligence, artificial intelligence, machine learning, network architecture and security. Within our Tech segment, we provide service to clients in a variety of industries with a strong footprint in the financial services, communications, insurance services and government sectors. Revenues for our Tech segment increase d 2.7% to $907.5 million in 2017 with quarterly growth rates accelerating in the second half of 2017 on a year-over-year basis. The average bill rate for our Tech segment in the fourth quarter of 2017 (after the sale of Global’s assets was completed) was approximately $72 per hour. The September 2017 report published by Staffing Industry Analysts (“SIA”) stated that temporary technology staffing is expected to experience growth of 4% in 2018 . We believe that the secular drivers of technology spend remain intact with many companies increasingly looking to technology investments to improve internal efficiencies, enhance their customer-facing applications in support of their business strategies and to sustain relevancy in the rapidly changing marketplace. At the macro level, demand is also being driven by an ever-changing and complex corporate regulatory and employment law environment, which increases the overall cost of employment for companies. These factors, among others, are continuing to drive companies to look to temporary staffing providers, such as Kforce, to meet their human capital needs.

An acute challenge within our Tech business is the scarcity of qualified consultants, especially in certain niche skillsets such as cybersecurity, business intelligence, and application developers with less common programming languages.

FA Segment

Our FA segment provides both Flex and Direct Hire services to our clients in areas such as general accounting, business analysis, accounts payable, accounts receivable, financial analysis and reporting, taxation, budget preparation and analysis, mortgage and loan processing, cost analysis, professional administration, outsourced functional support, credit and collections, audit services, and systems and controls analysis and documentation. Within our FA segment, we provide services to clients in a variety of industries with a strong footprint in the financial services, healthcare and government sectors. Revenues for our FA segment increase d 2.5% to $346.1 million in 2017 though our growth rates in this segment decelerated in the second half of 2017 on a year-over-year basis as a result of certain client headwinds and large project ends. The average bill rate for our FA segment during 2017 was approximately $33 per hour. The September 2017 report published by SIA stated that finance and accounting temporary staffing is expected to experience growth of 5% in 2018 .

While there are some new technical accounting standards and other factors that could result in some macro demand in FA temporary staffing providers, we believe that the relative limited demand stimuli present in the traditional areas of finance and accounting may temper future growth. However, we also believe there continues to be significant demand in outsourced functional support areas, which could result in larger volume opportunities for the Firm.

GS Segment

Our GS segment provides staffing services and solutions to the Federal Government as both a prime contractor and a subcontractor in the fields of information technology and finance and accounting. GS offers integrated business solutions to its clients in areas including but not limited to: information technology infrastructure transformation, healthcare informatics, data and knowledge management and analytics, research and development, audit readiness, financial management and accounting. This segment’s contracts are concentrated among clients, such as the U.S. Department of Veteran Affairs, and the types of services and support that have historically been less likely to be impacted by sequestration threats and budget constraints, though a prolonged government shutdown would be expected to negatively impact GS revenues. Revenues for our GS segment increase d 5.7% to $104.3 million in 2017 . Our GS segment also includes a product-based business specialized in manufacturing and delivering trauma-training manikins, which accounted for approximately 12% of total GS revenues in 2017 . The majority of GS services are supplied to the Federal Government (or through a prime contractor to the Federal Government) through field offices located in the Washington, D.C. metropolitan area and San Antonio and Austin, Texas.

Our backlog represents only those contracts for which funding has been provided for U.S. government contracts and subcontracts, excluding renewal option years. Our backlog was $59.3 million as of December 31, 2017 as compared to $42.9 million as of December 31, 2016.

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Flex Revenues

Flex revenues have represented approximately 96% of total revenues over the last three fiscal years. We provide our clients with qualified individuals (“consultants”) on a temporary basis when it is determined that they have the appropriate skills and experience and are the right match for our clients. We utilize a diversified set of recruitment platforms to identify consultants including traditional job boards (both general and niche in nature), Kforce.com, social media sites and passive candidate marketing, where we identify individuals who are currently employed and not actively seeking another position. These consultants can either be directly employed by Kforce, qualified independent contractors or foreign nationals sponsored by Kforce. Our success is dependent upon our internal employees’ (“associates”) ability to: (1) acknowledge, understand and participate in creating solutions for our clients’ needs; (2) determine and understand the experience and capabilities of the consultants being recruited; and (3) ensure excellence in delivering and managing the client-consultant relationship. We believe proper execution by our associates and consultants directly impacts the longevity of the assignments, increases the likelihood of being able to generate repeat business with our clients and fosters a better experience for our consultants, which has a direct correlation to their redeployment.

To gauge our success in providing quality service and support to our clients and consultants, we monitor our client and consultant net promoter scores, which is conducted by an independent third-party provider.

Flex revenues are driven by the number of consultant assignments, total consultant hours billed and pre-established bill rates. Our Flex gross profit is determined by deducting consultant pay, benefits and other related costs from Flex revenues. Associate commissions, related taxes and other compensation and benefits, as well as field management compensation are included in selling, general and administrative expenses (“SG&A”), along with other customary costs such as administrative and corporate compensation. The Flex business model involves attempting to maximize the number of billable consultant hours and bill rates, while managing consultant pay rates and benefit costs, as well as compensation and benefits for our associates.

Direct Hire Revenues

Our Direct Hire business is a significantly smaller, yet an important, part of our business that involves locating qualified individuals (“candidates”) for permanent placement with our clients. We recruit candidates using methods that are consistent with Flex consultants. Candidate searches are generally performed on a contingency basis (as opposed to a retained search), therefore fees are only earned if the candidates are ultimately hired by our clients. The typical fee structure is based upon a percentage of the candidate’s annual compensation in their first year of employment, which is known or can be estimated at the time of placement. There are also occasions where consultants are initially assigned to a client on a temporary basis and are later converted to a permanent placement, for which we may also receive a conversion fee, which are also recognized as Direct Hire revenue.

Direct Hire revenues are driven by the number of candidates placed (or converted) and the associated placement fees and are recognized net of an allowance for “fallouts,” which occur when candidates do not complete the applicable contingency period (typically 90 days or less). There are no consultant payroll costs associated with Direct Hire placements, thus, all Direct Hire revenues increase gross profit by the full amount of the fee. Direct Hire associate commissions, compensation and benefits are included in SG&A.

Industry Overview

The specialty staffing industry is made up of thousands of companies, most of which are small local firms providing limited service offerings to a relatively small local client base. A report published by SIA in 2017 indicated that Kforce is one of the 10 largest publicly-traded specialty staffing firms in the U.S.

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Based upon previous economic cycles experienced by Kforce, we believe that times of sustained economic recovery generally stimulate demand for additional temporary workers in the U.S. and, conversely, an economic slowdown results in a contraction in demand for additional temporary workers in the U.S. From an economic standpoint, temporary employment figures and trends are important indicators of staffing demand, which continued to be positive during 2017, based on data published by the Bureau of Labor Statistics (“BLS”) and SIA. The penetration rate (the percentage of temporary staffing to total employment) remained at a record high of 2.1% in December 2017. The unemployment rate was 4.1% as of December 2017 and a total non-farm payroll of approximately 148,000 jobs were added in December 2017. Additionally, the college-level unemployment rate, which we believe serves as a reasonable proxy for professional employment and, as such, is a good data point for the consultant and candidate population that Kforce most typically serves, was at 2.1% in December 2017. Further, we believe that the unemployment rate in the specialties we serve, especially in certain technology skill sets, is lower than the published averages, which we believe speaks to the demand environment in which we are operating. Management believes that the overall tepid growth experienced in the U.S. economy during this recovery (despite recent acceleration in GDP growth), the recent change in administration, and 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 the total workforce as employers may be reluctant to increase permanent hiring. If the penetration rate of temporary staffing grows in the coming months and years, we believe our Flex revenues can continue to 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 uncertainty and volatility and therefore no reliable predictions can be made about the general economy, the staffing industry as a whole, specialty staffing in particular or our future performance.

According to a U.S. Staffing Industry Forecast published by SIA in September 2017 , the technology temporary staffing industry and finance and accounting temporary staffing industry are expected to generate projected revenues of $30.9 billion and $8.4 billion, respectively, in 2018 and based on these projected revenues, our market share is approximately 3% and 4%, respectively. Our business strategies are sharply focused around expanding our share of the U.S. temporary staffing industry and further penetrating our existing clients’ human capital needs.

Business Strategies

Our primary objective is to drive long-term shareholder value by achieving above-market revenue growth, making prudent investments to enhance our operating model in terms of efficiency and effectiveness and generating significantly improved levels of operating profitability. We believe the following strategies will help us achieve our objectives.

Improving Productivity of our Talent . We continue to focus on providing our associates with the necessary tools to be more effective and efficient in performing their roles, to better evaluate business opportunities and to allow us to elevate the value we bring to our clients and consultants. In the fourth quarter of 2016, we made a significant investment to enhance our sales methodologies and processes to allow us to better evaluate and shape business opportunities with our clients as well as train our sales associates on this consistent and uniform methodology. Since making this investment, we have been focused on conducting appropriate activities to seek to ensure sustainment of this methodology. We are also implementing new and upgrading existing technologies that we expect should allow us to serve our clients, consultants and candidates more effectively and efficiently and improve the productivity and scalability of our organization. To that end, in the third quarter of 2017, we completed the deployment of our new client relationship management system, which has the elements of our sales methodology embedded within the application.

We have been investing in other areas of technological change including new time and expense applications for our consultants and associates, as well as continued enhancements to our business and data intelligence capabilities. Beginning in 2018, we expect to invest in a new talent relationship management system to leverage our delivery strategies and processes. These investments are part of a multi-year effort to replace and upgrade our technology tools to equip our associates with improved capabilities to deliver exceptional service to our clients, consultants and candidates and improve the productivity of our associates.

Enhancing our Client Relationships . We strive to differentiate ourselves by working collaboratively with our clients to understand their business challenges and help them attain their organizational objectives. This collaboration focuses on building a consultative partnership rather than a transactional client relationship; thus, increasing the intimacy with our clients and improving our ability to offer higher value and a broader array of services and support to our clients. In order to accomplish this, we align our revenue-generating talent with the appropriate clients based on their experience with markets, products and industries.

We measure our success in building long-lasting relationships with our clients using staffing industry benchmarks and surveys conducted by a specialized, independent third-party provider. Our client ratings compare very favorably against staffing industry averages and give us helpful insights directly from our clients on how to continue improving our relationships. We believe long-lasting relationships with our clients is a critical element to our ability to grow revenues.

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Improving the Job Seeker Experience. Our consultants are a critical component to our business and essential in sustaining our client relationships. We are focused on effective and efficient processes and tools to find and attract prospective consultants, matching them to a client assignment and supporting them during their tenure with Kforce. Our success in this regard would be expected to positively influence the tenure and loyalty of our consultants and be their “Employer of Choice,” thus enabling us to deliver the highest quality talent to our clients.

We measure the quality of our service to and support of our consultants using staffing industry benchmarks and surveys conducted by a specialized, independent third-party provider. Our consultant ratings, similar to our client ratings, compare very favorably against staffing industry averages and give us helpful insights directly from our consultants on where and how we can continue improving our service during the various phases of our relationship.

Competition

We operate in a highly competitive and fragmented staffing industry comprised of large national and local staffing firms in each of our reporting segments. The local firms are typically operator-owned, and each market generally has one or more significant competitors. We also face competition from national and regional accounting, consulting and advisory firms that offer both solutions and staffing services. However, we believe that our U.S. geographic presence, concentration of service offerings in areas of greatest demand (especially technology), national delivery teams, delivery channels for foreign consultants, longevity of our brand and reputation in the market, along with our dedicated compliance and regulatory infrastructure all provide a competitive advantage.

Many clients utilize Managed Service Providers (“MSP”) or Vendor Management Organizations (“VMO”) for the management and procurement of staffing services. Generally, MSPs and VMOs are organizations that standardize processes through the use of Vendor Management Systems (“VMS”), which are tools used to aggregate spend and measure supplier performance. VMSs can also be provided through independent providers. Typically, MSPs, VMOs and/or VMS providers charge staffing firms administrative fees of 1% to 4% of total service revenues. In addition, the aggregation of services by MSPs for their clients into a single program can result in significant buying power and, thus, pricing power. Therefore, the use of MSPs by our clients has, in certain instances, resulted in margin compression. Kforce does not currently provide MSP or VMO services directly to its clients; rather our strategy has been to work with MSPs, VMOs and VMS providers that enable us to best extend our services to current and prospective clients.

We believe that the principal elements of competition in our industry are quality and availability of associates, candidates and consultants, level of service, effective monitoring of job performance, scope of geographic service and compliance orientation. We also compete for availability of quality, high skilled consultants and candidates, which is especially important to our Tech Flex business. In order to attract consultants and candidates, we place emphasis upon our ability to provide competitive compensation and benefits, quality and varied assignments, scheduling flexibility, and permanent placement opportunities, all of which are important to Kforce being the “Employer of Choice.” Because individuals pursue other employment opportunities on a regular basis, it is important that we respond to market conditions affecting these individuals, and focus on our consultant relationship objectives. Additionally, in certain markets, we have experienced significant pricing pressure as a result of our competitors’ pricing strategies. Although we believe we compete favorably with respect to these factors, we expect competition and pricing pressure to continue, which may result in us not being able to effectively compete or choosing to not participate in certain business that does not meet our profitability standard.

Regulatory Environment

Staffing firms are generally subject to one or more of the following types of government regulations: (1) regulation of the employer/employee relationship, such as wage and hour regulations, tax withholding and reporting, immigration regulations, social security and other retirement, anti-discrimination, employee benefits and workers’ compensation regulations; (2) registration, licensing, recordkeeping and reporting requirements; (3) worker classification regulations and (4) substantive limitations on their operations.

In providing staffing and solution services to the Federal Government, we must comply with complex laws and regulations relating to the formation, administration and performance of Federal Government contracts. These laws and regulations create compliance risk and affect how we do business with our federal agency clients, and may impose additional costs on our business.

Because we operate in a complex regulatory environment, one of our top priorities is compliance. For more discussion of the potential impact that the regulatory environment could have on Kforce’s financial results, refer to Item 1A. Risk Factors.

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Operating Employees and Personnel

As of December 31, 2017 , Kforce employed nearly 2,600 associates and had more than 12,000 consultants on assignment providing flexible staffing services and solutions to our clients. Approximately 91% of the consultants are employed directly by Kforce; the other 9% consists of qualified independent contractors. As the employer, Kforce is responsible for the employer’s share of applicable social security taxes (“FICA”), federal and state unemployment taxes, workers’ compensation insurance, and other direct labor costs relating to our employees. We offer access to various health, life and disability insurance programs and other benefits for our employees. We have no collective bargaining agreements covering any of our employees, have never experienced any material labor disruption, and are unaware of any current efforts or plans to organize any of our employees.

Insurance

Kforce maintains a number of insurance policies including general commercial, automobile and employers’ liability with excess liability coverage for each. We also maintain workers’ compensation, fidelity, fiduciary, directors and officers, cybersecurity, professional liability, excess health insurance and employment practices liability policies. These policies provide coverage subject to their terms, conditions, limits of liability, and deductibles, for certain liabilities that may arise from Kforce’s operations. There can be no assurance that any of the above policies will be adequate for our needs or that we will maintain all such policies in the future.

Availability of Reports and Other Information

We make available, free of charge, through the Investor Relations page on our website, and by requests addressed to Michael Blackman, Chief Corporate Development Officer, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule 14A and amendments to those materials filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically submit such materials to the SEC. Our corporate website address is http://www.kforce.com. The information contained on our website, or on other websites linked to our website, is not part of this document. The SEC also provides reports, proxy and information statements on its website, free of charge, and other information regarding issuers, such as us, that file electronically with the SEC. The SEC’s website is http://www.sec.gov. Information provided on the SEC’s website is not part of this report.

ITEM 1A. RISK FACTORS.

Kforce faces significant employment-related legal risk.

Kforce employs people internally and in the workplaces of our clients. An inherent risk of such activity includes possible claims of or relating to discrimination and harassment; wrongful termination; violations of employment rights related to employment screening or privacy issues; misclassification of workers as employees or independent contractors; violations of wage and hour requirements and other labor laws; employment of illegal aliens; criminal activity; torts; breach of contract; failure to protect confidential personal information; intentional criminal misconduct; misuse or misappropriation of client intellectual property; employee benefits; or other claims. In some cases we are contractually obligated to indemnify our clients against such risks. Such claims may result in negative publicity, injunctive relief, criminal investigations and/or charges, civil litigation, payment by Kforce of defense costs, monetary damages or fines which may be significant, discontinuation of client relationships or other material adverse effects on our business. To reduce our exposure, we maintain policies, procedures and guidelines to promote compliance with laws, rules, regulations and best practices applicable to our business. Even claims without merit could cause us to incur significant expense or reputational harm. We also maintain insurance coverage for professional malpractice liability, fidelity, employment practices liability, and general liability in amounts and with deductibles that we believe are appropriate for our operations. However, our insurance coverage may not cover all potential claims against us, may require us to meet a deductible or may not continue to be available to us at a reasonable cost. In this regard, we face various employment-related risks not covered by insurance, such as wage and hour laws and employment tax responsibility. U.S. Courts in recent years have been receiving large numbers of wage and hour class action claims alleging misclassification of overtime-eligible workers and/or failure to pay overtime-eligible workers for all hours worked.

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Kforce may be exposed to unforeseeable negative acts by our personnel that could have a material adverse effect on our business.

An inherent risk of employing people internally and in the workplace of other businesses is that many of these individuals have access to client information systems and confidential information. The risks of such activity include possible acts of errors and omissions; intentional misconduct; release, misuse or misappropriation of client intellectual property, confidential information, personally identifiable information, funds, or other property; cybersecurity breaches affecting our clients and/or us; or other acts. These risks are particularly significant in our government business. Such acts may result in negative publicity or other material adverse effects on our business. In addition, these occurrences may give rise to litigation, which could be time-consuming and expensive. To reduce our exposure, we maintain policies, procedures and insurance coverage for types and amounts we believe are appropriate in light of the aforementioned exposures. There can be no assurance that the corporate policies and practices we have in place to help reduce our exposure to these risks will be effective or that we will not experience losses as a result of these risks. In addition, our insurance coverage may not cover all potential claims against us, may require us to meet a deductible or may not continue to be available to us at a reasonable cost.

The U.S. professional staffing industry in which we operate is significantly affected by fluctuations in general economic and employment conditions.

Demand for staffing services is significantly affected by the general level of economic activity and employment in the U.S. Based upon previous economic cycles experienced by Kforce, we believe that times of sustained economic recovery generally stimulate demand for additional U.S. temporary workers and, conversely, an economic slowdown results in a contraction in demand for additional U.S. temporary workers. Even without uncertainty and volatility, it is difficult for us to forecast future demand for our services due to the inherent difficulties in forecasting the strength of economic cycles, and the short-term nature of many of our agreements. As economic activity slows, companies may defer projects for which they utilize our services or reduce their use of temporary employees before laying off permanent employees. In addition, an economic downturn could result in a reduction in the temporary staffing penetration rate, an increase in the unemployment rate and a deceleration of growth in the segments in which we and our clients operate. We may also experience more competitive pricing pressures during periods of economic downturn. Any substantial economic downturn in the U.S. or global impact on the U.S. could have a material adverse effect on our business, financial condition, and results of operations.

Kforce may be adversely affected by government regulation of the staffing business and of the workplace.

Our business is subject to regulation and licensing in many states. There can be no assurance that we will be able to continue to obtain all necessary licenses or approvals or that the cost of compliance will not prove to be material. If we fail to comply, such failure could materially adversely affect Kforce’s financial results.

A large part of our business entails employing individuals on a temporary basis and placing such individuals in clients’ workplaces. Increased government regulation of the workplace or of the employer/employee relationship could have a material adverse effect on Kforce. For example, changes to government regulations, including changes to statutory hourly wage and overtime regulations, could adversely affect the Firm’s results of operations by increasing its costs.

Reclassification of our independent contractors by tax or regulatory authorities could materially and adversely affect our business model and could require us to pay significant retroactive wages, taxes and penalties.

We utilize individuals to provide services in connection with our business as qualified third-party independent contractors rather than our direct employees. Heightened state and federal scrutiny of independent contractor relationships could adversely affect us given that we utilize independent contractors to perform our services. An adverse determination related to the independent contractor status of these subcontracted personnel could result in a substantial tax or other liabilities to us.

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Our collection, use and retention of personally identifiable information of our associates and consultants create risks that may harm our business.

In the ordinary course of our business, we collect and retain personal information of our associates and consultants and their dependents including, without limitation, full names, social security numbers, addresses, birth dates, and payroll-related information. We use commercially available information security technologies to protect such information in digital format. We also use security and business controls to limit access to such information and continually monitor our systems for potential breaches. However, as our reliance on technology has increased so have the risks posed to our systems, both internal and those managed by third party service providers. It is possible that the controls in place will not be able to prevent the improper disclosure of personally identifiable information of our associates and consultants in the event of a computer virus, system breach or cyber-attack, particularly in light of the increasing sophistication of perpetrators. Employees or third parties (including third parties with substantially greater resources than our own; for example, foreign governments) may be able to circumvent our security measures and acquire or misuse such information, resulting in breaches of privacy, errors in the storage, use or transmission of such information, and an interruption to our operations. Privacy breaches may require notification and other remedies, which can be costly, and which may have other serious adverse consequences for our business, including regulatory penalties and fines, claims for breach of contract, claims for damages, adverse publicity, reduced demand for our services by clients and/or consultants, harm to our reputation, and regulatory oversight by state or federal agencies.

The possession and use of personal information and data in conducting our business subjects us to legislative and regulatory burdens. We may be required to incur significant expenses to comply with mandatory privacy and security standards and protocols imposed by law, regulation, industry standards or contractual obligations.

Kforce may be adversely affected by immigration restrictions and reform.

Our Tech segment utilizes a significant number of foreign nationals employed by us on work visas, primarily under the H-1B visa classification. The H-1B visa classification that enables U.S. employers to hire qualified foreign nationals is subject to legislative and administrative changes, as well as changes in the application of standards and enforcement. Immigration laws and regulations can be significantly affected by political developments and levels of economic activity. Current and future restrictions on the availability of such visas could restrain our ability to employ the skilled professionals we need to meet our clients’ needs, which could have a material adverse effect on our business. The U.S. Citizenship and Immigration Service (“USCIS”) continues to closely scrutinize companies seeking to sponsor, renew or transfer H-1B status, including Kforce and Kforce’s subcontractors and has issued internal guidance to its field offices that appears to narrow the eligibility criteria for H-1B status in the context of staffing services. In addition to USCIS restrictions, certain aspects of the H-1B program are also subject to regulation and review by the U.S. Department of Labor and U.S. Department of State, which have recently increased enforcement activities in the program. Vigorous enforcement and/or legislative or executive action relating to immigration could adversely affect our ability to recruit or retain foreign national consultants, and consequently, reduce our supply of skilled consultants and candidates and subject us to fines, penalties and sanctions, or result in increased labor and compliance costs.

Kforce may not be able to recruit and retain qualified consultants and candidates.

Kforce depends upon the abilities of its staff to attract and retain consultants and candidates, particularly technical, professional, and cleared government services individuals, who possess the skills and experience necessary to meet the staffing requirements of our clients. We must continually evaluate and upgrade our methods of attracting qualified consultants and candidates to keep pace with changing client needs and emerging technologies. We expect significant competition for individuals with proven

technical or professional skills for the foreseeable future. The supply of available consultants and candidates has been constrained during this economic recovery, especially in our Tech segment. If qualified individuals are not available to us in sufficient numbers and upon economic terms acceptable to us, it could have a material adverse effect on our business.

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Kforce’s success depends upon retaining the services of its management team and key operating employees.

Kforce is highly dependent on its management team and expects that continued success will depend largely upon their efforts, expertise and abilities. The loss of the services of any key executive for any reason could have a material adverse effect upon Kforce. Success also depends upon our ability to identify, develop, incentivize and retain qualified operating employees; particularly management, client servicing, and consultant and candidate recruiting employees. Kforce expends significant resources in the recruiting and training of its employees, as the pool of available applicants for these positions is limited. The loss of some of our key operating employees could have a material adverse effect on our business, including our ability to establish and maintain client, consultant and candidate, professional and technical relationships.

Kforce maintains debt which exposes us to interest rate risk and contains restrictive covenants that could trigger prepayment of obligations or additional costs.

We have a credit facility consisting of a revolving line of credit of up to $300.0 million , subject to certain limitations. Borrowings under the credit facility are secured by substantially all of the tangible and intangible assets of the Firm, excluding the Firm’s corporate headquarters and certain other designated executed collateral.

Adverse changes in credit markets, including increases in interest rates, could increase our cost of borrowing and/or make it more difficult to refinance our existing indebtedness, if necessary. We have reduced our exposure to rising interest rates by entering into an interest rate hedging arrangement, although this and other arrangements may result in us incurring higher interest expenses than we would have otherwise incurred. If interest rates increase in the absence of such arrangements though, we would need to dedicate more of our cash flow from operations to service our debt.

Kforce is subject to certain affirmative and negative covenants under our credit facility. Our failure to comply with such restrictive covenants could result in an event of default, which, if not cured or waived, could result in Kforce being required to repay the outstanding balance before the due date. If this occurs, we may not be able to repay our debt or we may be forced to refinance on terms not acceptable to us, which could have a material adverse effect on our results of operations and financial condition.

Declines in business or a loss of our major client accounts could have a material adverse effect on our revenues and financial results.

Part of our business strategy includes enhancing our service offerings and relationships with large consumers of temporary staffing, which is intended to enable us to profitably grow our revenues with these clients. However, it also creates the potential for concentrating a significant portion of our revenues among our largest clients and exposes us to increased risks arising from decreases in the volume of business from, the pricing of business with, or the possible loss of business with these clients. Organizational changes occurring within those clients, or a deterioration of their financial condition or business prospects, could reduce their need for our services and result in a significant decrease in the revenues we derive from those clients and could have a material adverse effect on our financial results.

Kforce’s temporary staffing business could be adversely impacted by health care reform.

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (the “PPACA”) imposes mandates on individuals and employers, requiring most individuals to have health insurance. The PPACA assesses penalties on large employers that do not offer health insurance meeting certain coverage, value, or affordability standards to all full-time employees as defined under the PPACA. Because the regulations governing the PPACA’s employer mandate are subject to interpretation, it is possible that Kforce may incur liability in the form of penalties, fines, or damages if the health plans we offer are subsequently found not to meet minimum essential coverage, affordability or minimum value standards, or if our method for determining eligibility for coverage is found inadequate or our clients seek indemnification for health care claims resulting from consultants working on client assignments. The cost of any such penalties, fines or damages could have a material adverse effect on Kforce’s financial and operating results.

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New business initiatives and strategic changes may divert management’s attention from normal business operations, which could adversely affect our performance.

New business initiatives and strategic changes in the composition of our business mix can be a diversion to our management’s attention from other business concerns and disruptive to our operations, causing our business and results of operations to suffer materially. Acquisitions and new business initiatives could involve significant unanticipated challenges and risks, including that they may not advance our business strategy, we may not realize our anticipated return on our investment, we may lose key personnel, we may retain unforeseen liabilities, we may experience difficulty in implementing initiatives or integrating acquired operations, or management's attention may be diverted from our other businesses. These events could cause material harm to our business, operating results, or financial condition.

We are exposed to intangible asset risk which could result in future impairment.

We regularly review our intangible assets for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. We test goodwill and indefinite-lived intangible assets for impairment at least annually. Factors that may be considered a change in circumstances, indicating that the carrying value of the intangible assets may not be recoverable, include: macroeconomic conditions; industry and market considerations; increases in labor or other costs that have a negative effect on earnings and cash flows; negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods; and other relevant entity-specific events, such as changes in key personnel, strategy, or clients, and sustained decreases in share price. We may be required to record a charge in our financial statements, which could be material, during the period in which we determine an impairment of our acquired intangible assets has occurred, negatively impacting our financial results.

Delays in collecting our trade accounts receivable could adversely affect our business.

We generate a significant amount of trade accounts receivable from our clients. Delays in payments owed to us could have a material adverse effect on our financial condition and cash flows generated by our business. Factors that could cause a delay include business failures, turmoil in the financial and credit markets, sluggish or recessionary U.S. economic conditions, our exposure to clients in high-risk sectors such as the financial services industry, declines in the credit worthiness of our clients, extension in payment terms with our clients and declines in the business of our clients.

Kforce depends on the proper functioning of its information systems.

Kforce is dependent on the proper functioning of information systems in operating our business. Critical information systems are used in every aspect of Kforce’s daily operations, most significantly, in the identification and matching of staffing resources to client assignments and in the client billing and consultant or vendor payment functions. Kforce’s information systems may not perform as anticipated and are vulnerable to damage or interruption including natural disasters, fire or casualty theft, technical failures, terrorist acts, cybersecurity breaches, power outages, telecommunications failures, physical or software intrusions, computer viruses, employee errors, and similar events. Our corporate headquarters and data center are located in a hurricane-prone area though we have disaster recovery systems for some key information systems, such as billing and payroll, but not for all such key systems. Failure or interruption of our critical information systems may require significant additional capital and management resources to resolve, causing a material adverse effect on our business. Additionally, many of our information technology systems and networks are cloud-based or managed by third parties, whose future performance and reliability we cannot control. The risk of a cyberattack or security breach on a third party carries the same risks to Kforce as those associated with our internal systems. We seek to reduce these risks by performing vendor due diligence procedures prior to engaging with any third party vendor who will have access to sensitive data. Additionally, we require audits of the relevant third parties’ information technology processes on an annual basis. However, there can be no assurance that such parties will not experience cybersecurity breaches which could adversely affect our employees, customers and businesses or that our audit or diligence processes will successfully deter or prevent such breach.

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Cybersecurity risks and cyber incidents could adversely affect our business and disrupt operations.

Cyber attacks or other breaches of network or information technology used by our associates and consultants, as well as risks associated with compliance on data privacy could have an adverse effect on our systems, services, operations and financial results. These attacks include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. While we have policies, procedures and systems in place to detect, prevent and deter cyber attacks or other breaches of our networks, techniques used to obtain unauthorized access or cause system interruption change frequently and may not immediately produce signs of intrusion. As a result, we may be unable to anticipate these incidents or techniques, timely discover them, or implement adequate preventative measures. We maintain cyber risk insurance, but this insurance may not be sufficient to cover all of our losses from any future breaches of our systems or information. Our information technology may not provide sufficient protection, and as a result we may lose significant information about us, our employees or clients. Other results of these incidents could include, but are not limited to, increased cybersecurity protection costs, litigation, regulatory penalties, monetary damages, and reputational damage adversely affecting client or investor confidence.

Significant increases in wages or payroll-related costs could adversely affect Kforce’s business.

Significant increases in wages or the effective rates of any payroll-related costs could have a material adverse effect on Kforce. Kforce is required to pay a number of federal, state, and local payroll and related costs or provide certain benefits such as paid time off, sick leave, unemployment taxes, workers’ compensation and insurance premiums and claims, FICA, and Medicare, among others, related to our employees. Costs could also increase as a result of health care reforms or the possible imposition of additional requirements and restrictions related to the placement of personnel. We may not be able to increase the fees charged to our clients in a timely manner or in a sufficient amount to cover these potential cost increases.

Adverse results in tax audits or interpretations of tax laws could adversely impact our business.

Kforce is subject to periodic federal, state, and local tax audits for various tax years. We also need to comply with new, evolving or revised tax laws and regulations. The recently enacted Tax Cuts and Jobs Act (“TCJA”) requires significant interpretation and application of the new law. As additional regulatory guidance is issued and we continue to analyze the application of the new law, we may be required to refine our estimates, which could materially affect our tax obligations and effective tax rate. Although Kforce attempts to comply with all taxing authority regulations, adverse findings or assessments made by taxing authorities as the result of an audit could have a material adverse effect on Kforce.

Due to inherent limitations, there can be no assurance that our system of disclosure and internal controls and procedures will be successful in preventing all errors and fraud, or in making all material information known in a timely manner to management.

Our management, including our CEO and CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Kforce have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations, misstatements due to error or fraud may occur and not be detected.

Our business is dependent upon maintaining our reputation, our relationships, and our performance.

The reputation and relationships that we have established and currently maintain with our clients are important to maintaining existing business and identifying new business. If our reputation or relationships were damaged, it could have a material adverse effect on our operations. In addition, if our performance does not meet our clients’ expectations, our revenues and operating results could be materially harmed.

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Agreements may be terminated by clients and consultants at will and the termination of a significant number of such agreements could adversely affect our revenues.

Our agreements do not provide for exclusive use of our services, and clients are free to place orders with our competitors. Each consultant’s relationship with us is terminable at will. If clients terminate a significant number of our agreements and we are unable to generate new contracts, or a significant number of our consultants cease performing services for us and we are unable to find suitable replacements, the growth of our business could be adversely affected and our revenues and results of operations could be harmed.

Our failure to keep pace with technological change in our industry will potentially place us at a competitive disadvantage.

Our future success may depend on our ability to successfully keep pace with technological changes and advances occurring across our industry. Our business is reliant on a variety of systems and technologies, including those which support candidate searching and matching, hiring and tracking, order management, billing, and client data analytics. Our success may depend on our ability to keep pace with rapid technological changes in the development and implementation of these services. If our systems become outdated, or if our investments in technology fail to provide the expected results, then we may be unable to maintain our technological capabilities relative to our competitors and our business could be negatively affected.

Kforce’s current market share may decrease as a result of limited barriers to entry for new competitors and discontinuation of clients outsourcing their staffing needs.

We face significant competition in the markets we serve, and there are limited barriers to entry for new competitors. The competition among staffing services firms is intense. Kforce competes for potential clients with providers of outsourcing services, systems integrators, computer systems consultants, temporary personnel agencies, search firms, and other providers of staffing services. Some of our competitors possess substantially greater resources than we do. From time to time, we experience significant pressure from our clients to reduce price levels. During these periods, we may face increased competitive pricing pressures and may not be able to recruit the personnel necessary to fulfill our clients’ needs. We also face the risk that certain of our current and prospective clients will decide to provide similar services internally, particularly if regulatory burdens are reduced.

Vendor management services are considered a competitor and increasing use by our clients could affect our relationships.

Increasingly, many clients and potential clients are retaining third parties to provide vendor management services. The third party, or vendor management company, is responsible for retaining companies that will provide temporary information technology personnel to the client. This results in Kforce contracting with such third parties and not directly with the end customer. This change can weaken Kforce’s relationship with its clients, which may make it more difficult to maintain and expand our business with existing customers. In addition, the agreements with vendor management companies are frequently structured as subcontracting agreements, with the vendor management company entering into a services agreement directly with the end customer. As a result, in the event of a bankruptcy of a vendor management company, Kforce’s ability to collect its outstanding receivables and continue to provide services could be adversely affected.

Provisions in Kforce’s articles and bylaws and under Florida law may have certain anti-takeover effects.

Kforce’s articles of incorporation and bylaws and Florida law contain provisions that may have the effect of inhibiting a non-negotiated merger or other business combination. In particular, our articles of incorporation provide for a staggered Board of Directors (“Board”) and permit the removal of directors only for cause. Additionally, the Board may issue up to 15 million shares of preferred stock, and fix the rights and preferences thereof, without a further vote of the shareholders. In addition, certain of our officers and managers have employment agreements containing certain provisions that call for substantial payments to be made to such employees in certain circumstances after a change in control. Certain of these provisions may discourage a future acquisition of Kforce, including an acquisition in which shareholders might otherwise receive a premium for their shares. As a result, shareholders who might desire to participate in such a transaction may not have the opportunity to do so. Moreover, the existence of these provisions could have a negative effect on the market price of our common stock.

Kforce’s stock price may be volatile.

The market price of our stock has fluctuated substantially in the past and could fluctuate substantially in the future, based on a variety of factors, including our operating results, changes in general conditions in the economy, the financial markets, the staffing industry, or other developments affecting us, our clients, or our competitors; some of which may be unrelated to our performance.

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In addition, the stock market in general, especially The NASDAQ Global Select Market (“NASDAQ”) tier, along with market prices for staffing companies, has experienced volatility that has often been unrelated to the operating performance of these companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating results.

Among other things, volatility in our stock price could mean that investors will not be able to sell their shares at or above the prices they pay. The volatility also could impair our ability in the future to offer common stock as a source of additional capital or as consideration in the acquisition of other businesses.

RISKS RELATED TO OUR GOVERNMENT BUSINESS

Our GS segment is substantially dedicated to contracting with and serving U.S. Federal Government agencies (the “Government Business”). In addition, Kforce supplies services to the Federal Government which poses additional risks to those mentioned previously. Federal contractors, including Kforce, face a number of risks, including but not limited to the following:

Our failure to comply with complex federal procurement laws and regulations could cause us to lose business, incur additional costs, and subject us to a variety of penalties, including suspension and debarment from contracting with the Federal Government.

We must comply with complex laws and regulations relating to the formation, administration, and performance of Federal Government contracts. These laws and regulations create compliance risk, affect how we do business with our federal agency clients, and may impose added costs on our business. If a government review, audit or investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, harm to our reputation, suspension of payments, fines, and suspension or debarment from contracting with Federal Government agencies.

The Federal Government also may reform its procurement practices or adopt new contracting rules and regulations, including cost accounting standards, that could be costly to satisfy or that could impact our ability to obtain new contracts. A failure to comply with all applicable laws and regulations could result in contract termination, price or fee reductions, or suspension or debarment from contracting with Federal Government agencies; each of which could lead to a material reduction in our revenues, cash flows and operating results.

Unfavorable government audit results could force us to refund previously recognized revenues and could subject us to a variety of penalties and sanctions.

Federal agencies can audit and review our performance on contracts, pricing practices, cost structure, incurred cost submissions and compliance with applicable laws, regulations, and standards. An audit of our work, including an audit of work performed by companies Kforce has acquired or may acquire, or subcontractors we have hired or may hire, could force us to refund previously recognized revenues.

If a government audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing business with Federal Government agencies. In addition, we could suffer serious harm to our reputation if allegations of impropriety were made against us, whether or not true.

We are dependent upon the ability of government agencies to administratively manage our contracts.

After we are awarded a contract and the contract is funded by the Federal Government, we are still dependent upon the ability of the relevant agency to administratively manage our contract. We can be adversely impacted by delays in the start-up of already awarded and funded projects, including delays due to shortages of acquisition and contracting personnel within the Federal Government agencies.

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Changes in the spending policies or budget priorities of the Federal Government including the failure by Congress to approve budgets, raise the U.S. debt ceiling or avoid sequestration on a timely basis for the federal agencies we support could delay, reduce or stop federal spending and cause us to lose revenue or impair our intangible assets.

Changes in Federal Government fiscal or spending policies could materially adversely affect our Government Business; in particular, our business could be materially adversely affected by decreases in Federal Government spending. In addition, on an annual basis, Congress must approve and the President must sign the appropriation bills that govern spending by each of the federal agencies we support. If Congress is unable to agree on budget priorities and is unable to appropriate funds or pass the annual budget on a timely basis, or a government shutdown were to occur (as happened recently but of a sufficiently short duration to not cause significant harm to our business), there may be delays, reductions or cessations of funding for our services and solutions. In addition, from time to time it has been necessary for Congress to raise the U.S. debt ceiling in order to allow for borrowing necessary to fund government operations. If that becomes necessary again and Congress fails to raise the debt ceiling on a timely basis, there may be delays, reductions or cessations of funding for our services and solutions. Furthermore, legislatively mandated cuts in federal programs, known as sequestration, could result in delays, reductions or cessation of funding for our services and solutions.

Competition is intense in the Government Business.

There is often intense competition to win federal agency contracts. The competitive bidding process entails substantial costs and management time to prepare bids and proposals for contracts that may not be awarded to us or may be split among competitors. Even when a contract is awarded to us, we may encounter significant expenses, delays, contract modifications, or bid protests from competitors. If we are unable to successfully compete for new business or win competitions to maintain existing business, our operations could be materially adversely affected. Many of our competitors are larger and have greater resources, larger client bases, and greater brand recognition than we do. Our larger competitors also may be able to provide clients with different or greater capabilities or benefits than we can provide.

Loss of our General Services Administration (“GSA”) Schedules or other contracting vehicles could impair our ability to win new business.

GSA Schedules constitute a significant percentage of revenues from our federal agency clients. If we were to lose one or more of these Schedules or other contracting vehicles, we could lose revenues and our operating results could be materially adversely affected. These Schedules or contracts typically have an initial term with multiple options that may be exercised by our government agency clients to extend the contract for successive periods of one or more years. We can provide no assurance that our clients will exercise these options.

Our failure to obtain and maintain necessary security clearances may limit our ability to perform classified work for government clients, which could cause us to lose business.

Some government contracts require us to maintain facility security clearances and require some of our employees to maintain individual security clearances. If our employees lose or are unable to timely obtain security clearances, or we lose a facility clearance, a government agency client may terminate the contract or decide not to renew it upon its expiration.

Our employees may engage in misconduct or other improper activities, which could harm our business.

Like all government contractors, we are exposed to the risk that employee fraud or other misconduct could occur. Misconduct by our employees could include intentional or unintentional failures to comply with Federal Government procurement regulations, engaging in unauthorized activities, seeking reimbursement for improper expenses, or falsifying time records. Employee misconduct could also involve the improper use of our clients’ sensitive or classified information, which could result in regulatory sanctions against us and serious harm to our reputation. It is not always possible to deter employee misconduct, and precautions to prevent and detect this activity may not be effective in controlling such risks or losses, which could materially adversely affect our business.

Security breaches in sensitive government information systems could result in the loss of our clients and cause negative publicity.

Many of the systems we develop, install, and maintain involve managing and protecting information used in intelligence, national security, and other sensitive or classified government functions. A security breach in one of these systems could cause serious harm to our business, damage our reputation, and prevent us from being eligible for further work on sensitive or classified systems for Federal Government clients. We could incur losses from such a security breach that could exceed the policy limits under our insurance. Damage to our reputation or limitations on our eligibility for additional work resulting from a security breach in one of our systems could materially reduce our revenues.

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We are the prime contractor on many of our contracts and if our subcontractors fail to appropriately perform their obligations, our performance and our ability to win future contracts could be harmed.

For many of our contracts where we are the prime contractor, we involve subcontractors, which we rely on to perform a portion of the services that we must provide to our clients. There is a risk that we may have disputes with our subcontractors, including disputes regarding the quality and timeliness of work performed or client concerns about the subcontractor’s performance. In addition, the contracting parties on which we rely may be affected by changes in the economic environment and constraints on available financing to meet their performance requirements or provide needed supplies on a timely basis. A failure by one or more of those contracting parties to provide the agreed-upon supplies or perform the agreed-upon services on a timely basis may affect our ability to perform our obligations.

We are the subcontractor on many of our contracts and if we, or the applicable prime contractors, fail to appropriately perform our and their obligations, our financial condition may be harmed.

For many of our contracts, we are a subcontractor, and we therefore rely on the applicable prime contractor to secure contracts when they are put up for bid for a renewal or a new contract. There is a risk that the applicable prime contractor is unable to secure such bids for a number of reasons, including the prime contractor’s quality and timeliness of services, financial condition, and relationships with the Federal Government. In addition, there are risks that we are unable to provide such subcontractor services with the quality and timeliness demanded by the prime contractor or the ultimate end-client. Any failure by the applicable prime contractor to secure contracts or by us to perform adequately could materially adversely affect our business.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

We own our corporate headquarters in Tampa, Florida, which is approximately 128,000 square feet of space. In addition, as of December 31, 2017 , we leased approximately 334,000 square feet of total office space in 59 field offices located throughout the U.S., with lease terms ranging from three to five-years although a limited number of leases contain short-term renewal provisions that range from month-to-month to one year.

Although additional field offices may be established based on the requirements of our operations, we believe that our facilities are adequate for our current needs, and we do not expect to materially expand or contract our facilities in the foreseeable future.

ITEM 3. 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 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.

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On August 25, 2016, Kforce Flexible Solutions LLC (along with co-defendant BMO Harris Bank) was served with a complaint brought in the Northern District of Illinois, U.S. District Court, Eastern District of Illinois; Shepard v. BMO Harris Bank N.A. et al., Case No.: 1:16-cv-08288. The plaintiff purports to bring claims on her own behalf and on behalf of a putative class of telephone-dedicated workers for alleged violations of the Fair Labor Standards Act, the Illinois Minimum Wage Law, and the Illinois Wage Payment and Collection Act based upon the defendants’ purported failure to pay her and other class members all earned regular and overtime pay for all time worked. More specifically, the plaintiff alleges that class employees were required to perform unpaid work before and after the start and end times of their shifts. She seeks unpaid back regular and overtime wages, liquidated damages, statutory penalties, and attorney fees and costs. On February 15, 2018, the judge granted final approval of the parties’ agreed resolution and the case will be dismissed following implementation of the parties’ settlement. This matter was resolved without any material adverse effect on our business, consolidated financial position, results of operations, or cash flows .

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our common stock trades on the NASDAQ using the ticker symbol “KFRC”. The following table sets forth, for the periods indicated, the high and low intra-day sales price of our common stock, as reported on the NASDAQ. These prices represent inter-dealer quotations without retail markups, markdowns or commissions, and may not represent actual transactions.



	Three Months Ended
	March 31,		June 30,		September 30,		December 31,
2017
High	$	26.95	$	24.30	$	20.65	$	26.75
Low	$	21.28	$	17.45	$	16.75	$	19.10
2016
High	$	25.00	$	20.40	$	20.55	$	24.25
Low	$	14.87	$	15.78	$	16.22	$	15.95

From January 1, 2018 through February 21, 2018 , the high and low intra-day sales price of our common stock was $28.94 and $23.80, respectively. On February 21, 2018 , the last reported sale price of our common stock on the NASDAQ was $28.20 per share.

Holders of Common Stock

As of February 21, 2018 , there were approximately 158 holders of record.

Dividends

Kforce’s Board may, at its discretion, declare and pay dividends on the outstanding shares of Kforce’s common stock out of retained earnings, subject to statutory requirements. Dividends for any outstanding and unvested restricted stock as of the record date are awarded in the form of additional shares of forfeitable restricted stock, at the same rate as the cash dividend on common stock and based on the closing stock price on the record date. Such additional shares have the same vesting terms and conditions as the outstanding and unvested restricted stock.

During the years ended December 31, 2017 and 2016 , Kforce declared and paid a dividend of $0.12 in each quarter for all outstanding shares of common stock. Kforce currently expects to continue to declare and pay quarterly dividends of a similar amount. However, the declaration, payment and amount of future dividends are discretionary and will be subject to determination by Kforce’s Board each quarter following its review of, among other things, the Firm’s current and expected financial performance and our legal ability to pay dividends. There can be no assurances that dividends will be paid in the future.

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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 December 31, 2017 :



Period	Total Number of Shares Purchased (1)(2)	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
October 1, 2017 to October 31, 2017	155,279	$	20.24	155,279	$	46,148,526
November 1, 2017 to November 30, 2017	19,997	$	24.12	12,364	$	45,862,824
December 1, 2017 to December 31, 2017	379,730	$	25.83	283,662	$	38,480,203
Total	555,006	$	24.20	451,305	$	38,480,203


(1)	Includes 7,633 shares of stock received upon vesting of restricted stock to satisfy tax withholding requirements for the period November 1, 2017 to November 30, 2017 .


(2)	Includes 96,068 shares of stock received upon vesting of restricted stock to satisfy tax withholding requirements for the period December 1, 2017 to December 31, 2017 .

ITEM 6. SELECTED FINANCIAL DATA.

The information set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with the information within Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data.



	Years Ended December 31,
	2017 (1)		2016 (2)		2015		2014 (3)		2013 (3)(4)(5)
	(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net service revenues	$	1,357,940	$	1,319,706	$	1,319,238	$	1,217,331	$	1,073,728
Gross profit	408,056		408,499		414,114		374,581		344,376
Selling, general and administrative expenses	331,172		340,742		330,034		314,966		307,339
Goodwill impairment	—		—		—		—		14,510
Depreciation and amortization	8,255		8,701		9,831		9,894		9,846
Other expense, net	4,535		3,101		2,577		1,764		1,752
Income from continuing operations, before income taxes	64,094		55,955		71,672		47,957		10,929
Income tax expense	30,809		23,182		28,848		18,559		5,635
Income from continuing operations	33,285		32,773		42,824		29,398		5,294
Income from discontinued operations, net of tax	—		—		—		61,517		5,493
Net income	$	33,285	$	32,773	$	42,824	$	90,915	$	10,787
Earnings per share – basic, continuing operations	$	1.32	$	1.26	$	1.53	$	0.94	$	0.16
Earnings per share – diluted, continuing operations	$	1.30	$	1.25	$	1.52	$	0.93	$	0.16
Earnings per share – basic	$	1.32	$	1.26	$	1.53	$	2.89	$	0.32
Earnings per share – diluted	$	1.30	$	1.25	$	1.52	$	2.87	$	0.32
Weighted average shares outstanding – basic	25,222		26,099		27,910		31,475		33,511
Weighted average shares outstanding – diluted	25,586		26,274		28,190		31,691		33,643
Dividends declared per share	$	0.48	$	0.48	$	0.45	$	0.41	$	0.10

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	As of December 31,
	2017		2016		2015		2014		2013
	(IN THOUSANDS)
Working capital	$	161,726	$	135,353	$	122,270	$	125,246	$	108,251
Total assets	$	384,304	$	365,421	$	351,822	$	363,922	$	347,768
Total outstanding borrowings on credit facility	$	116,523	$	111,547	$	80,472	$	93,333	$	62,642
Total long-term liabilities	$	166,308	$	160,332	$	124,449	$	130,351	$	100,562
Stockholders’ equity	$	134,277	$	121,736	$	139,627	$	139,388	$	157,233


(1)	The TCJA was enacted in December 2017, which reduces the U.S. federal corporate tax rate from 35.0% to 21.0% beginning in 2018. As a result, we revalued our net deferred income tax assets and recorded $5.4 million of additional income tax expense during the year ended December 31, 2017.


(2)	During 2016, Kforce incurred approximately $6.0 million in severance costs associated with realignment activities focused on further streamlining our organization which were recorded in SG&A.


(3)	During 2014, Kforce disposed of Kforce Healthcare, Inc. (“KHI”), a wholly-owned subsidiary of Kforce Inc. The results of operations for KHI have been presented as discontinued operations for the years ended December 31, 2014 and 2013.


(4)	Kforce recognized a $14.5 million goodwill impairment charge related to the GS reporting unit during 2013. The tax benefit associated with this impairment charge was $5.2 million resulting in an after-tax impairment charge of $9.3 million.

(5)

During 2013, Kforce commenced a plan to streamline its structure through an organizational realignment and incurred severance and termination-related expenses of $7.1 million which were recorded within SG&A. In connection with the realignment and succession planning, the Kforce’s Compensation Committee approved discretionary bonuses of $3.6 million paid to a broad group of senior management during the fourth quarter of 2013.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This MD&A should be read in conjunction with our consolidated financial statements and the accompanying notes thereto contained in Item 8. Financial Statements and Supplementary Data of this report, as well as Item 1. Business of this report for an overview of our operations and business environment.

This overview summarizes the MD&A, which includes the following sections:


•	Executive Summary – An executive summary of our results of operations for 2017 .


•	Results of Operations – An analysis of Kforce’s consolidated results of operations for the three years presented in the consolidated financial statements. In order to assist the reader in understanding our business as a whole, certain metrics are presented for each of our segments.


•	Liquidity and Capital Resources – An analysis of cash flows, credit facility, off-balance sheet arrangements, stock repurchases, contractual obligations and commitments.


•	Critical Accounting Estimates – A discussion of the accounting estimates that are most critical to aid in fully understanding and evaluating our reported financial results and that require management’s most difficult, subjective or complex judgments.


•	New Accounting Standards – A discussion of recently issued accounting standards and the potential impact on our consolidated financial statements.

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EXECUTIVE SUMMARY

The following is an executive summary of what Kforce believes are highlights for 2017 , which should be considered in the context of the additional discussions herein and in conjunction with the consolidated financial statements and notes thereto.


•	Net service revenues increased 2.9% to $1.36 billion in 2017 from $1.32 billion in 2016 . Net service revenues increased 2.7% for Tech, 2.5% for FA and 5.7% for GS.


•	Flex revenues increased 3.2% to $1.31 billion in 2017 from $1.27 billion in 2016 . Flex revenues increase d 2.8% , 3.6% and 5.7% for Tech, FA and GS, respectively. Quarterly year-over-year growth rates in Tech Flex, our largest segment, accelerated in the second half of 2017.


•	Direct Hire revenues decreased 5.4% to $47.7 million in 2017 from $50.4 million in 2016 .

•

Flex gross profit margin decreased 70 basis points to 27.5% in 2017 from 28.2% in 2016 . Flex gross profit margin decrease d 60 basis points for Tech, 90 basis points for FA and 150 basis points for GS. These margin decreases were primarily a result of compression in the spread between our bill rates and pay rates, higher health insurance costs and the impact of Hurricanes Harvey and Irma. In the second half of 2017, we made progress in partially mitigating the spread compression we experienced in the first half of 2017 through increased pricing discipline and other operational programs.

•

SG&A expenses as a percentage of revenues for the year ended December 31, 2017 decrease d to 24.4% from 25.8% in 2016 . The 140 basis point decrease was driven primarily by $6.0 million in severance costs recognized in 2016 related to realignment activities, improving associate productivity levels in 2017 and overall continued discipline in areas such as travel and office related expenses. These benefits were partially offset by an increase in information technology investments.


•	Additionally, during 2017 , Kforce completed the sale of Global’s assets and recorded a $3.3 million gain within SG&A. Prior to the sale, Global generated approximately $2.5 million in Tech Flex revenue per quarter.


•	Net income for the year ended December 31, 2017 increased 1.6% to $33.3 million from $32.8 million in 2016 and diluted earnings per share for the year ended December 31, 2017 increased to $1.30 from $1.25 per share in 2016 , primarily driven by the SG&A items described above.


•	During 2017 , Kforce repurchased 526 thousand shares of common stock on the open market at a total cost of approximately $12.2 million.


•	The Firm declared and paid dividends totaling $0.48 per share during the year ended December 31, 2017 , resulting in a total cash payout of $12.1 million.

•

The Firm entered into a new credit facility on May 25, 2017, which, among other things, increased our borrowing capacity by $130.0 million to $300.0 million. The total amount outstanding under the credit facility increased $5.0 million to $116.5 million as of December 31, 2017 as compared to $111.5 million as of December 31, 2016 . This increase was primarily driven by lower than anticipated operating cash flows as a result of an increase in accounts receivable due to our revenue growth, timing of collections and certain clients extending payment terms.


•	The Firm entered into a forward-starting interest rate swap agreement on April 21, 2017 to mitigate the risk of rising interest rates. The notional amount of the interest rate swap (the “Swap”) is $65.0 million for the first three years and decreases to $25.0 million for years four and five. The fair value of our Swap as of December 31, 2017 was a $0.5 million asset.

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RESULTS OF OPERATIONS

In 2017, we continued to make progress on our strategic initiatives including:

•

Implementing new and upgrading existing technologies that we believe will allow us to more effectively and efficiently serve our clients, consultants and candidates and improve the productivity of our people and scalability of our organization. We completed the deployment of our new customer relationship management system during 2017 and made significant progress towards the implementation of other technology initiatives related to our consultant time and expense management process, associate expense reimbursement, business and data intelligence applications among other areas, which we expect to benefit us in 2018 and beyond. We also laid the foundation during 2017 for future technology initiatives.

•

Continuing to align our revenue-generating talent to the markets, products, industries and clients that we believe present Kforce with the greatest opportunity for profitable revenue growth. During 2017, we further optimized the alignment of our revenue-generating and revenue-enabling organizations to enhance our efficiency and effectiveness in serving our clients, consultants and candidates. We also conducted sustainment activities related to our enhanced sales methodology that was rolled out in the fourth quarter of 2016.

During the third quarter of 2017, our results of operation were adversely impacted by Hurricanes Harvey and Irma and, more importantly, the devastation felt by our associates, clients and consultants was significant. We made the decision to prioritize the care and safety of our core associates and consultants by continuing to compensate them while our clients were closed and provided additional support for those with more critical needs. We also more broadly supported the recovery efforts with a pledge of $1.0 million in charitable contributions to support these efforts. The combined impact to our earnings per share was $0.04 during 2017.

Net Service Revenues . The following table presents certain items in our Consolidated Statements of Operations and Comprehensive Income as a percentage of net service revenues for the years ended:



	December 31,
	2017		2016		2015
Revenues by segment:
Tech	66.8	%	66.9	%	67.9	%
FA	25.5		25.6		24.7
GS	7.7		7.5		7.4
Net service revenues	100.0	%	100.0	%	100.0	%
Revenues by type:
Flex	96.5	%	96.2	%	95.9	%
Direct Hire	3.5		3.8		4.1
Net service revenues	100.0	%	100.0	%	100.0	%
Gross profit	30.0	%	31.0	%	31.4	%
Selling, general and administrative expenses	24.4	%	25.8	%	25.0	%
Depreciation and amortization	0.6	%	0.7	%	0.7	%
Income from operations	5.1	%	4.5	%	5.6	%
Income before income taxes	4.7	%	4.2	%	5.4	%
Net income	2.5	%	2.5	%	3.2	%

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The following table presents net service revenues for Flex and Direct Hire by segment and percentage change from the prior period for the years ended December 31 (in thousands):



	2017		Increase (Decrease)		2016		Increase (Decrease)		2015
Tech revenues
Flex revenues	$	887,675	2.8	%	$	863,434	(1.2	)%	$	873,609
Direct Hire revenues	19,836		(1.0	)%	20,043		(10.3	)%	22,333
Total Tech revenues	$	907,511	2.7	%	$	883,477	(1.4	)%	$	895,942
FA revenues
Flex revenues	$	318,294	3.6	%	$	307,245	4.4	%	$	294,186
Direct Hire revenues	27,841		(8.3	)%	30,356		(4.4	)%	31,738
Total FA revenues	$	346,135	2.5	%	$	337,601	3.6	%	$	325,924
GS revenues
Flex revenues	$	104,294	5.7	%	$	98,628	1.3	%	$	97,372
Total GS revenues	$	104,294	5.7	%	$	98,628	1.3	%	$	97,372

Total Flex revenues	$	1,310,263	3.2	%	$	1,269,307	0.3	%	$	1,265,167
Total Direct Hire revenues	47,677		(5.4	)%	50,399		(6.8	)%	54,071
Total Net service revenues	$	1,357,940	2.9	%	$	1,319,706	—	%	$	1,319,238

Certain quarterly revenue trends are referred to in discussing annual comparisons. Our quarterly operating results are affected by the number of billing days in a quarter. The following 2017 quarterly information is presented for informational purposes only (in thousands, except Billing Days).



	Three Months Ended
	December 31				September 30				June 30				March 31
	Revenues		Year-Over-Year Revenue Growth Rates (Per Billing Day)		Revenues		Year-Over-Year Revenue Growth Rates (Per Billing Day)		Revenues		Year-Over-Year Revenue Growth Rates (Per Billing Day)		Revenues		Year-Over-Year Revenue Growth Rates (Per Billing Day)
Flex revenues
Tech	$	223,897	5.4	%	$	224,148	3.3	%	$	222,744	1.5	%	$	216,886	2.7	%
FA	79,098		0.3	%	78,209		4.1	%	80,038		4.3	%	80,949		7.5	%
GS	29,421		25.7	%	26,547		0.6	%	23,674		(6.4	)%	24,652		6.6	%
Total Flex revenues	$	332,416	5.6	%	$	328,904	3.3	%	$	326,456	1.6	%	$	322,487	4.2	%
Direct Hire revenues
Tech	$	3,919	(10.3	)%	$	5,133	1.3	%	$	5,625	9.3	%	$	5,159	(4.1	)%
FA	6,251		(9.6	)%	7,016		(9.0	)%	8,228		(2.4	)%	6,346		(11.7	)%
Total Direct Hire revenues	$	10,170	(9.9	)%	$	12,149	(4.9	)%	$	13,853	2.1	%	$	11,505	(8.4	)%
Revenue by segment
Tech	$	227,816	5.1	%	$	229,281	3.3	%	$	228,369	1.7	%	$	222,045	2.5	%
FA	85,349		(0.5	)%	85,225		2.9	%	88,266		3.6	%	87,295		5.8	%
GS	29,421		25.7	%	26,547		0.6	%	23,674		(6.4	)%	24,652		6.6	%
Total Net service revenues	$	342,586	5.1	%	$	341,053	3.0	%	$	340,309	1.6	%	$	333,992	3.7	%

Billing Days			61				63				64				64

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Flex Revenues. The key drivers of Flex revenues are the number of consultants on assignment, number of billable hours, the consultant bill rate per hour and, to a limited extent, the amount of billable expenses incurred by Kforce.

Flex revenues for our largest segment, Tech, increase d 2.8% during the year ended December 31, 2017 , as compared to 2016 and decrease d 1.2% in 2016 from 2015 . Our 2017 increase was driven by an acceleration of quarterly year-over-year growth rates in the second half of 2017, which we believe is a result of our strategic portfolio alignment efforts as well as the investments we have made in an effort to improve the productivity and effectiveness of our revenue-generating talent. We have been focused on diversifying our portfolio to grow revenues with other Fortune 500 companies outside of our top 25 largest clients; much of the revenue growth that we experienced in the second half of 2017 was a result of these efforts. Our belief in the strength in the demand environment within Tech Flex has not changed; thus, we expected continued growth in 2018 in this segment.

Our FA segment experienced an increase in Flex revenues of 3.6% during the year ended December 31, 2017 , as compared to 2016 and increase d 4.4% in 2016 from 2015 . Over the last several years, we have seen greater opportunities from larger volume projects in centralized and partially outsourced functional areas such as benefits and enrollment support and other service and administrative functions as clients continue to evaluate their strategies for meeting their human capital needs. We expect our FA segment to grow on a year-over-year basis in 2018 .

Our GS segment experienced an increase in Flex revenues of 5.7% during the year ended December 31, 2017 , as compared to 2016 and increase d 1.3% in 2016 from 2015 . Our GS segment was awarded two prime contract wins in the third quarter of 2017 under the T4 Next Generation contract vehicle with the U.S. Department of Veterans Affairs totaling nearly $100 million. Revenues for GS grew approximately 25% on a year-over-year basis in the fourth quarter of 2017 primarily as a result of these prime contract wins. Our GS segment’s largest contract is being recompeted by the prime contractor in the first quarter of 2018. Provided GS is successful at retaining this contract, we expect our GS segment should grow in the low double digits on a year-over-year basis in 2018.

The following table presents the key drivers for the change in Flex revenues for our Tech and FA segments over the prior period for the years ended December 31 (in thousands):



	2017					2016
	Tech			FA		Tech			FA
Key Drivers
Volume (hours billed)	$	9,710		$	3,915	$	(10,115	)	$	15,198
Bill rate	14,563			7,053		896			(2,055		)
Billable expenses	(32		)	81		(956		)	(84		)
Total change in Flex revenues	$	24,241		$	11,049	$	(10,175	)	$	13,059

The following table presents total Flex hours billed for our Tech and FA segments and percentage change over the prior period for the years ended December 31 (in thousands):



	2017	Increase (Decrease)		2016	Increase (Decrease)		2015
Tech	12,878	1.1	%	12,735	(1.2	)%	12,885
FA	9,595	1.3	%	9,474	5.2	%	9,008
Total Flex hours billed	22,473	1.2	%	22,209	1.4	%	21,893

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

Direct Hire Revenues. The key drivers of Direct Hire revenues are the number of placements and the associated placement fee. Direct Hire revenues also include conversion revenues, which can occur when consultants initially assigned to a client on a temporary basis are later converted to a permanent placement for a fee. Our GS segment does not make permanent placements.

Direct Hire revenues decrease d 5.4% during the year ended December 31, 2017 as compared to 2016 and decrease d 6.8% in 2016 from 2015 . The decrease for 2017 as compared to 2016 and 2016 as compared to 2015 is primarily the result of a shift in management’s strategy to make selective investments only where capacity needs exist.

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The following table presents the key drivers for the change in Direct Hire revenues over the prior period for the years ended December 31 (in thousands):



	2017			2016
Key Drivers
Volume (number of placements)	$	(3,084	)	$	(2,476	)
Placement fee	362			(1,196		)
Total change in Direct Hire revenues	$	(2,722	)	$	(3,672	)

The following table presents the total number of placements for our Tech and FA segments and percentage change over the prior period for the years ended December 31:



	2017	Increase (Decrease)		2016	Increase (Decrease)		2015
Tech	1,139	(4.4	)%	1,191	(14.6	)%	1,395
FA	2,355	(7.0	)%	2,531	1.0	%	2,505
Total number of placements	3,494	(6.1	)%	3,722	(4.6	)%	3,900

The following table presents the average fee per placement for our Tech and FA segments and percentage change over the prior period for the years ended December 31:



	2017		Increase (Decrease)		2016		Increase (Decrease)		2015
Tech	$	17,410	3.4	%	$	16,836	5.1	%	$	16,014
FA	$	11,826	(1.4	)%	$	11,994	(5.3	)%	$	12,668
Total average placement fee	$	13,646	0.8	%	$	13,543	(2.3	)%	$	13,864

Gross Profit. Gross profit is determined by deducting the direct cost of services (primarily consultant compensation, payroll taxes, payroll-related insurance and certain fringe benefits, as well as subcontractor costs) from total revenues. In addition, there are no consultant payroll costs associated with Direct Hire placements, thus, all Direct Hire revenues increase gross profit by the full amount of the placement fee.

The following table presents the gross profit percentage (gross profit as a percentage of total revenues) for each segment and percentage change over the prior period for the years ended December 31:



	2017		Increase (Decrease)		2016		Increase (Decrease)		2015
Tech	28.3	%	(2.4	)%	29.0	%	(0.7	)%	29.2	%
FA	34.2	%	(4.2	)%	35.7	%	(2.2	)%	36.5	%
GS	31.1	%	(4.6	)%	32.6	%	(5.0	)%	34.3	%
Total gross profit percentage	30.0	%	(3.2	)%	31.0	%	(1.3	)%	31.4	%

The change in total gross profit percentage for 2017 as compared to 2016 and 2016 as compared to 2015 is primarily the result of a lower mix of Direct Hire revenues to total revenues as well as declines in our Flex gross profit.

Our Flex gross profit percentage (Flex gross profit as a percentage of Flex revenues) provides management with helpful insight into the other drivers of total gross profit percentage driven by our Flex business such as changes in the spread between the consultants’ bill rate and pay rate 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.

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The following table presents the Flex gross profit percentage for each segment and percentage change over the prior period for the years ended December 31:



	2017		Increase (Decrease)		2016		Increase (Decrease)		2015
Tech	26.7	%	(2.2	)%	27.3	%	(0.4	)%	27.4	%
FA	28.5	%	(3.1	)%	29.4	%	(1.0	)%	29.7	%
GS	31.1	%	(4.6	)%	32.6	%	(5.0	)%	34.3	%
Total Flex gross profit percentage	27.5	%	(2.5	)%	28.2	%	(1.1	)%	28.5	%

The decrease in Flex gross profit percentage of 70 basis points in 2017 from 2016 was due primarily to compression in the spread between our consultants’ bill rates and pay rates and higher health insurance and other benefit costs, and the impact of Hurricanes Harvey and Irma. Kforce continues to focus on optimizing the spread between bill rates and pay rates by providing our associates with training and other defined programs to drive improvement in the effectiveness of our pricing strategy for our staffing services. The pricing environment for our services continues to be competitive and the scarcity of talent, especially in our Tech segment, continues to be a challenge. Thus, we expect that we may encounter wage inflation, especially in the skill sets of greatest demand, and will likely face spread compression as we work with our clients to increase our bill rates. With that said, many of our clients also lack pricing power in the conduct of their businesses; therefore, spreads on a longer-term basis may continue to be under pressure. As a result, our continued efforts toward pricing discipline and diligence will be important in mitigating this impact.

The decrease in Flex gross profit percentage of 30 basis points in 2016 from 2015 was due primarily to lower realized margins for our GS segment on some of its recompete wins and a lower mix of higher margin business. Furthermore, during 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 have, in many cases, narrowed their number of vendor partners and are leveraging volume-based rebates in exchange for this increased concentration of business.

The following table presents the key drivers for the change in Flex gross profit over the prior period for the years ended December 31 (in thousands):



	2017			2016
Key Drivers
Volume (hours billed)	$	11,708		$	1,178
Bill rate	(9,429		)	(3,121		)
Total change in Flex gross profit	$	2,279		$	(1,943	)

SG&A Expenses . For the years ended December 31, 2017 , 2016 and 2015 , total compensation, commissions, payroll taxes, and benefit costs represented 84.8% , 84.0% , and 84.2% of SG&A, respectively. 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.

The following table presents certain components of SG&A as a percentage of total revenues for the years ended December 31 (in thousands):



	2017		% of Revenues		2016		% of Revenues		2015		% of Revenues
Compensation, commissions, payroll taxes and benefits costs	$	280,721	20.7	%	$	286,261	21.7	%	$	277,825	21.1	%
Other (1)	50,451		3.7	%	54,481		4.1	%	52,209		3.9	%
Total SG&A	$	331,172	24.4	%	$	340,742	25.8	%	$	330,034	25.0	%

(1) Includes items such as bad debt expense, lease expense, professional fees, travel, telephone, computer and certain other expenses.

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SG&A as a percentage of net service revenues decrease d 140 basis points in 2017 compared to 2016 , which was driven primarily by $6.0 million in severance costs recognized in 2016 related to realignment activities, improving associate productivity levels in 2017, and overall continued discipline in areas of travel and office related expenses. These benefits were partially offset by an increase in information technology investments. Additionally, during 2017 , Kforce recorded a $3.3 million gain on the sale of Global’s assets.

SG&A as a percentage of net service revenues increase d 80 basis points in 2016 compared to 2015 . This was primarily a result of the factors mentioned above as well as targeted investments in information technology and our revenue-generating talent, which negatively impacted SG&A as a percentage of revenue for 2016 .

Depreciation and Amortization. The following table presents depreciation and amortization expense and percentage change over the prior period by major category for the years ended December 31 (in thousands):



	2017		Increase (Decrease)		2016		Increase (Decrease)		2015
Fixed asset depreciation (1)	$	6,939	4.2	%	$	6,660	(1.2	)%	$	6,738
Capitalized software amortization	971		(32.9	)%	1,448		(37.5	)%	2,318
Intangible asset amortization	345		(41.8	)%	593		(23.5	)%	775
Total Depreciation and amortization	$	8,255	(5.1	)%	$	8,701	(11.5	)%	$	9,831


(1)	Includes amortization of capital leases.

Other Expense, Net. Other expense, net was $4.5 million in 2017 , $3.1 million in 2016 , and $2.6 million in 2015 , and consists primarily of interest expense related to outstanding borrowings under our credit facility.

Income Tax Expense. Income tax expense as a percentage of income before income taxes (our “effective tax rate”) for the year ended December 31, 2017 , was 48.1% . Our effective tax rate for 2017 was unfavorably impacted due to the revaluation of our net deferred tax assets as a result of the TCJA. Excluding the impact of this revaluation, our effective tax rate would have been 39.7%. For the year ended December 31, 2016 , our effective tax rate was 41.4% , which was unfavorably impacted by certain one-time non-cash adjustments. For the year ended December 31, 2015 , our effective tax rate was 40.3% , which was unfavorably impacted by a change in the overall mix of income in the various state jurisdictions and the increase in particular uncertain tax positions.

We expect that our effective tax rate will be in the range of 25.5% to 27.5% for 2018 as a result of the TCJA.

Non-GAAP Financial Measures

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 as it provides a measure of the amount of cash generated from the business that can be used for strategic opportunities including investing in our business, making acquisitions, repurchasing common stock or paying dividends. Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures.

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Therefore, we believe it is important to view free cash flow as a complement to our Consolidated Statements of Cash Flows. The following table presents Free Cash Flow (in thousands):



	Years Ended December 31,
	2017			2016			2015
Net income	$	33,285		$	32,773		$	42,824
Non-cash provisions and other	29,134			21,093			22,153
Changes in operating assets/liabilities	(33,080		)	(14,043		)	5,754
Net cash provided by operating activities	29,339			39,823			70,731
Capital expenditures	(5,846		)	(12,420		)	(8,328		)
Free cash flow	23,493			27,403			62,403
Change in debt	4,976			31,075			(12,861		)
Repurchases of common stock	(14,622		)	(46,013		)	(38,471		)
Cash dividend	(12,144		)	(12,447		)	(12,545		)
Other	(2,806		)	(33		)	1,733
Change in cash and cash equivalents	$	(1,103	)	$	(15	)	$	259

Adjusted EBITDA. “Adjusted EBITDA”, a non-GAAP financial measure, is defined by Kforce as net income before depreciation and amortization, stock-based compensation expense, interest expense, net and income tax expense. Adjusted EBITDA should not be considered a measure of financial performance under GAAP. Items excluded from Adjusted EBITDA are significant components in understanding and assessing our past and future financial performance, and this presentation should not be construed as an inference by us that our future results will be unaffected by those items excluded from Adjusted EBITDA. Adjusted EBITDA is a key measure used by management to assess our operations including our ability to generate cash flows and our ability to repay our debt obligations. Management believes it is useful information to investors as it provides a good metric of our core profitability in comparing our performance to our competitors, as well as our performance over different time periods. The measure should not be considered in isolation or as an alternative to net income, cash flows or other financial statement information presented in the consolidated financial statements as indicators of financial performance or liquidity. The measure is not determined in accordance with GAAP and is susceptible to varying calculations, and as presented, may not be comparable to similarly titled measures of other companies.

In addition, although we excluded amortization of stock-based compensation expense (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 shareholder ownership interest. We suggest that you evaluate these items and the potential risks of excluding such items when analyzing our financial position.

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



	Years Ended December 31,
	2017		2016		2015
Net income	$	33,285	$	32,773	$	42,824
Depreciation and amortization	8,508		8,796		9,831
Stock-based compensation expense	7,600		6,705		5,819
Interest expense, net	5,039		3,050		2,342
Income tax expense	30,809		23,182		28,848
Adjusted EBITDA	$	85,241	$	74,506	$	89,664

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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 credit facility. At December 31, 2017 , Kforce had $161.7 million in working capital compared to $135.4 million at December 31, 2016 .

Cash Flows

The accompanying Consolidated Statements of Cash Flows for each of the years ended December 31, 2017 , 2016 and 2015 in Item 8. Financial Statements and Supplementary Data 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) generating positive cash flow from operating activities; (2) returning capital to our shareholders through our quarterly dividends and common stock repurchase program; (3) sustaining leverage under our credit facility; (4) investing in our infrastructure to allow sustainable growth via capital expenditures; and (5) maintaining sufficient availability under our credit facility for the possibility of completing an acquisition or other strategic investments.

As a result of the TCJA, we expect to generate an additional $10.0 million in operating cash in 2018 related to the decrease in our effective tax rate. We believe that existing cash and cash equivalents, cash flow from operations, and available borrowings under our credit facility will be adequate to meet the capital expenditure and working capital requirements of our operations for at least the next 12 months. However, a material deterioration in the economic environment or market conditions, among other things, could negatively impact operating results and liquidity, as well as the ability of our lenders to fund borrowings.

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

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



	Years Ended December 31,
	2017			2016			2015
Cash provided by (used in):
Operating activities	$	29,339		$	39,823		$	70,731
Investing activities	(4,846		)	(12,420		)	(8,364		)
Financing activities	(25,596		)	(27,418		)	(62,108		)
Net (decrease) increase in cash and cash equivalents	$	(1,103	)	$	(15	)	$	259

Operating Activities

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 associate and consultant populations’ compensation. When comparing cash flows from operating activities, the decrease in cash provided by operating activities during the year ended December 31, 2017 , as compared to 2016 is primarily due to an increase in accounts receivable, which was driven by the revenue growth in our business, the timing of collections and continued pressure from certain larger clients for extended payment terms. The decrease in cash provided by operating activities during the year ended December 31, 2016 as compared to 2015 is primarily a result of lower earnings as well as the delayed timing in collections of accounts receivable.

Investing Activities

Capital expenditures for the years ended December 31, 2017 , 2016 and 2015 , which exclude equipment acquired under capital leases, were $5.8 million , $12.4 million and $8.3 million , respectively. We expect to continue selectively investing in our infrastructure in order to support the expected future profitable growth in our business. We believe that we have sufficient cash and availability under the credit facility to pursue new business acquisitions or 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.

During the year ended December 31, 2017 , Kforce completed the sale of Global’s assets and received an initial $1.0 million in cash proceeds.

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Financing Activities

The following table presents the cash flow impact of the common stock repurchase activity for the years ended December 31 (in thousands):



	2017		2016		2015
Open market repurchases	$	12,276	$	44,109	$	37,125
Repurchase of shares related to tax withholding requirements for vesting of restricted stock	2,346		1,904		1,346
Total cash flow impact of common stock repurchases	$	14,622	$	46,013	$	38,471

Cash paid in current year for settlement of prior year repurchases	$	935	$	1,012	$	1,425

During the years ended December 31, 2017 , 2016 and 2015 , Kforce declared and paid dividends of $12.1 million ( $0.48 per share), $12.4 million ( $0.48 per share), and $12.5 million ( $0.45 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 current and expected financial performance and its legal ability to pay dividends.

Credit Facility

On May 25, 2017, the Firm entered into a Credit Agreement with Wells Fargo Bank, National Association, as administrative agent, Bank of America, N.A., as syndication agent, Regions Bank and BMO Harris Bank, N.A., as co-documentation agents, Wells Fargo Securities, LLC, as lead arranger and bookrunner, and the lenders referred to in the credit facility. Our new credit facility includes a maximum borrowing capacity of $300.0 million which, subject to certain conditions and participation of the lenders, may be increased up to an aggregate additional amount of $150.0 million in the form of revolving credit loans, swingline loans, and letters of credit. Letters of credit and swingline loans under the credit facility are subject to sublimits of $10.0 million . As of December 31, 2017 , $116.5 million was outstanding and $180.3 million was available, subject to the covenants described below and as of December 31, 2016 , $111.5 million was outstanding under the previous credit facility, which was paid off using the Firm’s initial draw under the new credit facility.

The Firm will continually be subject to certain affirmative and negative covenants including (but not limited to), the maintenance of a fixed charge coverage ratio of no less than 1.25 to 1.00 and the maintenance of a total leverage ratio of no greater than 3.25 to 1.00 . The numerator in the fixed charge coverage ratio is defined pursuant to the credit facility as earnings before interest expense, income taxes, depreciation and amortization, stock-based compensation expense and other permitted items pursuant to our credit facility (disclosed as “Consolidated EBITDA”), less cash paid for capital expenditures, income taxes and dividends. The denominator is defined as Kforce’s fixed charges such as interest expense and principal payments paid or payable on outstanding debt other than borrowings under the credit facility. The total leverage ratio is defined pursuant to the credit facility as total indebtedness divided by Consolidated EBITDA. Our ability to make distributions or repurchases of equity securities could be limited if an event of default has occurred. Furthermore, our ability to repurchase equity securities could be limited if (a) the total leverage ratio is greater than 2.75 to 1.00 and (b) the Firm’s availability, under the credit facility plus unrestricted cash and cash equivalents, is less than $25.0 million . At December 31, 2017 , Kforce was not limited in making distributions and executing repurchases of its equity securities. See Note 8 - “Credit Facility” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this report for a complete discussion of our credit facility.

Off-Balance Sheet Arrangements

Kforce provides letters of credit to certain vendors in lieu of cash deposits. At December 31, 2017 , Kforce had letters of credit outstanding for workers’ compensation and other insurance coverage totaling $2.9 million , and for facility lease deposits totaling $0.3 million . Aside from certain obligations more fully described in the Contractual Obligations and Commitments section below, we do not have any additional off-balance sheet arrangements that have had, or are expected to have, a material effect on our consolidated financial statements.

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Stock Repurchases

The following table presents the open market repurchase activity under the Board-authorized common stock repurchase program for the years ended December 31 (in thousands):



	2017			2016 (1)
	Shares	$		Shares	$
Open market repurchases	526	$	12,239	2,291	$	44,032


(1)	On July 29, 2016, our Board approved an increase in our stock repurchase authorization bringing the then available authorization to $75.0 million.

As of December 31, 2017 and 2016 , $38.5 million and $50.7 million, respectively, remained available for further repurchases under the Board-authorized common stock repurchase program.

Contractual Obligations and Commitments

The following table presents our expected future contractual obligations as of December 31, 2017 (in thousands):



	Payments due by period
	Total		Less than 1 year		1-3 Years		3-5 Years		More than 5 years
Credit facility (1)	$	116,523	$	—	$	—	$	116,523	$	—
Interest payable – credit facility (2)	14,808		3,089		6,405		5,314		—
Operating lease obligations	25,928		9,338		12,420		2,723		1,447
Capital lease obligations	1,958		1,359		594		5		—
Purchase obligations (3)	14,543		8,624		5,919		—		—
Notes payable (4)	3,077		934		1,919		224		—
Interest payable - notes payable (4)	26		13		13		—		—
Liability for unrecognized tax positions (5)	—		—		—		—		—
Deferred compensation plans liability (6)	31,446		2,579		2,615		2,592		23,660
Supplemental Executive Retirement Plan (7)	17,070		—		—		12,788		4,282
Total	$	225,379	$	25,936	$	29,885	$	140,169	$	29,389


(1)	Our credit facility matures May 25, 2022 .


(2)	Kforce’s weighted average interest rate as of December 31, 2017 was utilized to forecast the expected future interest rate payments. These payments are inherently uncertain due to fluctuations in interest rates and outstanding borrowings that will occur over the remaining term of the credit facility.


(3)	Purchase obligations include agreements to purchase goods and services that are enforceable, legally binding, and specify all significant terms.


(4)	Our notes payable as of December 31, 2017 are included in the accompanying Consolidated Balance Sheets and classified in Other current liabilities if payable within the next year or in Long-term debt - other if payable after the next year. The interest rate on the notes range from 2.58% to 2.80% and expire between November 2020 and October 2021.


(5)	Kforce’s liability for unrecognized tax positions as of December 31, 2017 was $1.1 million . This balance has been excluded from the table above due to the significant uncertainty with respect to the timing and amount of settlement, if any.

(6)

Kforce maintains various non-qualified deferred compensation plans pursuant to which eligible management and highly-compensated key employees may elect to defer all or part of their compensation to later years. These amounts are included in the accompanying Consolidated Balance Sheets and classified as Accounts payable and other accrued liabilities and Other long-term liabilities, as appropriate, and are payable based upon the elections of the plan participants (e.g. retirement, termination of employment, change-in-control). Amounts payable upon the retirement or termination of employment may become payable during the next five years if covered employees schedule a distribution, retire or terminate during that time.


(7)	There is no funding requirement associated with our Supplemental Executive Retirement Plan (“SERP”) and, as a result, no contributions have been made through the year ended December 31, 2017 . Kforce does not currently anticipate funding our SERP during 2018. Kforce has included the total undiscounted projected benefit payments, as determined at December 31, 2017 , in the table above.

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Kforce has no material unrecorded commitments, losses, contingencies or guarantees associated with any related parties or unconsolidated entities.

CRITICAL ACCOUNTING ESTIMATES

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

Our significant accounting policies are discussed in Note 1 – “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this report. Management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.



Description	Judgments and Uncertainties	Effect if Actual Results Differ From Assumptions
Allowance for Doubtful Accounts, Fallouts and Other Accounts Receivable Reserves
See Note 1 – “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this report, for a complete discussion of our policies related to determining our allowance for doubtful accounts, fallouts and other accounts receivable reserves.	Kforce performs an ongoing analysis of factors including recent write-off and delinquency trends, a specific analysis of significant receivable balances that are past due, the concentration of accounts receivable among clients and higher-risk sectors, and the current state of the U.S. economy, in establishing its allowance for doubtful accounts. Kforce estimates its allowance for Direct Hire fallouts based on our historical experience with the actual occurrence of fallouts. Kforce estimates its reserve for future revenue adjustments (e.g. bill rate adjustments, time card adjustments, early pay discounts) based on our historical experience.	We have not made any material changes in the accounting methodology used to establish our allowance for doubtful accounts, fallouts and other accounts receivable reserves. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our allowance for doubtful accounts, fallouts and other accounts receivable reserves. However, if our estimates regarding estimated accounts receivable losses are inaccurate, we may be exposed to losses or gains that could be material. A 10% change in accounts receivable reserved at December 31, 2017, would have impacted our net income for 2017 by approximately $0.1 million.

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Description	Judgments and Uncertainties	Effect if Actual Results Differ From Assumptions
Accounting for Income Taxes
See Note 3 – “Income Taxes” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this report for a complete discussion of the components of Kforce’s income tax expense, as well as the temporary differences that exist as of December 31, 2017.	Our consolidated effective income tax rate is influenced by tax planning opportunities available to us in the various jurisdictions in which we conduct business. Significant judgment is required in determining our effective tax rate and in evaluating our tax positions, including those that may be uncertain. Kforce is also required to exercise judgment with respect to the realization of our net deferred tax assets. Management evaluates all positive and negative evidence and exercises judgment regarding past and future events to determine if it is more likely than not that all or some portion of the deferred tax assets may not be realized. If appropriate, a valuation allowance is recorded against deferred tax assets to offset future tax benefits that may not be realized.	We do not believe that there is a reasonable likelihood that there will be a material change in our effective tax rate for 2017 or our liability for uncertain income tax positions. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses that could be material. Kforce recorded a valuation allowance of approximately $1.7 million as of December 31, 2017 related primarily to a foreign tax credit that we expect may not be realizable. A 0.50% change in our effective income tax rate would have impacted our net income for 2017 by approximately $0.3 million.
Self-Insured Liabilities
We are self-insured for certain losses related to health insurance and workers’ compensation claims that are below insurable limits. However, we obtain third-party insurance coverage to limit our exposure to claims in excess of insurable limits. When estimating our self-insured liabilities, we consider a number of factors, including historical claims experience, plan structure, internal claims management activities, demographic factors and severity factors. Periodically, management reviews its assumptions to determine the adequacy of our self-insured liabilities. Our liabilities for health insurance and workers’ compensation claims as of December 31, 2017 were $2.6 million and $1.2 million, respectively.	Our self-insured liabilities contain uncertainties because management is required to make assumptions and to apply judgment to estimate the ultimate total cost to settle reported claims and claims incurred but not reported (“IBNR”) as of the balance sheet date.	We have not made any material changes in the accounting methodologies used to establish our self-insured liabilities. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our self-insured liabilities. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. A 10% change in our self-insured liabilities related to health insurance and workers’ compensation as of December 31, 2017 would have impacted our net income for 2017 by approximately $0.2 million.

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Description	Judgments and Uncertainties	Effect if Actual Results Differ From Assumptions
Defined Benefit Pension Plans
We have a defined benefit pension plan that benefits certain named executive officers, the SERP. See Note 7– “Employee Benefit Plans” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this report for a complete discussion of the terms of this plan. The SERP was not funded as of December 31, 2017 or 2016.	When estimating the obligation for our pension benefit plan, management is required to make certain assumptions and to apply judgment with respect to determining an appropriate discount rate, bonus percentage assumptions and expected effect of future compensation increases for the participants in the plan.	We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our obligation. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. A 10% change in the discount rate used to measure the net periodic pension cost for the SERP during 2017 would have had an insignificant impact on our net income for 2017.
Goodwill Impairment
We evaluate goodwill for impairment annually or more frequently whenever events or circumstances indicate that the fair value of a reporting unit is below its carrying value. We monitor the existence of potential impairment indicators throughout the year. See Note 4 – “Goodwill and Other Intangible Assets ” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this report for a complete discussion of the valuation methodologies employed. The carrying value of goodwill as of December 31, 2017 by reporting unit was approximately $17.0 million, $8.0 million and $20.9 million for our Tech, FA and GS reporting units, respectively.	We determine the fair value of our reporting units (Tech, FA and GS) using widely accepted valuation techniques, including the discounted cash flow, guideline transaction method and guideline company method. These types of analyses contain uncertainties because they require management to make significant assumptions and judgments including: (1) an appropriate rate to discount the expected future cash flows; (2) the inherent risk in achieving forecasted operating results; (3) long-term growth rates; (4) expectations for future economic cycles; (5) market comparable companies and appropriate adjustments thereto; and (6) market multiples. It is our policy to conduct impairment testing based on our current business strategy in light of present industry and economic conditions, as well as future expectations.	Kforce performed a quantitative assessment for each of our reporting units (Tech, FA and GS) as of December 31, 2017. We compared the carrying value of each reporting unit to the respective estimated fair value as of December 31, 2017 and determined that the fair value significantly exceeded carrying value for each of our reporting units. As a result, no goodwill impairment charges were recognized during the year ended December 31, 2017. Although the valuation of the business supported its carrying value in 2017, a deterioration in any of the assumptions could result in an impairment charge in the future.

NEW ACCOUNTING STANDARDS

See Note 1 – “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this report for a discussion of new accounting standards.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

In addition to the risks inherent in its operations, Kforce is exposed to certain market risks, primarily changes in interest rates.

As of December 31, 2017 , we had $116.5 million outstanding under our credit facility. See Note 8 - “Credit Facility” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this report, for further details on our credit facility. A hypothetical 10% increase in interest rates on variable debt in effect at December 31, 2017 would have an increase to annual interest expense of less than $0.4 million.

On April 21, 2017, Kforce entered into a forward-starting interest rate swap agreement with Wells Fargo Bank, N.A. to mitigate the risk of rising interest rates on the Firm’s financial statements. The Swap rate is 1.81%, which is added to our interest rate margin to determine the fixed rate that the Firm will pay to the counterparty during the term of the Swap based on the notional amount of the Swap. The effective date of the Swap is May 31, 2017 and the maturity date is April 29, 2022. The notional amount of the Swap is $65.0 million for the first three years and decreases to $25.0 million for years four and five.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Kforce Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Kforce Inc. and subsidiaries (“Kforce”) as of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2017, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). We also have audited Kforce’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kforce as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, Kforce maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

Basis for Opinions

Kforce’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on Kforce’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to Kforce in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Tampa, Florida

February 23, 2018

We have served as Kforce’s auditor since 2000.

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KFORCE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



	YEARS ENDED DECEMBER 31,
	2017			2016			2015
Net service revenues	$	1,357,940		$	1,319,706		$	1,319,238
Direct costs of services	949,884			911,207			905,124
Gross profit	408,056			408,499			414,114
Selling, general and administrative expenses	331,172			340,742			330,034
Depreciation and amortization	8,255			8,701			9,831
Income from operations	68,629			59,056			74,249
Other expense, net	4,535			3,101			2,577
Income before income taxes	64,094			55,955			71,672
Income tax expense	30,809			23,182			28,848
Net income	33,285			32,773			42,824
Other comprehensive (loss) income:
Defined benefit pension plans, net of tax	(373		)	(134		)	689
Change in fair value of interest rate swap, net of tax	289			—			—
Comprehensive income	$	33,201		$	32,639		$	43,513

Earnings per share – basic	$	1.32		$	1.26		$	1.53
Earnings per share – diluted	$	1.30		$	1.25		$	1.52

Weighted average shares outstanding – basic	25,222			26,099			27,910
Weighted average shares outstanding – diluted	25,586			26,274			28,190

Dividends declared per share	$	0.48		$	0.48		$	0.45

The accompanying notes are an integral part of these consolidated financial statements.

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KFORCE INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)



	DECEMBER 31,
	2017			2016
ASSETS
Current assets:
Cash and cash equivalents	$	379		$	1,482
Trade receivables, net of allowances of $2,333 and $2,066, respectively	225,865			206,361
Income tax refund receivable	7,116			172
Prepaid expenses and other current assets	12,085			10,691
Total current assets	245,445			218,706
Fixed assets, net	39,680			43,145
Other assets, net	38,598			30,511
Deferred tax assets, net	11,316			23,449
Intangible assets, net	3,297			3,642
Goodwill	45,968			45,968
Total assets	$	384,304		$	365,421
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities	$	34,873		$	37,230
Accrued payroll costs	46,886			44,137
Other current liabilities	1,960			1,765
Income taxes payable	—			221
Total current liabilities	83,719			83,353
Long-term debt – credit facility	116,523			111,547
Long-term debt – other	2,597			3,984
Other long-term liabilities	47,188			44,801
Total liabilities	250,027			243,685
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding	—			—
Common stock, $0.01 par; 250,000 shares authorized, 71,494 and 71,268 issued, respectively	715			713
Additional paid-in capital	437,394			428,212
Accumulated other comprehensive income	100			184
Retained earnings	195,143			174,967
Treasury stock, at cost; 45,167 and 44,469 shares, respectively	(499,075		)	(482,340		)
Total stockholders’ equity	134,277			121,736
Total liabilities and stockholders’ equity	$	384,304		$	365,421

The accompanying notes are an integral part of these consolidated financial statements.

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KFORCE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(IN THOUSANDS)



	YEARS ENDED DECEMBER 31,
	2017			2016			2015
Common stock – shares:
Shares at beginning of year	71,268			70,558			70,029
Issuance for stock-based compensation and dividends, net of forfeitures	221			695			497
Exercise of stock options	5			15			32
Shares at end of year	71,494			71,268			70,558
Common stock – par value:
Balance at beginning of year	$	713		$	705		$	700
Issuance for stock-based compensation and dividends, net of forfeitures	2			8			5
Exercise of stock options	—			—			—
Balance at end of year	$	715		$	713		$	705
Additional paid-in capital:
Balance at beginning of year	$	428,212		$	420,276		$	412,642
Cumulative effect upon adoption of new accounting standard (Note 1)	769			—			—
Issuance for stock-based compensation and dividends, net of forfeitures	494			447			556
Exercise of stock options	72			172			381
Income tax benefit from stock-based compensation	—			307			551
Stock-based compensation expense	7,600			6,705			5,819
Employee stock purchase plan	247			305			327
Balance at end of year	$	437,394		$	428,212		$	420,276
Accumulated other comprehensive income (loss):
Balance at beginning of year	$	184		$	318		$	(371	)
Defined benefit pension plans, net of tax benefit of $207 and $89, and tax expense of $429, respectively	(373		)	(134		)	689
Change in fair value of interest rate swap, net of tax of $189	289			—			—
Balance at end of year	$	100		$	184		$	318
Retained earnings:
Balance at beginning of year	$	174,967		$	155,096		$	125,378
Cumulative effect upon adoption of new accounting standard (Note 1), net of tax of $300	(469		)	—			—
Net income	33,285			32,773			42,824
Dividends, net of forfeitures ($0.48, $0.48 and $0.45 per share, respectively)	(12,640		)	(12,902		)	(13,106		)
Balance at end of year	$	195,143		$	174,967		$	155,096
Treasury stock – shares:
Shares at beginning of year	44,469			42,130			40,616
Repurchases of common stock	723			2,370			1,540
Shares tendered in payment of the exercise price of stock options	—			3			—
Employee stock purchase plan	(25		)	(34		)	(26		)
Shares at end of year	45,167			44,469			42,130
Treasury stock – cost:
Balance at beginning of year	$	(482,340	)	$	(436,768	)	$	(398,961	)
Repurchases of common stock	(17,010		)	(45,873		)	(38,058		)
Shares tendered in payment of the exercise price of stock options	—			(63		)	—
Employee stock purchase plan	275			364			251
Balance at end of year	$	(499,075	)	$	(482,340	)	$	(436,768	)

The accompanying notes are an integral part of these consolidated financial statements.

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KFORCE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)



	YEARS ENDED DECEMBER 31,
	2017			2016			2015
Cash flows from operating activities:
Net income	$	33,285		$	32,773		$	42,824
Adjustments to reconcile net income to cash provided by operating activities:
Deferred income tax provision, net	12,243			2,007			2,380
Provision for bad debt	1,031			976			1,553
Depreciation and amortization	8,508			8,796			9,849
Stock-based compensation expense	7,600			6,705			5,819
Defined benefit pension plans expense	937			1,733			1,846
Loss on deferred compensation plan investments, net	510			597			77
Gain on sale of Global's assets	(3,148		)	—			—
Contingent consideration liability remeasurement	565			(42		)	321
Other	888			321			308
(Increase) decrease in operating assets
Trade receivables, net	(20,535		)	(8,403		)	4,223
Income tax refund receivable	(6,944		)	354			2,785
Prepaid expenses and other current assets	(1,471		)	(1,631		)	1,110
Other assets, net	(556		)	(495		)	(298		)
(Decrease) increase in operating liabilities
Accounts payable and other current liabilities	(1,537		)	(1,920		)	1,788
Accrued payroll costs	1,954			(1,320		)	(5,503		)
Income taxes payable	(221		)	(489		)	(1,657		)
Other long-term liabilities	(3,770		)	(139		)	3,306
Cash provided by operating activities	29,339			39,823			70,731
Cash flows from investing activities:
Capital expenditures	(5,846		)	(12,420		)	(8,328		)
Proceeds from sale of Global's assets	1,000			—			—
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	(4,846		)	(12,420		)	(8,364		)
Cash flows from financing activities:
Proceeds from credit facility	1,038,593			937,083			604,668
Payments on credit facility	(1,033,617		)	(906,008		)	(617,529		)
Proceeds from other financing arrangements	—			1,783			2,914
Payments on other financing arrangements	(2,148		)	(1,830		)	(1,274		)
Payments of loan financing fees	(1,730		)	(158		)	—
Proceeds from exercise of stock options, net of shares tendered in payment of exercise	72			172			381
Repurchases of common stock	(14,622		)	(46,013		)	(38,471		)
Cash dividend	(12,144		)	(12,447		)	(12,545		)
Other	—			—			(252		)
Cash used in financing activities	(25,596		)	(27,418		)	(62,108		)
Change in cash and cash equivalents	(1,103		)	(15		)	259
Cash and cash equivalents at beginning of year	1,482			1,497			1,238
Cash and cash equivalents at end of year	$	379		$	1,482		$	1,497

The accompanying notes are an integral part of these consolidated financial statements.

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KFORCE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements have been prepared in conformity with U.S. GAAP and the rules of the SEC.

Principles of Consolidation

The consolidated financial statements include the accounts of Kforce Inc. and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. References in this document to “Kforce,” “the Company,” “we,” “the Firm,” “management,” “our” or “us” refer to Kforce Inc. and its subsidiaries, except where the context indicates otherwise.

Use of Estimates

The preparation of financial statements in conformity with U.S. 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 trade accounts receivable reserves; income taxes; self-insured liabilities for workers’ compensation and health insurance; obligations for defined benefit pension plans and goodwill and identifiable intangible assets and any related impairment. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.

Revenue Recognition

Revenue is considered earned once evidence of an arrangement has been obtained, service is performed or delivery has occurred, fees are fixed or determinable, and collectability is reasonably assured. Kforce’s primary sources of revenues are Flex and Direct Hire.

Flex revenues are recognized as the temporary staffing services are provided by Kforce’s consultants. Flex revenues are recorded net of credits, discounts, rebates and revenue-related reserves. Reimbursements of travel and out-of-pocket expenses (“billable expenses”) are also recorded within Flex revenues with an equivalent amount of expense recorded in direct costs of services.

Direct Hire revenues are recognized when candidates accept offers of permanent employment and are scheduled to commence employment within 30 days . Direct Hire revenues are recorded net of an estimated reserve for fallouts, which is estimated based on Kforce’s historical fallout experience. Fallouts occur when a candidate does not remain employed with the client through the contingency period, which is typically 90 days or less. Our GS segment does not generate any Direct Hire revenues.

Our GS segment generates its revenues under contracts that are, in general, greater in duration than our other segments and which can often span several years, inclusive of renewal periods. Our GS segment, which represents approximately 8% of total revenues, generates revenues under the following contract arrangements:


•	Revenues for time-and-materials contracts, which accounts for approximately 58% of this segment’s revenue, are recognized based on contractually established billing rates at the time services are provided.

•

Revenues for fixed-price contracts are recognized on the basis of the estimated percentage-of-completion. Approximately 30% of this segment’s revenues are recognized under this method. Progress towards completion is typically measured based on costs incurred as a proportion of estimated total costs or other measures of progress when applicable. Profit in a given period is reported at the expected profit margin to be achieved on the overall contract.


•	Revenues for the product-based business, which accounts for approximately 12% of this segment’s revenues, are recognized at the time of delivery.

Kforce collects sales tax for various taxing authorities and our policy is to record these amounts on a net basis; thus, gross sales tax amounts are not included in net service revenues.

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Direct Costs of Services

Direct costs of services are composed of all related costs of employment for consultants, including compensation, payroll taxes, payroll-related insurance and certain fringe benefits, as well as subcontractor costs. Direct costs of services exclude depreciation and amortization expense (except for the GS product-based business), which is presented on a separate line in the accompanying Consolidated Statements of Operations and Comprehensive Income.

Commissions

Our associates make placements and earn commissions as a percentage of gross profit for Flex or Direct Hire revenues pursuant to a commission plan. The amount of associate commissions paid increases as volume increases. Kforce accrues commissions at a percentage equal to the percent of total expected commissions payable to total revenues or gross profit for the commission-plan period, as applicable.

Stock-Based Compensation

Stock-based compensation is measured using the grant-date fair value of the award of equity instruments. The expense is recognized over the requisite service period. Effective January 1, 2017, as a result of our adoption of a recently issued accounting standard, the Firm changed its accounting policy regarding forfeitures and elected to recognize as incurred.

Income Taxes

Kforce accounts for income taxes using the asset and liability approach to the recognition of deferred tax assets and liabilities for the expected future tax consequences of differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Unless it is more likely than not that a deferred tax asset can be utilized to offset future taxes, a valuation allowance is recorded against that asset. Effective January 1, 2017, as a result of our adoption of a recently issued accounting standard, excess tax benefits or deficiencies of deductions attributable to employees’ vesting of restricted stock are reflected in Income tax expense in the accompanying Consolidated Statements of Operations and Comprehensive Income.

Management evaluates tax positions that have been taken or are expected to be taken in its tax returns and records a liability for uncertain tax positions. Kforce recognizes tax benefits from uncertain tax positions when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes.

Cash and Cash Equivalents

Kforce classifies all highly liquid investments with an original initial maturity of three months or less as cash equivalents. Cash and cash equivalents consist of cash on hand with banks, either in commercial accounts, or overnight interest-bearing money market accounts and at times may exceed federally insured limits. Cash and cash equivalents are stated at cost, which approximates fair value due to the short duration of their maturities.

Trade Accounts Receivable and Related Reserves

Kforce records trade accounts receivables at the invoiced amount, net of reserves for allowance for doubtful accounts, fallouts, early payment discounts and revenue adjustments based on historical trends and estimates of potential future activity. The allowance for doubtful accounts, which comprises a majority of our trade accounts receivable reserves, is determined based on factors including recent write-off and delinquency trends, a specific analysis of significant receivable balances that are past due, the concentration of trade accounts receivables among clients and higher-risk sectors, and the current state of the U.S. economy. Trade accounts receivables are written off after all reasonable collection efforts have been exhausted. Trade accounts receivable reserves as a percentage of gross trade receivables was 1.0% at December 31, 2017 and 2016 .

Fixed Assets

Fixed assets are carried at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The cost of leasehold improvements is amortized using the straight-line method over the lesser of the estimated useful lives of the assets or the terms of the related leases, which generally range from three to five years. Upon sale or disposition of our fixed assets, the cost and accumulated depreciation are removed and any resulting gain or loss, net of proceeds, is reflected within SG&A in the Consolidated Statements of Operations and Comprehensive Income.

Leases

Leases for our field offices, which are located throughout the U.S., range from three to five -year terms although a limited number of leases contain short-term renewal provisions that range from month-to-month to one year .

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For leases that contain escalations of the minimum rent, we recognize the related rent expense on a straight-line basis over the lease term. We record any difference between the straight-line rent amounts and amounts payable under the leases as a deferred rent liability in Accounts payable and other accrued liabilities or Other long-term liabilities, as appropriate, in the Consolidated Balance Sheets.

The Company records incentives provided by landlords for leasehold improvements in Accounts payable and other accrued liabilities or Other long-term liabilities, as appropriate, in the Consolidated Balance Sheets and records a corresponding reduction in rent expense on a straight-line basis over the lease term.

Goodwill and Other Intangible Assets

Goodwill

Management has determined that the reporting units for the goodwill analysis is consistent with our reporting segments. We evaluate goodwill for impairment either through a qualitative or quantitative approach annually, or more frequently if an event occurs or circumstances change that indicate the carrying value of a reporting unit may not be recoverable. If we perform a quantitative assessment that indicates the carrying amount of a reporting unit exceeds its fair market value, an impairment loss is recognized to reduce the carrying amount to its fair market value. Kforce determines the fair market value of each reporting unit based on a weighting of the present value of projected future cash flows (the “income approach”) and the use of comparative market approaches under both the guideline company method and guideline transaction method (collectively, the “market approach”). Fair market value using the income approach is based on Kforce’s estimated future cash flows on a discounted basis. The market approach compares each reporting unit to other comparable companies based on valuation multiples derived from operational and transactional data to arrive at a fair value. Factors requiring significant judgment include, among others, the assumptions related to discount rates, forecasted operating results, long-term growth rates, the determination of comparable companies, and market multiples. Changes in economic and operating conditions or changes in Kforce’s business strategies that occur after the annual impairment analysis may impact these assumptions and result in a future goodwill impairment charge, which could be material to our consolidated financial statements.

Other Intangible Assets

Identifiable intangible assets arising from certain of Kforce’s acquisitions include non-compete and employment agreements, contractual relationships, client contracts, technology, and a trade name and trademark. Our trade names and trademarks, and derivatives thereof, and GS’s Data Confidence trademark are important to our business. Our primary trade names and trademark are registered with the U.S. Patent and Trademark Office.

For definite-lived intangible assets, amortization is computed using the straight-line method over the period of expected benefit, which ranges from one to fifteen years . The impairment evaluation for indefinite-lived intangible assets, our trademark and trade name, is conducted on an annual basis or more frequently if events or changes in circumstances indicate that an asset may be impaired.

Impairment of Long-Lived Assets

Kforce reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of long-lived assets is measured by a comparison of the carrying amount of the asset group to the future undiscounted net cash flows expected to be generated by those assets. If an analysis indicates the carrying amount of these long-lived assets exceeds the fair value, an impairment loss is recognized to reduce the carrying amount to its fair market value, as determined based on the present value of projected future cash flows.

Capitalized Software

Kforce purchases, develops, and implements software to enhance the performance of our technology infrastructure. Direct internal costs, such as payroll and payroll-related costs, and external costs incurred during the development stage are capitalized and classified as capitalized software. Capitalized software development costs and the associated accumulated amortization are classified as Other assets, net in the accompanying Consolidated Balance Sheets. Amortization is computed using the straight-line method over the estimated useful lives of the software, which range from one to seven years.

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Workers’ Compensation

Kforce retains the economic burden for the first $250 thousand per occurrence in workers’ compensation claims except: (1) in states that require participation in state-operated insurance funds and (2) for Kforce Government Solutions, Inc. which is fully insured for workers’ compensation claims. Workers’ compensation includes ongoing health care and indemnity coverage for claims and may be paid over numerous years following the date of injury. Workers’ compensation expense includes insurance premiums paid, claims administration fees charged by Kforce’s workers’ compensation administrator, premiums paid to state-operated insurance funds and an estimate for Kforce’s liability for IBNR claims and for the ongoing development of existing claims.

Kforce estimates its workers’ compensation liability based upon historical claims experience, actuarially determined loss development factors, and qualitative considerations such as claims management activities.

Health Insurance

Except for certain fully insured health insurance lines of coverage, Kforce retains the risk of loss for each health insurance plan participant up to $350 thousand in claims annually. Additionally, for all claim amounts exceeding $350 thousand , Kforce retains the risk of loss up to an aggregate annual loss of those claims of $700 thousand . For its partially self-insured lines of coverage, health insurance costs are accrued using estimates to approximate the liability for reported claims and IBNR claims, which are primarily based upon an evaluation of historical claims experience, actuarially-determined completion factors and a qualitative review of our health insurance exposure including the extent of outstanding claims and expected changes in health insurance costs.

Defined Benefit Pension Plans

Kforce recognizes the unfunded status of its defined benefit pension plans as a liability in its Consolidated Balance Sheets. Because our plans are unfunded as of December 31, 2017 , actuarial gains and losses may arise as a result of the actuarial experience of the plans, as well as changes in actuarial assumptions in measuring the associated obligation as of year-end, or an interim date if any re-measurement is necessary. The net after-tax impact of unrecognized actuarial gains and losses related to our defined benefit pensions plans is recorded in accumulated other comprehensive income (loss) in our consolidated financial statements.

Amortization of a net unrecognized gain or loss in accumulated other comprehensive income (loss) is included as a component of net periodic benefit cost if, as of the beginning of the year, that net gain or loss exceeds 10% of the projected benefit obligation. If amortization is required, the minimum amortization shall be that excess divided by the average remaining service period of active plan participants.

Earnings per Share

Basic earnings per share is computed as net income divided by the weighted average number of common shares outstanding (“WASO”) during the period. WASO excludes unvested shares of restricted stock. Diluted earnings per share is computed by dividing net income by diluted WASO. Diluted WASO includes the dilutive effect of 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 years ended December 31, 2017 , 2016 and 2015 , there were 364 thousand , 175 thousand , and 280 thousand common stock equivalents, respectively, included in the diluted WASO. For the years ended December 31, 2017 , 2016 and 2015 , there were 527 thousand , 32 thousand and 1 thousand , respectively, of anti-dilutive common stock equivalents.

Treasury Stock

Kforce’s Board may authorize share repurchases of Kforce’s common stock. Shares repurchased under Board authorizations are held in treasury for general corporate purposes, including issuances under the 2009 Employee Stock Purchase Plan. Treasury shares are accounted for under the cost method and reported as a reduction of stockholders’ equity in the accompanying consolidated financial statements.

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Derivative Instrument

Kforce’s interest rate swap derivative instrument is recorded at fair value on the Consolidated Balance Sheets. The derivative instrument has been designated as a cash flow hedge; the effective portion of the gain or loss on the derivative instrument is recorded as a component of Accumulated other comprehensive income (loss), net of tax, and reclassified into earnings when the hedged item affects earnings and into the line item of the hedged item. Any ineffective portion of the gain or loss is recognized immediately into Other expense, net on the Consolidated Statements of Operations and Comprehensive Income. Cash flows from the derivative instrument are classified in the Consolidated Statements of Cash Flows in the same category as the hedged item.

Fair Value Measurements

Kforce uses fair value measurements in areas that include, but are not limited to: the impairment testing of goodwill, other intangible assets and other long-lived assets; stock-based compensation; interest rate swap and a contingent consideration liability. The carrying values of cash and cash equivalents, trade accounts receivable, other current assets and accounts payable, and other liabilities approximate fair value because of the short-term nature of these instruments. Using available market information and appropriate valuation methodologies, Kforce has determined the estimated fair value measurements; however, considerable judgment is required in interpreting data to develop the estimates of fair value.

New Accounting Standards

Recently Adopted Accounting Standards

In March 2017, the FASB issued authoritative guidance requiring that an employer disaggregate the service cost component from the other components of net periodic benefit cost for defined benefit pension plans. The amendments also provide explicit guidance on how to present the service cost component and the other components of net periodic benefit cost in the income statement. The guidance is to be applied for annual periods beginning after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted. The guidance should be applied retrospectively for the presentation of the service cost component and the other components of net periodic benefit cost in the income statements. We elected to early adopt this guidance as of January 1, 2017 due to the ease of implementation. The impact of early adoption resulted in a retrospective adjustment to the Consolidated Statements of Operations and Comprehensive Income to reclass the interest cost component of net periodic benefit cost from Selling, general and administrative expenses to Other expense, net. The amount of the reclassification was approximately $0.5 million , $0.5 million and $0.4 million for the years ended December 31, 2017 , 2016 and 2015 , respectively.

In January 2017, the FASB issued authoritative guidance simplifying the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under this guidance, an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The guidance is to be applied for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The guidance requires companies to apply the requirements prospectively. We elected to early adopt this guidance as of January 1, 2017. The adoption of this guidance did not have an impact on the Firm’s consolidated financial statements.

In March 2016, the FASB issued authoritative guidance regarding the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liability, and classification in the statement of cash flows. This guidance was effective for us on January 1, 2017. The impact of this guidance resulted in the following:

• All excess tax benefits and deficiencies will be recognized as income tax benefit or expense in the income statement. Prior to the effective date, they were recognized as a change to additional paid-in capital. The Firm applied this amendment prospectively. For the year ended December 31, 2017 , the Firm recorded approximately $0.8 million of excess tax benefits as a reduction to income tax expense in the accompanying Consolidated Statements of Operations and Comprehensive Income. This resulted in a reduction to our effective tax rate of 1.2% and an increase to our diluted earnings per share of $0.03 for the year ended December 31, 2017 . This accounting standard guidance is likely to create volatility in the Firm’s effective tax rate in the future, though the impact is uncertain and based upon future stock price changes.

• Excess tax benefits and deficiencies will be classified as an operating activity in the statement of cash flows. Prior to the effective date, they were included in financing activities in the statement of cash flows. The Firm elected to apply this amendment retrospectively. This change increased our net cash provided by operating activities by $0.8 million , $0.4 million and $0.6 million for the years ended December 31, 2017 , 2016 and 2015 , respectively, in the accompanying Consolidated Statements of Cash Flows.

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• An entity is allowed to make a policy election as to whether it will include an estimate for awards expected to be forfeited or whether it will account for forfeitures as incurred. The Firm elected to change its policy on accounting for forfeitures and to recognize as incurred. This policy election is to be applied using a modified retrospective approach with a cumulative-effect adjustment to retained earnings as of the effective date. The impact to the beginning balance of retained earnings was $0.5 million , which is net of taxes of $0.3 million , on January 1, 2017.

In November 2015, the FASB issued authoritative guidance requiring that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. This guidance was effective for us on January 1, 2017. The Firm elected to apply this guidance retrospectively. As a result, $4.8 million of current deferred tax assets, net was reclassified to noncurrent deferred tax assets, net as of December 31, 2016 .

Accounting Standards Not Yet Adopted

In August 2017, the FASB issued authoritative guidance targeting improvements to accounting for hedging activities by simplifying the rules around hedge accounting and improving the disclosure requirements. The guidance is to be applied for annual periods beginning after December 15, 2018, including interim periods within those annual periods, and early adoption is permitted in any interim period. The hedge accounting guidance should be implemented using a modified retrospective approach for any hedges that exist on the date of adoption, while the presentation and disclosure requirements must be applied prospectively. Kforce is currently evaluating the potential impact on the consolidated financial statements.

In June 2016, the FASB issued authoritative guidance on accounting for credit losses on financial instruments, including trade receivables. The guidance requires the application of a current expected credit loss model, which measures credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts. The guidance is to be applied for annual periods beginning after December 15, 2019, and interim periods within those annual periods, and early adoption is permitted no sooner than annual periods beginning after December 15, 2018. The guidance requires companies to apply the requirements using a modified retrospective approach. Kforce is currently evaluating the potential impact on the consolidated financial statements.

In February 2016, the FASB issued authoritative guidance regarding the accounting for leases. The guidance is to be applied for annual periods beginning after December 15, 2018, and interim periods within those annual periods, and early adoption is permitted. The guidance requires companies to apply the requirements retrospectively to all prior periods presented, including interim periods. Kforce elected not to adopt this standard early. The Firm has made progress with assessing contractual arrangements that may be impacted by the new standard. Kforce anticipates that the adoption of this standard will have a significant impact to its consolidated balance sheet as it will result in recording substantially all operating leases as a right-to-use asset and lease obligation. Kforce continues to assess all potential impacts of the standard, especially with respect to our disclosures.

In May 2014, the FASB issued authoritative guidance regarding revenue from contracts with customers, which specifies that revenue should be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued authoritative guidance deferring the effective date of the new revenue standard by one year for all entities. The one-year deferral results in the guidance being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 and entities are not permitted to adopt the standard earlier than the original effective date. Since May 2014, the FASB has issued additional and amended authoritative guidance regarding revenue from contracts with customers to clarify and improve the understanding of the implementation guidance. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. We have selected the modified retrospective transition method. We have completed our assessment and have concluded that it will not have a material impact on the timing of our revenue recognition as substantially all of our contracts with customers will continue to be recognized over time as services are rendered. Upon adoption, we will recognize the cumulative effect of adopting this guidance as an adjustment to our opening balance of retained earnings, net of tax, primarily related to certain GS contracts; this adjustment will be approximately $0.2 million . We will also reclassify the allowance for Direct Hire fallouts from trade accounts receivable to a contract liability on the consolidated balance sheets. Additionally, there will be an increase in the level of disclosure around our arrangements and resulting revenue recognition.

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2. Fixed Assets

The following table presents major classifications of fixed assets and related useful lives (in thousands):



		DECEMBER 31,
	USEFUL LIFE	2017			2016
Land		$	5,892		$	5,892
Building and improvements	5-40 years	25,733			25,701
Furniture and equipment	5-20 years	17,285			17,084
Computer equipment	3-5 years	9,231			11,003
Leasehold improvements	3-5 years	13,424			13,345
		71,565			73,025
Less accumulated depreciation		(31,885		)	(29,880		)
Total Fixed assets, net		$	39,680		$	43,145

Computer equipment as of December 31, 2017 and 2016 includes equipment acquired under capital leases of $3.5 million and $4.0 million , respectively, and related accumulated depreciation of $2.1 million and $2.3 million , respectively. Depreciation expense, which includes capital leases, during the years ended December 31, 2017 , 2016 and 2015 was $6.9 million , $6.7 million , and $6.7 million , respectively.

3. Income Taxes

The Tax Cuts and Jobs Act was enacted in December 2017, which will reduce the U.S. federal corporate tax rate from 35.0% to 21.0% beginning in 2018. As a result, we revalued our net deferred income tax assets and recorded $5.4 million of additional Income tax expense in the Consolidated Statement of Operations and Comprehensive Income.

The provision for income taxes from continuing operations consists of the following (in thousands):



	YEARS ENDED DECEMBER 31,
	2017		2016		2015
Current tax expense:
Federal	$	15,060	$	16,677	$	22,265
State	3,244		3,829		4,632
Deferred tax expense (1)	12,505		2,676		1,951
Total Income tax expense	$	30,809	$	23,182	$	28,848

(1) Includes the impact of TCJA.

The provision for income taxes from continuing operations shown above varied from the statutory federal income tax rate for those periods as follows:



	YEARS ENDED DECEMBER 31,
	2017		2016		2015
Federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of Federal tax effect	3.8		6.8		6.1
Non-deductible compensation and meals and entertainment	0.7		1.2		0.7
Tax credits	(2.2	)	(2.1	)	(1.0	)
Valuation allowance on foreign tax credit	2.5		—		—
Enactment of TCJA	9.1		—		—
Other	(0.8	)	0.5		(0.5	)
Effective tax rate	48.1	%	41.4	%	40.3	%

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The 2017 effective tax rate was unfavorably impacted due to the revaluation of our net deferred tax assets as a result of TCJA. The 2016 effective tax rate was unfavorably impacted by certain one-time non-cash adjustments. The 2015 effective tax rate was unfavorably impacted by a change in the overall mix of income in the various state jurisdictions and the increase in particular uncertain tax positions.

Deferred tax assets and liabilities are composed of the following (in thousands):



	DECEMBER 31,
	2017			2016
Deferred tax assets:
Accounts receivable reserves	$	611		$	812
Accrued liabilities	1,953			3,400
Deferred compensation obligation	5,423			9,206
Stock-based compensation	598			2,196
Pension and post-retirement benefit plans	3,767			6,029
Goodwill and intangible assets	526			3,869
Foreign tax credit	1,632			—
Other	289			230
Deferred tax assets	14,799			25,742
Deferred tax liabilities:
Prepaid expenses	(251		)	(260		)
Fixed assets	(1,482		)	(1,593		)
Other	(17		)	(355		)
Deferred tax liabilities	(1,750		)	(2,208		)
Valuation allowance	(1,733		)	(85		)
Deferred tax assets, net	$	11,316		$	23,449

At December 31, 2017 , Kforce had approximately $6.1 million of state tax net operating losses (“NOLs”) which will be carried forward to be offset against future state taxable income. The state tax NOLs expire in varying amounts through 2033.

In evaluating the realizability of Kforce’s deferred tax assets, management assesses whether it is more likely than not that some portion, or all, of the deferred tax assets, will be realized. Management considers, among other things, the ability to generate future taxable income (including reversals of deferred tax liabilities) during the periods in which the related temporary differences will become deductible. The increase in the valuation allowance during the year ended December 31, 2017 was related to the foreign tax credit, which we expect may not be realizable as a result of reduction in our foreign income.

Kforce is periodically subject to IRS audits, as well as state and other local income tax audits for various tax years. During 2017 and 2016 , there were no on-going IRS examinations. Although Kforce has not experienced any material liabilities in the past due to income tax audits, Kforce can make no assurances concerning any future income tax audits.

Uncertain Income Tax Positions

The following table presents a reconciliation of the beginning and ending balance of unrecognized tax benefits for the years ended (in thousands):



	DECEMBER 31,
	2017			2016			2015
Unrecognized tax benefits, beginning	$	1,115		$	788		$	278
Additions for prior year tax positions	50			454			625
Additions for current year tax positions	29			—			—
Reductions for tax positions of prior years	—			(25		)	(8		)
Lapse of statute of limitations	(67		)	(102		)	(25		)
Settlements	—			—			(82		)
Unrecognized tax benefits, ending	$	1,127		$	1,115		$	788

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As of December 31, 2017 , the amount of unrecognized tax benefit that would impact the effective tax rate, if recognized, is $0.7 million . Kforce does not expect any significant changes to its uncertain tax positions in the next 12 months.

Kforce and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states. Kforce Global Solutions, Inc. files income tax returns in the Philippines. With a few exceptions, Kforce is no longer subject to federal, state, local, or non-U.S. income tax examinations by tax authorities for years before 2014.

4. Goodwill and Other Intangible Assets

Goodwill

The following table presents the gross amount and accumulated impairment losses for each of our reporting units as of December 31, 2017 , 2016 and 2015 (in thousands):



	Technology			Finance and Accounting			Government Solutions			Total
Goodwill, gross amount	$	156,391		$	19,766		$	104,596		$	280,753
Accumulated impairment losses	(139,357		)	(11,760		)	(83,668		)	(234,785		)
Goodwill, carrying value	$	17,034		$	8,006		$	20,928		$	45,968

There was no impairment expense related to goodwill for each of the years ended December 31, 2017 , 2016 and 2015 .

Throughout 2017 , we considered the qualitative and quantitative factors associated with each of our reporting units and determined that there was no indication that the carrying values of any of our reporting units were likely impaired.

Kforce performed a quantitative analysis for each reporting unit and compared the carrying value of Tech, FA and GS to the respective estimated fair values as of December 31, 2017. Discounted cash flows, which serve as the primary basis for the income approach, were based on a discrete financial forecast developed by management. Cash flows beyond the discrete forecast period of five years were estimated using a terminal value calculation, which incorporated historical and forecasted financial trends and also considered long-term earnings growth rates for publicly-traded peer companies, as well as the risk-free rate of return. The market approach consist of: (1) the guideline company method and (2) the guideline transaction method. The guideline company method applies pricing multiples derived from publicly-traded guideline companies that are comparable to the reporting unit to determine its value. The guideline transaction method applies pricing multiples derived from recently completed acquisitions that we believe are reasonably comparable to the reporting unit to determine fair value. Kforce concluded there were no indications of impairment for its reporting units during the December 31, 2017 annual impairment tests.

As of December 31, 2016 and 2015, for our GS reporting unit, we performed a quantitative analysis and compared the carrying value to the estimated fair value, using a similar approach as described above noting no indications of impairment. As of December 31, 2016 and 2015, for our Tech and FA reporting units, we assessed qualitative factors to determine whether the existence of events or circumstances indicated that it was more likely than not that the fair value of the reporting units was less than its carrying amount. We concluded that it was more likely than not that the fair value of the reporting units were more than its carrying amount.

Other Intangible Assets

Our other intangible assets balance includes an indefinite-lived trademark of $2.2 million as of December 31, 2017 and 2016 and is recorded in Intangible assets, net in the accompanying Consolidated Balance Sheets. As of December 31, 2017 and 2016 , our definite-lived intangible assets balance of $1.1 million and $1.4 million , respectively, included accumulated amortization of $27.5 million and $27.2 million , respectively. There was no impairment expense related to our other intangible assets during the years ended December 31, 2017 , 2016 and 2015 .

5. Accounts Payable and Other Accrued Liabilities

Accounts payable and other accrued liabilities consisted of the following (in thousands):



	DECEMBER 31,
	2017		2016
Accounts payable	$	21,591	$	20,321
Accrued liabilities	13,282		16,909
Total Accounts payable and other accrued liabilities	$	34,873	$	37,230

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Our accounts payable balance includes trade creditor and independent contractor payables. Our accrued liabilities balance includes the current portion of our deferred compensation plans liability, accrued customer rebates and other accrued liabilities.

6. Accrued Payroll Costs

Accrued payroll costs consisted of the following (in thousands):



	DECEMBER 31,
	2017		2016
Payroll and benefits	$	37,788	$	37,409
Payroll taxes	5,270		2,640
Health insurance liabilities	2,596		2,790
Workers’ compensation liabilities	1,232		1,298
Total Accrued payroll costs	$	46,886	$	44,137

7. Employee Benefit Plans

401(k) Savings Plans

The Firm maintains various qualified defined contribution 401(k) retirement savings plans for eligible employees. Assets of these plans are held in trust for the sole benefit of employees and/or their beneficiaries. Employer matching contributions are discretionary and are funded annually as approved by Kforce’s Board.

Kforce accrued matching 401(k) contributions of $1.6 million and $1.5 million as of December 31, 2017 and 2016 , respectively. The plans held a combined 167 thousand and 201 thousand shares of Kforce’s common stock as of December 31, 2017 and 2016 , respectively.

Employee Stock Purchase Plan

Kforce’s employee stock purchase plan allows all eligible employees to enroll each quarter to purchase Kforce’s common stock at a 5% discount from its market price on the last day of the quarter. Kforce issued 25 thousand , 34 thousand , and 26 thousand shares of common stock at an average purchase price of $20.65 , $19.37 , and $22.61 per share during the years ended December 31, 2017 , 2016 and 2015 , respectively. All shares purchased under the employee stock purchase plan were settled using Kforce’s treasury stock.

Deferred Compensation Plans

The Firm maintains various non-qualified deferred compensation plans, pursuant to which eligible management and highly compensated key employees, as defined by IRS regulations, may elect to defer all or part of their compensation to later years. These amounts are classified in Accounts payable and other accrued liabilities if payable within the next year or in Other long-term liabilities if payable after the next year, upon retirement or termination of employment in the accompanying Consolidated Balance Sheets. At December 31, 2017 and 2016 , amounts included in Accounts payable and other accrued liabilities related to the deferred compensation plans totaled $2.9 million and $2.7 million , respectively. Amounts included in Other long-term liabilities related to the deferred compensation plans totaled $28.9 million and $27.5 million as of December 31, 2017 and 2016 , respectively. For the years ended December 31, 2017 , 2016 and 2015 , we recognized compensation expense for the plans of $722 thousand , $881 thousand and $401 thousand , respectively. Kforce maintains a Rabbi Trust and holds life insurance policies on certain individuals to assist in the funding of the deferred compensation liability. If necessary, employee distributions are funded through proceeds from the sale of assets held within our Rabbi Trust. The balance of the assets within the Rabbi Trust, including the cash surrender value of the Company-owned life insurance policies, was $31.4 million and $27.3 million as of December 31, 2017 and 2016 , respectively, and is recorded in Other assets, net in the accompanying Consolidated Balance Sheets. As of December 31, 2017 , the life insurance policies had a cumulative face value of $213.1 million . Kforce had no realized gains or losses attributable to investments in trading securities for the years ended December 31, 2017 , 2016 and 2015 .

Supplemental Executive Retirement Plan

Kforce maintains a SERP for the benefit of certain executive officers. The primary goals of the SERP are to create an additional wealth accumulation opportunity, restore lost qualified pension benefits due to government limitations and retain our covered executive officers. The SERP is a non-qualified benefit plan and does not include elective deferrals of covered executive officers’ compensation.

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Normal retirement age under the SERP is defined as age 65 ; however, certain conditions allow for early retirement as early as age 55 or upon a change in control. Vesting under the plan is defined as 100% upon a participant’s attainment of age 55 and 10 years of service and 0% prior to a participant’s attainment of age 55 and 10 years of service. Full vesting also occurs if a participant with five years or more of service is involuntarily terminated by Kforce without cause or upon death, disability or a change in control. The SERP will be funded entirely by Kforce, and benefits are taxable to the covered executive officer upon receipt and will be deductible by Kforce when paid. Benefits payable under the SERP upon the occurrence of a qualifying distribution event, as defined, are targeted at 45% of the covered executive officers’ average salary and bonus, as defined, from the three years in which the covered executive officer earned the highest salary and bonus during the last 10 years of employment, which is subject to adjustment for retirement prior to the normal retirement age and the participant’s vesting percentage. The benefits under the SERP are reduced for a participant that has not reached age 62 with 10 years of service or age 55 with 25 years of service with a percentage reduction up to the normal retirement age.

Benefits under the SERP are based on the lump sum present value but may be paid over the life of the covered executive officer or 10 -year annuity, as elected by the covered executive officer upon commencement of participation in the SERP. None of the benefits earned pursuant to the SERP are attributable to services provided prior to the effective date of the plan. For purposes of the measurement of the benefit obligation as of December 31, 2017 , Kforce has assumed that all participants will elect to take the lump sum present value option based on historical trends.

Actuarial Assumptions

Due to the SERP being unfunded as of December 31, 2017 and 2016 , it is not necessary for Kforce to determine the expected long-term rate of return on plan assets. The following table presents the weighted average actuarial assumptions used to determine the actuarial present value of projected benefit obligations at:



	DECEMBER 31,
	2017		2016
Discount rate	3.25	%	4.00	%
Rate of future compensation increase	2.90	%	3.60	%

The following table presents the weighted average actuarial assumptions used to determine net periodic benefit cost for the years ended:



	DECEMBER 31,
	2017		2016		2015
Discount rate	4.00	%	4.00	%	3.75	%
Rate of future compensation increase	3.60	%	4.00	%	4.00	%

The discount rate was determined using the Moody’s Aa long-term corporate bond yield as of the measurement date with a maturity commensurate with the expected payout of the SERP obligation. This rate is also compared against the Citigroup Pension Discount Curve and Liability Index to ensure the rate used is reasonable and may be adjusted accordingly. This index is widely used by companies throughout the U.S. and is considered to be one of the preferred standards for establishing a discount rate.

The assumed rate of future compensation increases is based on a combination of factors, including the historical compensation increases for its covered executive officers and future target compensation levels for its covered executive officers taking into account the covered executive officers’ assumed retirement date.

The periodic benefit cost is based on actuarial assumptions that are reviewed on an annual basis; however, Kforce monitors these assumptions on a periodic basis to ensure that they accurately reflect current expectations of the cost of providing retirement benefits.

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Net Periodic Benefit Cost

The following table presents the components of net periodic benefit cost for the years ended (in thousands):



	DECEMBER 31,
	2017		2016		2015
Service cost	$	319	$	1,310	$	1,323
Interest cost	537		453		383
Net periodic benefit cost	$	856	$	1,763	$	1,706

Changes in Benefit Obligation

The following table presents the changes in the projected benefit obligation for the years ended (in thousands):



	DECEMBER 31,
	2017		2016
Projected benefit obligation, beginning	$	13,436	$	11,337
Service cost	319		1,310
Interest cost	537		453
Actuarial experience and changes in actuarial assumptions	117		336
Projected benefit obligation, ending	$	14,409	$	13,436

There were no payments made under the SERP during the years ended December 31, 2017 and 2016 , respectively. The projected benefit obligation is recorded in Other long-term liabilities in the accompanying Consolidated Balance Sheets. The accumulated benefit obligation is the actuarial present value of all benefits attributed to past service, excluding future salary increases. The accumulated benefit obligation as of December 31, 2017 and 2016 was $14.3 million and $12.7 million , respectively.

Contributions

There is no requirement for Kforce to fund the SERP and, as a result, no contributions have been made to the SERP through the year ended December 31, 2017 . Kforce does not currently anticipate funding the SERP during the year ending December 31, 2018 .

Estimated Future Benefit Payments

Undiscounted benefit payments by the SERP, which reflect the anticipated future service of participants, expected to be paid are as follows (in thousands):



	PROJECTED ANNUAL BENEFIT PAYMENTS
2018	$	—
2019	—
2020	—
2021	12,788
2022	—
2023-2027	—
Thereafter	4,282

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8. Credit Facility

On May 25, 2017, the Firm entered into a credit agreement with Wells Fargo Bank, National Association, as administrative agent, Wells Fargo Securities, LLC, as lead arranger and bookrunner, Bank of America, N.A., as syndication agent, Regions Bank and BMO Harris Bank, N.A., as co-documentation agents, and the lenders referred to therein (the “Credit Facility”). In connection with entering into the Credit Facility, the Firm satisfied and terminated its previous credit facility in its entirety. Under the Credit Facility, the Firm will have a maximum borrowing capacity of $300.0 million , which may, subject to certain conditions and the participation of the lenders, be increased up to an aggregate additional amount of $150.0 million (the “Commitment”), which will be available to the Firm in the form of revolving credit loans, swingline loans, and letters of credit. Letters of credit and swingline loans under the Credit Facility are subject to sublimits of $10.0 million . The maturity date of the Credit Facility is May 25, 2022 . Borrowings under the Credit Facility are secured by substantially all of the tangible and intangible assets of the Firm, excluding the Firm’s corporate headquarters and certain other designated executed collateral.

Revolving credit loans under the Credit Facility will bear interest at a rate equal to: (a) the Base Rate (as described below) plus the Applicable Margin (as described below); or (b) the LIBOR Rate plus the Applicable Margin. Swingline loans under the Credit Facility will bear interest at a rate equal to the Base Rate plus the Applicable Margin. The Base Rate is the highest of: (i) the Wells Fargo Bank, National Association prime rate; (ii) the federal funds rate plus 0.50% ; or (iii) one-month LIBOR plus 1.00% , and the LIBOR Rate is reserve-adjusted LIBOR for the applicable interest period, but not less than zero. The Applicable Margin is based on the Firm’s total leverage ratio. The Applicable Margin for Base Rate loans ranges from 0.25% to 0.75% and the Applicable Margin for LIBOR Rate loans ranges from 1.25% to 1.75% . The Firm will pay a quarterly non-refundable commitment fee equal to the Applicable Margin on the average daily unused portion of the Commitment (swingline loans do not constitute usage for this purpose). The Applicable Margin for the commitment fee is based on the Firm’s total leverage ratio and ranges between 0.20% and 0.35% .

The Firm will continually be subject to certain affirmative and negative covenants including (but not limited to), the maintenance of a fixed charge coverage ratio of no less than 1.25 to 1.00 and the maintenance of a total leverage ratio of no greater than 3.25 to 1.00 . The numerator in the fixed charge coverage ratio is defined pursuant to the Credit Facility as earnings before interest expense, income taxes, depreciation and amortization, stock-based compensation expense and other permitted items pursuant to our Credit Facility (disclosed as “Consolidated EBITDA”), less cash paid for capital expenditures, income taxes and dividends. The denominator is defined as Kforce’s fixed charges such as interest expense and principal payments paid or payable on outstanding debt other than borrowings under the Credit Facility. The total leverage ratio is defined pursuant to the Credit Facility as total indebtedness divided by Consolidated EBITDA. Our ability to make distributions or repurchases of equity securities could be limited if an event of default has occurred. Furthermore, our ability to repurchase equity securities could be limited if: (a) the total leverage ratio is greater than 2.75 to 1.00 ; and (b) the Firm’s availability, inclusive of unrestricted cash, is less than $25.0 million . At December 31, 2017 , Kforce was not limited in making distributions and executing repurchases of its equity securities.

As of December 31, 2017 , $116.5 million was outstanding and $180.3 million was available under the Credit Facility, subject to the covenants described above. Kforce has $3.2 million of outstanding letters of credit at December 31, 2017 which, pursuant to the Credit Facility, reduce the availability. As of December 31, 2016 , $111.5 million was outstanding under the previous credit facility.

9. Derivative Instrument and Hedging Activity

Kforce is exposed to interest rate risk as a result of our corporate borrowing activities. The Firm uses an interest rate swap derivative as a risk management tool to mitigate the potential impact of interest rate risk on our financial results.

On April 21, 2017, Kforce entered into a forward-starting interest rate swap agreement with Wells Fargo Bank, N.A. The Swap rate is 1.81% , which is added to our interest rate margin to determine the fixed rate that the Firm will pay to the counterparty during the term of the Swap based on the notional amount of the Swap. The effective date of the Swap is May 31, 2017 and the maturity date is April 29, 2022. The notional amount of the Swap is $65.0 million for the first three years and decreases to $25.0 million for years four and five. The Swap is recorded in Other long-term liabilities within the accompanying Consolidated Balance Sheets.

The Swap has been designated as a cash flow hedge and was effective as of December 31, 2017 . The change in the fair value of the Swap was recorded as a component of Accumulated other comprehensive income (loss), net of tax, in the Consolidated Statements of Operations and Comprehensive Income. As of December 31, 2017 , the fair value of the Swap was a $0.5 million asset.

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10. Fair Value Measurements

Kforce’s interest rate swap is measured at fair value using readily observable inputs, such as the LIBOR interest rate. The inputs used to calculate the fair value of the Swap derivative instrument are considered to be Level 2 inputs. The Swap is recorded in Other assets, net within the accompanying Consolidated Balance Sheets. Refer to Note 9 - “Derivative Instrument and Hedging Activity” in the Notes to the Consolidated Financial Statements, included in this report for a complete discussion of the Firm’s derivative instrument.

Kforce has a contingent consideration liability related to a non-significant acquisition of a business within our GS reporting segment, which is measured on a recurring basis and is recorded at fair value, determined using the discounted cash flow method. The inputs used to calculate the fair value of the contingent consideration liability are considered to be Level 3 inputs due to the lack of relevant market activity and significant management judgment. An increase in future cash flows may result in a higher estimated fair value while a decrease in future cash flows may result in a lower estimated fair value of the contingent consideration liability. Remeasurements to fair value are recorded in Other expense, net within the Consolidated Statements of Operations and Comprehensive Income. For the years ended December 31, 2017 and 2016 , approximately $565 thousand and $42 thousand of income, respectively, was recognized due to the remeasurement of our contingent consideration liability. The contingent consideration liability is recorded in Other long-term liabilities within the Consolidated Balance Sheets and the estimated fair value as of December 31, 2017 and 2016 was $191 thousand and $756 thousand , respectively.

Certain assets, in specific circumstances, are measured at fair value on a non-recurring basis utilizing Level 3 inputs such as goodwill, other intangible assets and other long-lived assets. For these assets, measurement at fair value in periods subsequent to their initial recognition would be applicable if one or more of these assets were determined to be impaired.

The estimated fair values as of December 31, 2017 and 2016 were as follows (in thousands):



Assets/(Liabilities) Measured at Fair Value:	Asset/(Liability)			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of December 31, 2017
Recurring basis:
Interest rate swap derivative instrument	$	479		$	—	$	479	$	—
Contingent consideration liability	$	(191	)	$	—	$	—	$	(191	)
As of December 31, 2016
Recurring basis:
Contingent consideration liability	$	(756	)	$	—	$	—	$	(756	)

There were no transfers into or out of Level 1, 2 or 3 assets or liabilities during the years ended December 31, 2017 and 2016 .

11. Stock Incentive Plans

On April 18, 2017, the Kforce shareholders approved the 2017 Stock Incentive Plan (“2017 Plan”). The 2017 Plan allows for the issuance of stock options, stock appreciation rights, restricted stock (including restricted stock awards (“RSAs”) and restricted stock units (“RSUs”)) and other stock-based awards. The aggregate number of shares of common stock that are subject to awards under the 2017 Plan is approximately 3.0 million shares. The 2017 Plan terminates on April 18, 2027. Prior to the effective date of the 2017 Plan, the Company granted stock awards to eligible participants under our 2016 Stock Incentive Plan, 2013 Stock Incentive Plan and 2006 Stock Incentive Plan (collectively the “Prior Plans”). No additional awards may be granted pursuant to the Prior Plans; however, awards outstanding as of the effective date will continue to vest in accordance with the terms of the Prior Plans.

During the years ended December 31, 2017 , 2016 and 2015 , Kforce recognized total stock-based compensation expense of $7.6 million , $6.7 million , and $5.8 million , respectively. The related tax benefit for the years ended December 31, 2017 , 2016 and 2015 was $3.0 million , $2.8 million , and $2.3 million , respectively.

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Restricted Stock

Restricted stock (including RSAs and RSUs) are granted to executives and management either: (1) for awards related to Kforce’s annual long-term incentive (“LTI”) compensation program, or (2) as part of a compensation package and in order to retain directors, executives and management. The LTI award amounts are generally based on total shareholder return performance goals, which are established by Kforce’s Compensation Committee during the first quarter of the year of performance. The LTI restricted stock granted during the year ended December 31, 2017 will vest over a period between three to five years , with equal vesting annually. Other restricted stock granted during the year ended December 31, 2017 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, 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 years ended December 31, 2017 , 2016 and 2015 (in thousands, except per share amounts):



	Number of Restricted Stock		Weighted Average Grant Date Fair Value		Total Intrinsic Value of Restricted Stock Vested
Outstanding as of December 31, 2014	982		$	18.55
Granted	556		$	24.01
Forfeited/Canceled	(59	)	$	19.37
Vested	(186	)	$	18.28	$	4,580
Outstanding as of December 31, 2015	1,293		$	20.89
Granted (1)	1,048		$	22.46
Forfeited/Canceled	(353	)	$	21.04
Vested	(280	)	$	20.67	$	6,434
Outstanding as of December 31, 2016	1,708		$	21.86
Granted	427		$	24.03
Forfeited/Canceled	(206	)	$	21.70
Vested (2)	(574	)	$	21.60	$	13,668
Outstanding as of December 31, 2017	1,355		$	22.67

(1)

The increase in shares granted during the year ended December 31, 2016 was due to a change in the grant date practice for our annual LTI awards. Kforce has historically granted these annual awards on the first business day of the year following the end of the performance period; however, for the performance period ending December 31, 2016 and thereafter, the grant date was shifted to the last day of the performance period. This administrative change resulted in two annual grants being made during the year ended December 31, 2016 (a grant on January 4, 2016 for the performance period ending December 31, 2015 and a grant on December 31, 2016 for the performance period ending December 31, 2016).


(2)	The increase in shares vested during the year ended December 31, 2017 was due to a shift in the vesting date of our outstanding annual LTI awards from January 2, 2018 and January 4, 2018 to December 31, 2017 as a tax planning strategy.

The fair market value of restricted stock is determined based on the closing stock price of Kforce’s common stock at the date of grant, and is amortized on a straight-line basis over the requisite service period.

As of December 31, 2017 , total unrecognized stock-based compensation expense related to restricted stock was $27.6 million , which will be recognized over a weighted average remaining period of 4.3 years .

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12. Commitments and Contingencies

Lease Commitments

Kforce leases office space and operating assets under operating and capital leases expiring at various dates, with some leases cancelable upon 30 to 90 days’ notice and with some leases containing escalation in rent clauses. In addition to rental payments, certain leases require payments for taxes, insurance and maintenance costs.

Future minimum lease payments, inclusive of accelerated lease payments, under non-cancelable capital and operating leases are summarized as follows (in thousands):



	2018		2019		2020		2021		2022		Thereafter		Total
Capital leases
Present value of payments	$	1,140	$	334	$	115	$	5	$	—	$	—	$	1,594
Interest	219		140		5		—		—		—		364
Total Capital lease payments	$	1,359	$	474	$	120	$	5	$	—	$	—	$	1,958
Operating leases
Facilities	$	9,331	$	7,642	$	4,764	$	1,937	$	772	$	1,447	$	25,893
Furniture and equipment	7		7		7		7		7		—		35
Total Operating lease payments	$	9,338	$	7,649	$	4,771	$	1,944	$	779	$	1,447	$	25,928
Total Lease payments	$	10,697	$	8,123	$	4,891	$	1,949	$	779	$	1,447	$	27,886

The present value of the minimum lease payments for capital lease obligations has been classified in Other current liabilities and Long-term debt – other in the accompanying Consolidated Balance Sheets, according to their respective maturities. Rental expense under operating leases was $7.7 million , $7.7 million and $6.7 million for the years ended December 31, 2017 , 2016 and 2015 , respectively.

Purchase Commitments

Kforce has various commitments to purchase goods and services in the ordinary course of business. These commitments are primarily related to software and online application licenses and hosting. As of December 31, 2017 , these purchase commitments amounted to approximately $14.5 million and are expected to be paid as follows: $8.6 million in 2018 ; $4.5 million in 2019 ; and $1.4 million in 2020 .

Letters of Credit

Litigation

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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 December 31, 2017 would be approximately $32.7 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 $12.7 million if, in the absence of a change in control, all of the executives under contract were terminated by Kforce without good cause or if the executives resigned for good reason. As of December 31, 2017 , approximately $0.6 million of severance was accrued for two former executives.

13. Reportable Segments

Kforce’s reportable segments are as follows: (1) Tech; (2) FA; and (3) GS. This determination is supported by, among other factors: the nature of the segment’s operations, operating results are regularly reviewed by the Firm’s chief operating decision maker (“CODM”), and discrete financial information is presented to Kforce’s Board and our CODM. Kforce also reports Flex and Direct Hire revenues separately by segment, which has been incorporated into the table below.

Historically, our Tech segment has included the results of operations for Global, a wholly-owned subsidiary located in Manila, Philippines. During the year ended December 31, 2017 , Kforce completed the sale of Global’s assets. This sale did not meet the definition of discontinued operations. Kforce recorded a $3.3 million gain on sale of Global’s assets, which was recorded in Selling, general and administrative expenses within the accompanying Consolidated Statements of Operations and Comprehensive Income.

Historically, and for the year ended December 31, 2017 , Kforce has generated only sales and gross profit information on a segment basis. We do not report total assets or income from continuing operations separately by segment as our operations are largely combined.

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The following table provides information concerning the operations of our segments for the years ended December 31 (in thousands):



	Tech		FA		GS		Total
2017
Net service revenues
Flex revenues	$	887,675	$	318,294	$	104,294	$	1,310,263
Direct Hire revenues	19,836		27,841		—		47,677
Total Net service revenues	$	907,511	$	346,135	$	104,294	$	1,357,940
Gross profit	$	257,118	$	118,479	$	32,459	$	408,056
Operating expenses							343,962
Income before income taxes							$	64,094
2016
Net service revenues
Flex revenues	$	863,434	$	307,245	$	98,628	$	1,269,307
Direct Hire revenues	20,043		30,356		—		50,399
Total Net service revenues	$	883,477	$	337,601	$	98,628	$	1,319,706
Gross profit	$	255,842	$	120,551	$	32,106	$	408,499
Operating expenses							352,544
Income before income taxes							$	55,955
2015
Net service revenues
Flex revenues	$	873,609	$	294,186	$	97,372	$	1,265,167
Direct Hire revenues	22,333		31,738		—		54,071
Total Net service revenues	$	895,942	$	325,924	$	97,372	$	1,319,238
Gross profit	$	261,721	$	119,036	$	33,357	$	414,114
Operating expenses							342,442
Income before income taxes							$	71,672

14. Quarterly Financial Data (Unaudited)

The following table provides quarterly information for the years ended December 31, 2017 and 2016 (in thousands, except per share amounts):



	Three Months Ended
	March 31		June 30		September 30		December 31
2017
Net service revenues	$	333,992	$	340,309	$	341,053	$	342,586
Gross profit	97,135		103,919		104,375		102,627
Net income	5,902		11,144		10,099		6,140
Earnings per share-basic	$	0.23	$	0.44	$	0.40	$	0.25
Earnings per share-diluted	$	0.23	$	0.44	$	0.40	$	0.24
2016
Net service revenues	$	322,201	$	335,047	$	336,460	$	325,998
Gross profit	97,189		106,282		105,380		99,648
Net income	3,650		10,864		9,020		9,239
Earnings per share-basic	$	0.14	$	0.41	$	0.35	$	0.36
Earnings per share-diluted	$	0.14	$	0.41	$	0.34	$	0.36

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15. Supplemental Cash Flow Information

Supplemental cash flow information is as follows for the years ended December 31 (in thousands):



	2017		2016		2015
Cash paid during the year for:
Income taxes, net	$	24,330	$	21,324	$	25,395
Interest, net	$	3,518	$	2,101	$	1,609
Non-Cash Financing and Investing Transactions:
Receivable for sale of Global's assets	$	1,979	$	—	$	—
Equipment acquired under capital leases	$	937	$	1,153	$	1,470
Unsettled repurchases of common stock	$	898	$	935	$	1,012
Employee stock purchase plan	$	522	$	669	$	578
Shares tendered in payment of exercise price of stock options	$	—	$	63	$	—

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation required by Rules 13a-15 and 15d-15 under the Exchange Act (the “Evaluation”), as of the end of the period covered by this report, 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 as of December 31, 2017 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 required disclosure.

Changes in Internal Controls

There has not been any change in our internal controls over financial reporting identified in connection with the Evaluation that occurred during the quarter ended December 31, 2017 that has materially affected, or is reasonably likely to materially affect, those controls.

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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Management Report on Internal Control Over Financial Reporting

The management of Kforce is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) of the Exchange Act. Kforce’s internal control system was designed to provide reasonable assurance to Kforce’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Under the supervision and with the participation of the CEO and the CFO, Kforce’s management assessed the effectiveness of Kforce’s internal control over financial reporting as of December 31, 2017 . In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Based on our assessment we believe that, as of December 31, 2017 , Kforce’s internal control over financial reporting is effective based on those criteria.

Kforce’s independent registered public accounting firm, Deloitte & Touche LLP, has issued an audit report on our internal control over financial reporting, which is presented in Item 8. Financial Statements and Supplementary Data.

ITEM 9B. OTHER INFORMATION.

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVES OFFICERS AND CORPORATE GOVERNANCE.

The information required by Item 10 relating to our directors, executive officers and corporate governance is incorporated herein by reference to our definitive proxy statement for the 2018 Annual Meeting of Shareholders, to be filed with the SEC within 120 days of December 31, 2017 .

Our Commitment to Integrity applies to all of our directors, officers, and employees, as well as consultants, agents and other representatives retained by Kforce and is publicly available on our website at www.kforce.com. Any amendments to, or waiver from, any provision of our Commitment to Integrity will be posted on our website at the above address.

ITEM 11. EXECUTIVE COMPENSATION .

The information required by Item 11 relating to executive compensation is incorporated herein by reference to our definitive proxy statement for the 2018 Annual Meeting of Shareholders, to be filed with the SEC within 120 days of December 31, 2017 .

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND STOCKHOLDER MATTERS.

The information required by Item 12 relating to security ownership of certain beneficial owners and management, securities authorized for issuance under equity compensation plans and related stockholders matters is incorporated herein by reference to our definitive proxy statement for the 2018 Annual Meeting of Shareholders, to be filed with the SEC within 120 days of December 31, 2017 .

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information required by Item 13 relating to certain relationships and related transactions, and director independence is incorporated herein by reference to our definitive proxy statement for the 2018 Annual Meeting of Shareholders, to be filed with the SEC within 120 days of December 31, 2017 .

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES .

The information required by Item 14 relating to principal accounting fees and services is incorporated herein by reference to our definitive proxy statement for the 2018 Annual Meeting of Shareholders, to be filed with the SEC within 120 days of December 31, 2017 .

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.


(a)	The following documents are filed as part of this Report:

1. Financial Statements. The list of consolidated financial statements, and related notes thereto, along with the independent auditors’ report are set forth in Part IV of this report in the Index to Consolidated Financial Statements and Schedule presented below.

2. Consolidated Financial Statement Schedule. The consolidated financial statement schedule of Kforce is included in Part IV of this report on the page indicated by the Index to Consolidated Financial Statements and Schedule presented below. This financial statement schedule should be read in conjunction with the consolidated financial statements and related notes thereto of Kforce.

Schedules not listed in the Index to Consolidated Financial Statements and Schedule have been omitted because they are not applicable, not required, or the information required to be set forth therein is included in the consolidated financial statements or notes thereto.

3. Exhibits. See Item 15(b) below.


(b)	Exhibits. The exhibits listed on the Exhibit Index are incorporated by reference into this Item 15(b) and are a part of this report.

KFORCE INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE



Report of Independent Registered Public Accounting Firm	36

Consolidated Financial Statements:
Consolidated Statements of Operations and Comprehensive Income – Years Ended December 31, 2017, 2016 and 2015	37
Consolidated Balance Sheets – As of December 31, 2017 and 2016	38
Consolidated Statements of Changes in Stockholders’ Equity – Years ended December 31, 2017, 2016 and 2015	39
Consolidated Statements of Cash Flows – Years ended December 31, 2017, 2016 and 2015	40
Notes to Consolidated Financial Statements	41

Consolidated Financial Statement Schedule:
Schedule II – Valuation and Qualifying Accounts and Reserves	62

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SCHEDULE II

KFORCE INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

SUPPLEMENTAL SCHEDULE

(IN THOUSANDS)



COLUMN A	COLUMN B			COLUMN C			COLUMN D		COLUMN E
DESCRIPTION	BALANCE AT BEGINNING OF PERIOD			CHARGED TO COSTS AND EXPENSES	CHARGED TO OTHER ACCOUNTS (1)		DEDUCTIONS (2)		BALANCE AT END OF PERIOD
Accounts receivable reserves	2015	$	2,040	1,653	1		(1,573	)	$	2,121
	2016	$	2,121	795	39		(889	)	$	2,066
	2017	$	2,066	1,155	(91	)	(797	)	$	2,333


(1)	Charged to other accounts includes the provision for fallouts of Direct Hire placements that has been deducted from net service revenues in the accompanying Consolidated Statements of Operations and Comprehensive Income.


(2)	Deductions include write-offs of uncollectible accounts receivable and fallouts of Direct Hire placements that have been charged against the allowance for doubtful accounts, fallouts and other accounts receivables reserves.

ITEM 16. FORM 10-K SUMMARY.

Not applicable.

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EXHIBIT INDEX



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.

4.1		Form of Stock Certificate, incorporated by reference to the Registrant’s Registration Statement on Form S-3 (File No. 333-158086) filed with the SEC on March 18, 2009.

10.1		Credit Agreement, dated May 25, 2017, between Kforce Inc. and its subsidiaries and Wells Fargo Bank, N.A. and the other lenders thereto, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on May 25, 2017.

10.5*		Employment Agreement, dated as of December 31, 2006, between the Registrant and David L. Dunkel, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on January 8, 2007.

10.6*		Amendment to Employment Agreement, dated as of December 24, 2008, between Kforce Inc. and David L. Dunkel, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on December 29, 2008.

10.7*		Employment Agreement, dated as of December 31, 2006, between the Registrant and Joseph J. Liberatore, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on January 8, 2007.

10.8*		Amendment to Employment Agreement, dated as of December 24, 2008, between Kforce Inc. and Joseph J. Liberatore, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on December 29, 2008.

10.9*		Employment Agreement, dated as of July 1, 2003, between the Registrant and Howard Sutter, incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-26058) filed with the SEC on March 11, 2009.

10.10*		Amendment to Employment Agreement, dated as of December 30, 2008, between Kforce Inc. and Howard Sutter, incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-26058) filed with the SEC on March 11, 2009.

10.11*		Kforce Inc. 2006 Stock Incentive Plan, incorporated by reference to the Registrant’s Registration Statement on Form S-8 (File No. 333-168529) filed with the SEC on August 4, 2010.

10.12*		Kforce Inc. 2013 Stock Incentive Plan, incorporated by reference to the Registrant’s Registration Statement on Form S-8 (File No. 333-188631) filed with the SEC on May 15, 2013.

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Exhibit Number		Description

10.13*		Kforce Inc. 2016 Stock Incentive Plan, incorporated by reference to the Registrant’s Registration Statement on Form S-8 (File No. 333-211008) filed with the SEC on April 29, 2016.

10.14*		Kforce Inc. 2017 Stock Incentive Plan, incorporated by reference to the Registrant’s Registration Statement on Form S-8 (File No. 000-26058) filed with the SEC on April 28, 2017.

10.15		Form of Restricted Stock Award Agreement under the 2006 Stock Incentive Plan, incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-26058) filed with the SEC on March 4, 2011.

10.16*		Form of Restricted Stock Award Agreement under the 2016 Stock Incentive Plan, filed electronically herewith.

10.17*		Amended and Restated Employment Agreement, dated as of January 1, 2013, between Kforce Inc. and David M. Kelly, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on January 3, 2013.

10.18*		Form of Restricted Stock Award Agreement under the 2013 Stock Incentive Plan, incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-26058) filed with the SEC on October 30, 2013.

10.19*		Amended and Restated Kforce Inc. Directors’ Restricted Stock Unit Deferral Plan, dated November 15, 2017, filed electronically herewith.

10.20*		Amended and Restated Employment Agreement, dated as of January 1, 2013, between Kforce Inc. and Kye L. Mitchell, incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-26058) filed with the SEC on November 2, 2016.

10.21*		Amended and Restated Employment Agreement, dated as of January 1, 2013, between Kforce Inc. and Peter M. Alonso, incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-26058) filed with the SEC on February 24, 2017.

10.22*		Amendment to Amended and Restated Employment Agreement, dated February 20, 2017, between Kforce Inc. and Peter M. Alonso, incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-26058) filed with the SEC on February 24, 2017.

10.23*		Employment Agreement, dated February 8, 2016, between Kforce Inc. and Robert W. Edmund, filed electronically herewith.

10.24*		Form of Restricted Stock Award Agreement under the 2017 Stock Incentive Plan, filed electronically herewith.

21		List of Subsidiaries.

23		Consent of Deloitte & Touche LLP.

31.1		Certification by the Chief Executive Officer of Kforce Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification by the Chief Financial Officer of Kforce Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification by the Chief Executive Officer of Kforce Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification by the Chief Financial Officer of Kforce Inc. pursuant to 18 U.S.C. Section 2350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.1		The Consolidated Financial Statements and Schedule listed in Part IV, Item 15 of this Form 10-K are formatted in XBRL.



*	Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date: February 23, 2018	By:	/s/ DAVID L. DUNKEL
		David L. Dunkel
		Chairman of the Board, Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.




Date: February 23, 2018	By:	/s/ DAVID L. DUNKEL
		David L. Dunkel
		Chairman of the Board, Chief Executive Officer and Director
		(Principal Executive Officer)

Date: February 23, 2018	By:	/s/ DAVID M. KELLY
		David M. Kelly
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

Date: February 23, 2018	By:	/s/ JEFFREY B. HACKMAN
		Jeffrey B. Hackman
		Senior Vice President, Finance and Accounting
		(Principal Accounting Officer)

Date: February 23, 2018	By:	/s/ JOHN N. ALLRED
		John N. Allred
		Director

Date: February 23, 2018	By:	/s/ RICHARD M. COCCHIARO
		Richard M. Cocchiaro
		Director

Date: February 23, 2018	By:	/s/ ANN E. DUNWOODY
		Ann E. Dunwoody
		Director

Date: February 23, 2018	By:	/s/ MARK F. FURLONG
		Mark F. Furlong
		Director

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Date: February 23, 2018	By:	/s/ RANDALL A. MEHL
		Randall A. Mehl
		Director

Date: February 23, 2018	By:	/s/ ELAINE D. ROSEN
		Elaine D. Rosen
		Director

Date: February 23, 2018	By:	/s/ N. JOHN SIMMONS
		N. John Simmons
		Director

Date: February 23, 2018	By:	/s/ RALPH E. STRUZZIERO
		Ralph E. Struzziero
		Director

Date: February 23, 2018	By:	/s/ HOWARD W. SUTTER
		Howard W. Sutter
		Vice Chairman and Director

Date: February 23, 2018	By:	/s/ A. GORDON TUNSTALL
		A. Gordon Tunstall
		Director

KFORCE INC.

2016 STOCK INCENTIVE PLAN

RESTRICTED STOCK AWARD AGREEMENT



Grantee:
Type of Award:
Date of Grant:
Grant (# of awards) :
Fair Market Value on Date of Grant:

Kforce Inc. (the “Firm”), pursuant to its 2016 Stock Incentive Plan (the "Plan"), hereby grants the shares summarized above to stated Grantee. The shares are subject to the terms and conditions set forth within the Plan, and unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Agreement; however, certain terms of this award are provided below:

Vesting

Subject to the terms and conditions within Section 5 of the Plan, the restricted stock awarded to the Grantee vests, as follows: ¨ ____________________________________

Other Terms

The following “Other Terms” are applicable to this award unless otherwise addressed in an employment agreement between the employee and the Firm.

In the case of a change in control, death of the Grantee or total and permanent disability (as defined in the Plan), the unvested portion of the award shall vest immediately. If the Grantee voluntarily resigns or is terminated with or without cause, the unvested portion of the award shall be forfeited immediately.

Dividend and Voting Rights

The unvested portion of the restricted stock granted above contains the following terms as it relates to dividend and voting rights ( the vested portion of the restricted stock granted above has equivalent rights to a share of Kforce common stock ):

Dividend Rights:

¨ Right to dividends or dividend equivalents ¹

¨ No right to dividends or dividend equivalents rights ²

Voting Rights: the unvested restricted stock contain voting rights unless the shares have been forfeited by the grantee.

¹ The Firm shall make any payments related to dividends declared in additional shares of restricted stock, which shall be treated as part of the grant of the underlying restricted stock. The grantee’s interest in such stock dividend shall be forfeited or shall become nonforfeitable at the same time as the underlying restricted stock is forfeited or becomes nonforfeitable.

² The grantee shall not be entitled to any future payments to compensate the grantee for the award not containing dividend rights.

Tax Withholding

Upon the occurrence of a vesting event, the Grantee must satisfy the federal, state, local or foreign income and social insurance withholding taxes imposed by reason of the vesting of the restricted stock. The Grantee shall make an election with respect to the method of satisfaction of such tax withholding obligation in accordance with procedures established by the Firm. Unless the Grantee delivers to the Firm or its designee within ten (10) business days after the occurrence of the vesting event a check payable in the amount of all tax withholding obligations imposed on the Grantee and the Firm by reason of the vesting of the restricted stock, the Grantee’s actual number of vested shares of restricted stock shall be reduced by the smallest number of whole shares which, when multiplied by the Fair Market Value of the Common Stock on the vesting date, is sufficient to satisfy the amount of such tax withholding obligations.

83(b) Election

In order for an election pursuant to IRS Code 83(b) to be valid, you are required to provide a signed election form to Kforce. Please consult your tax advisor prior to making any such 83(b) election.

General Disclaimer

The Firm undertakes no duty or responsibility for providing periodic updates to you in the future as it relates to this award.

Approval of Award (Grantor):

________________________ ________________________

(Name Printed) (Signature)

Acceptance of Award (Grantee):

________________________ ________________________

(Name Printed) (Signature)

* By signing this Award Agreement, you acknowledge receipt of the (i) ) Prospectus covering common stock issuable upon the exercise of stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards granted under the 2016 Stock Incentive Plan and (ii) a copy of our Annual Report for our most recently completed fiscal year.

KFORCE INC.

2016 STOCK INCENTIVE PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT



Grantee:
Type of Award:
Date of Grant:
Grant (# of awards) :
Fair Market Value on Date of Grant:

Kforce Inc. (the “Firm”), pursuant to its 2016 Stock Incentive Plan (the "Plan"), hereby grants the RSUs summarized above to stated Grantee, pursuant to the Other Stock-Based Award provisions of Section 9 of the Plan. Each RSU represents the right to receive a share of the Firm's common stock if the RSU becomes vested in accordance with this Agreement. The RSUs are subject to the terms and conditions set forth within the Plan, and unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Agreement; however, certain terms of this award are provided below:

Vesting

Subject to the terms and conditions of the Plan, the RSUs awarded to the Grantee vest, as follows, provided that on each vesting date the Grantee is an Employee of or Consultant to the Firm or a Subsidiary:

¨ ____________________________________

Dividend Equivalents

Prior to the issuance of shares in settlement of the RSUs granted above, the RSUs contain the following terms as it relates to dividend equivalents:

Dividend Equivalent Rights:

¨ Right to dividend equivalents ¹

¨ No right to dividend equivalents ²

¹ The grantee will accrue dividend equivalents equal to the cash dividend or distribution that would have been paid on the RSUs had the RSUs been issued and outstanding shares on the record date for the dividend/distribution. The dividend equivalents will be converted into additional RSUs based on the Fair Market Value of the underlying shares on the record date of such dividend/distribution, and any resulting fractional number of RSUs will be rounded to the nearest whole number. The grantee’s interest in such additional RSUs shall be forfeited or shall become nonforfeitable and subject to settlement at the same time as the RSUs to which they relate are forfeited or become nonforfeitable and subject to settlement.

² The grantee shall not be entitled to any future payments to compensate the grantee for the award not containing dividend equivalent rights.

Timing and Manner of Settlement of Vested RSUs

Vested RSUs will be settled by the Firm delivering to the Grantee a number of shares equal to the number of vested RSUs. Except as otherwise provided in a valid deferral election, settlement of vested RSUs will occur as promptly as practicable after the date on which the RSUs become vested, but in no event later than 30 days after the vesting date. Any fractional shares will be rounded down to the next whole number of shares. Subject to any conditions and procedures deemed appropriate or necessary from time to time by the Compensation Committee of the Firm's Board of Directors (the "Committee"), including the required timing of a deferral election and the suspension of the right to elect deferrals or to make changes in any existing deferral election, the grantee may elect to defer the RSU settlement date using the deferral election form provided by the Firm.

Code Section 409A

Payments made pursuant to this Agreement are intended to be exempt from Code Section 409A or to otherwise comply with Code Section 409A. Accordingly, the provisions of this section will supersede any other provision of this Agreement or the Plan in order that the RSUs, and related dividend equivalents and any other related rights, will be exempt from or otherwise comply with Code Section 409A. In addition, the Firm reserves the right, to the extent the Firm deems necessary or advisable in its discretion, to unilaterally amend or modify the Plan and/or this Agreement to ensure that all RSUs, and related dividend equivalents and any other related rights, are exempt from or otherwise have terms that comply, and in operation comply, with Code Section 409A (including, without limitation, the avoidance of penalties thereunder). The Firm makes no representations that the RSUs, and related dividend equivalents and any other related rights, will be exempt from or avoid any penalties that may apply under Code Section 409A, makes no undertaking to preclude Code Section 409A from applying to the RSUs and related dividend equivalents and any other related rights, and will not indemnify or provide a gross up payment to a grantee (or his or her beneficiary) for any taxes, interest or penalties imposed under Code Section 409A. Each portion of RSUs (including dividend equivalents accrued thereon) that is scheduled to become vested and nonforfeitable at a separate stated vesting date under this Agreement will be deemed a separate payment for purposes of Code Section 409A.

In the case of any RSUs that constitute a deferral of compensation under Code Section 409A ("Code Section 409A RSUs"), the following restrictions will apply:

•

Separation from Service. Any payment in settlement of the Code Section 409A RSUs that is triggered by a termination of Continuous Status as an Employee or Consultant (or other termination of employment) hereunder will occur only if the grantee has had a “separation from service” within the meaning of Treasury Regulation § 1.409A-1(h), with such separation from service treated as the termination for purposes of determining the timing of any settlement based on such termination.

•

Application of Six-Month Delay. If (1) the grantee has a separation from service (within the meaning of Treasury Regulation § 1.409A-1(h)) for a reason other than death, and (2) a payment in settlement of Code Section 409A RSUs is triggered by such separation from service, and (3) the grantee is a “specified employee” under Code Section 409A, then, to the extent required for compliance with Code Section 409A, the settlement of Code Section 409A RSUs that is triggered by separation from service where the settlement otherwise would occur within six months after the separation from service will be made on the date six months and one day after separation from service. During the six-month delay period, accelerated settlement will be permitted in the event of the grantee’s death and for no other reason, except to the extent permitted under Code Section 409A.


•	The settlement of Code Section 409A RSUs may not be accelerated by the Firm except to the extent permitted under Code Section 409A. The Firm may, however, accelerate vesting of Code Section 409A RSUs without changing the settlement terms of such Code Section 409A RSUs.

Any restriction that is imposed on Code Section 409A RSUs under the terms of this Agreement or other documents solely to ensure compliance with Code Section 409A shall not be applied to an RSU that is not a Code Section 409A RSU, except to the extent necessary to preserve the status of such RSU as not being a “deferral of compensation” under Code Section 409A. If any mandatory term that is required for any RSUs, or related dividend equivalents or other related rights, to avoid tax penalties or additional taxes under Code Section 409A is not otherwise explicitly provided in this Agreement or other applicable documents, such term is hereby incorporated by reference and fully applicable as though set forth at length herein. With respect to any settlement of any RSUs during a specified period following the stated vesting date or other date triggering a right to settlement, the grantee will have no discretion or influence on any determination as to the tax year in which the settlement will occur.

General Disclaimer

The Firm undertakes no duty or responsibility for providing periodic updates to you in the future as it relates to this award.

Approval of Award (Grantor):

________________________ ________________________

(Name Printed) (Signature)

Acceptance of Award (Grantee):

________________________ ________________________

(Name Printed) (Signature)

* By signing this Award Agreement, you acknowledge receipt of the (i) Prospectus covering common stock issuable upon the exercise of stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards granted under the 2016 Stock Incentive Plan and (ii) a copy of our Annual Report for our most recently completed fiscal year.

Amended and Restated Kforce Inc.

Directors’ Restricted Stock Unit Deferral Plan

Effective Date

November 15, 2017

Amended and Restated Kforce Inc. Directors' Restricted Stock Unit Deferral Plan

Article I

Establishment and Purpose 1

Article II

Definitions 1

Article III

Deferrals 4

Article IV

Benefits 5

Article V

Modifications to Payment Schedules 6

Article VI

Administration 6

Article VII

Amendment and Termination 7

Article VIII

Claims 7

Article IX

General Provisions 8

Article I

Establishment and Purpose

Kforce Inc. (the “Company”) hereby adopts the Amended and Restated Kforce Inc. Directors’ Restricted Stock Unit Deferral Plan (the “Plan”), effective October 1, 2017. The Plan was originally adopted on December 1, 2015. This restatement provides for automatically renewable elections beginning with Deferral Agreements filed on and after the Effective Date.

The purpose of the Plan is to attract and retain Directors by providing Participants with an opportunity to defer receipt of some or all of certain Restricted Stock Unit Awards. The Plan is not intended to meet the qualification requirements of Code Section 401(a), but is intended to meet the requirements of Code Section 409A, and shall be operated and interpreted consistent with that intent.

The Company's liability to pay the amount in a Participant's Account shall be reflected in its books of account as a general, unsecured and unfunded obligation, and the rights of a Participant and his or her beneficiary to receive payments from the Company under the Plan are solely those of a general, unsecured creditor. The Company shall not be required to segregate any of its assets in respect to its obligations hereunder, and a Participant or his or her beneficiary shall not have any interest whatsoever, vested or contingent, in any properties or assets of the Company. Nothing contained in the Plan and no action taken pursuant to the provisions of the Plan shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company or the Committee and a Participant, his or her beneficiary or any other person. The Company, at any time, may authorize the establishment of a trust for the benefit of the Participants, the assets of which are always subject to the claims of creditors of the Company.

Article II

Definitions

As used in the Plan, the following capitalized terms shall have the following meanings. Capitalized terms used in the Plan but not defined herein shall have the meanings assigned to such terms in the Stock Incentive Plan.

2.1

Account. Account means a bookkeeping account maintained by the Company to record the Company’s obligation to a Participant under this Plan. The Company may maintain a Termination Account and up to five Specified Date Accounts as subaccounts to record amounts payable at different times and in different forms. Reference to an Account means any such Account established by the Company, as the context requires.

2.2

Account Balance. Account Balance means, with respect to any Account, the total payment obligation owed to a Participant from such Account as of the applicable Valuation Date. Accounts Balances on any Valuation Date shall equal the number and value of deferred RSUs (determined as of the closing of the markets) credited to an Account, plus any Dividend Equivalents credited to such Account since the last Valuation Date, less distributed RSUs and Dividend Equivalents and any expenses charged to such Account.

2.3

Beneficiary. Beneficiary means a natural person, estate, or trust designated by a Participant to receive payments to which a Beneficiary is entitled in accordance with provisions of the Plan. The Participant’s spouse, if living, otherwise the Participant’s estate, shall be the Beneficiary if: (i) the Participant has failed to properly designate a Beneficiary, or (ii) all designated Beneficiaries have predeceased the Participant.


2.4

A former spouse shall have no interest under the Plan, as Beneficiary or otherwise, unless the Participant designates such person as a Beneficiary after dissolution of the marriage, except to the extent provided under the terms of a domestic relations order as described in Code Section 414(p)(1)(B).


2.5	Change in Control . Change in Control means any of the following events: (i) a change in the ownership of the Company, (ii) a change in the effective control of the Company, or (iii) a change in the ownership of a substantial portion of the assets of the Company.

For purposes of this Section, a change in the ownership of the Company occurs on the date on which any one person, or more than one person acting as a group, acquires ownership of stock of the Company that, together with stock held by such person or group constitutes more than 50% of the total fair market value or total voting power of the stock of the Company. A change in the effective control of the Company occurs on the date on which either: (i) a person, or more than one person acting as a group, acquires ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company, taking into account all such stock acquired during the 12-month period ending on the date of the most recent acquisition, or (ii) a majority of the members of the Company’s Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of such Board of Directors prior to the date of the appointment or election, but only if no other corporation is a majority shareholder of the Company. A change in the ownership of a substantial portion of assets occurs on the date on which any one person, or more than one person acting as a group, other than a person or group of persons that is related to the Company, acquires assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions, taking into account all such assets acquired during the 12-month period ending on the date of the most recent acquisition.

An event constitutes a Change in Control with respect to a Participant only if the Participant performs services for the Company that has experienced the Change in Control, or the Participant’s relationship to the affected Company otherwise satisfies the requirements of Treasury Regulation Section 1.409A-3(i)(5)(ii).

Notwithstanding anything to the contrary herein, with respect to a Company that is a partnership, Change in Control means only a change in the ownership of the partnership or a change in the ownership of a substantial portion of the assets of the partnership, and the provisions set forth above respecting such changes relative to a corporation shall be applied by analogy.

The determination as to the occurrence of a Change in Control shall be based on objective facts and in accordance with the requirements of Code Section 409A.


2.6	Code. Code means the Internal Revenue Code of 1986, as amended from time to time.


2.7	Code Section 409A. Code Section 409A means section 409A of the Code, and regulations and other guidance issued by the Treasury Department and Internal Revenue Service thereunder.


2.8	Committee. Committee means the Compensation Committee of the Company’s Board of Directors.


2.9	Common Stock. Common Stock means the common stock, par value $0.01, of the Company.


2.10	Company. Company means Kforce Inc.

2.11

Deferral Agreement. Deferral Agreement means an agreement between a Participant and the Company that specifies: (i) the number of RSUs that the Participant has elected to defer in accordance with the provisions of Article III, and (ii) the Payment Schedule applicable to one or more Accounts to which such RSUs are allocated. Unless otherwise specified by the Committee, Participants may defer up to 100% of their RSUs. Any Deferral Agreement that would produce a fractional number of RSUs shall be rounded down to the next whole number of RSUs.


2.12	Deferral. Deferral means a credit to a Participant’s Account(s) that records the RSUs that the Participant has elected to defer in accordance with the provisions of Article III and any Dividend Equivalents credited with respect to such RSUs in accordance with Section 3.1(c).


2.13	Director. Director means a non-employee member of the Board of Directors of the Company.

2.14

Dividend Equivalent. Dividend Equivalent means the amount of cash dividends and value of other distributions declared and made with respect to the Common Stock that would have been payable to a Participant had he or she been the owner, on the record dates for the payment of such dividends and distributions, of the number of shares of Common Stock equal to the number of RSUs in his or her Account on such dates.


2.15	Effective Date. Effective Date means October 1, 2017.


2.16	Participant. Participant means any Director who has elected to defer RSUs in accordance with the provisions of Article III and any individual with an Account Balance greater than zero.


2.17	Plan. Generally, the term Plan means the “Amended and Restated Kforce Inc. Directors' Restricted Stock Unit Deferral Plan” as documented herein and as may be amended from time to time hereafter.


2.18	Plan Year. Plan Year means January 1 through December 31.


2.19	Restricted Stock Unit or RSU. Restricted Stock Unit or RSU means a unit of measurement that is the economic equivalent of one share of Common Stock and that is granted by the Company to a Director in accordance with and subject to the terms and conditions of the Stock Incentive Plan and any applicable Award Agreement.


2.20	Separation from Service. Separation from Service means a termination of a Director’s Continuous Status as an Employee or Consultant that constitutes a "separation from service" within the meaning of Treasury Regulation § 1.409A-1(h).


2.21	Specified Date Account. Specified Date Account means an Account established by the Committee to record the amounts payable in a future year as specified in the Participant’s Deferral Agreement. Unless otherwise determined by the Committee, a Participant may maintain no more than five Specified Date Accounts.


2.22	Stock Incentive Plan. Stock Incentive Plan means the Kforce Inc. 2016 Stock Incentive Plan, and any other compensatory plan, agreement, or arrangement providing for the grant or issuance of Company Stock or Company Stock-based awards to Directors, in each case, as amended from time to time.


2.23	Termination Account. Termination Account means the Account established by the Committee to record the amounts payable to a Participant upon Separation from Service. Unless the Participant has established a Specified Date Account, all Deferrals and Company Contributions shall be allocated to the Termination Account on behalf of the Participant.


2.24	Valuation Date. Valuation Date means each day on which the New York Stock Exchange is open for business.

Article III

Deferrals


3.1	Deferral Elections, Generally.

(a)

Each Director may become a Participant by electing to defer the settlement of all or a portion of an Award of RSUs. For the avoidance of doubt, an election to defer the settlement of an RSU shall be described in the Plan as a deferral of the RSU. A Participant may elect to defer RSUs by submitting a Deferral Agreement during the enrollment periods established by the Committee and in the manner specified by the Committee, but in any event, in accordance with Section 3.2. A Deferral Agreement that is not timely filed with respect to a service period or an RSU shall be considered void and shall have no effect with respect to such service period or RSU. The Committee may modify any Deferral Agreement prior to the date the election becomes irrevocable under the rules of Section 3.2. The provisions of this Section 3.2 shall be construed in accordance with the requirements of Code Section 409A.

(b)

The Participant shall specify on his or her Deferral Agreement the percentage or number of RSUs to be deferred and whether to allocate the deferred RSUs and any Dividend Equivalents credited with respect to such RSUs, in the manner specified in Section 3.1(c), to the Termination Account or to one or more Specified Date Accounts. An allocation of a deferred Award to a Specified Date Account is valid only if the payment date is later than the date the Award vests. If no Account designation is made in a Deferral Agreement, or if the Account designation made in a Deferral Agreement is impermissible, or the Account designation cannot be determined from the terms of a Deferral Agreement, the deferred portion of the Award that is the subject of the Deferral Agreement shall be allocated to the Termination Account. If more than one of the election timing rules described in Section 3.2 could apply to the deferral of an Award, a Deferral Agreement shall be considered filed under the rule resulting in the latest date on which the election becomes irrevocable.

(c)

Each Dividend Equivalent shall be credited to the Participant's Account as of the record date of the cash dividend or other distribution declared and made with respect to the Common Stock that would have been payable to the Participant had he or she been the owner, on the record date for the payment of such dividend or distribution, of the number of shares of Common Stock equal to the number of RSUs in his or her Account on such date. The Dividend Equivalent shall be converted into RSUs based on the Fair Market Value (as defined in the Stock Incentive Plan) of the Common Stock on the record date of such dividend or distribution. Any conversion of Dividend Equivalents that would produce a fractional number of RSUs shall be rounded to the nearest whole number of RSUs. The crediting of Dividend Equivalents provided by this paragraph shall be in lieu of and shall supersede any conflicting provisions of any Award Agreement issued pursuant to the Stock Incentive Plan for any RSUs and Dividend Equivalents that a Participant has elected to defer under the Plan that provides for the accumulation and payment of Dividend Equivalents with respect to the RSUs granted under such Award Agreement.

3.2 Timing Requirements for Deferral Agreements.

(a)

Prior Year Election. A Participant may defer an Award by filing a Deferral Agreement no later than December 31 of the year prior to the year in which such Award is granted in accordance with the Stock Incentive Plan. A Deferral Agreement described in this paragraph shall become irrevocable with respect to such Award as of January 1 of the year in which such Award is granted in accordance with the Stock Incentive Plan.

(a)

First Year of Eligibility. A Director may file a Deferral Agreement within 30 days after being seated as a member of the Board of Directors. Such election shall become irrevocable on the 30th day. A Deferral Agreement filed under this paragraph (b) applies to Awards granted in accordance with the Stock Incentive Plan on and after the date the Deferral Agreement becomes irrevocable. No election may be made by a Director pursuant to this paragraph (b) if the Committee determines in its sole discretion that, prior to becoming a Director, such Director was eligible to participate in any other deferred compensation plan that must be aggregated with the Plan under Code Section 409A.

(b)

Forfeitable Rights. A Participant may defer an Award on or before the 30th day following the date on which the Award is granted in accordance with the Stock Incentive Plan, provided that no Deferral Agreement made pursuant to this paragraph (c) shall be effective with respect to any RSUs that become vested prior to the date that is 12 months after the date of such Deferral Agreement, unless the vesting of such RSUs during such 12-month period may only occur in the event of the Participant's death or a Change in Control.

(c)

“Evergreen” Deferral Elections. The Committee, in its discretion, may provide that Deferral Agreements will continue in effect for subsequent years or performance periods by communicating that intention to Participants in writing prior to the date Deferral Agreements become irrevocable under this Section 3.2. An evergreen Deferral Agreement may be revoked or modified prospectively by the Participant or the Committee with respect to Compensation for which such election remains revocable under this Section 3.2.

3.3

Vesting. Participant Deferrals shall be vested in accordance with the same vesting schedule and same vesting conditions applicable to the deferred Award under the terms of the Stock Incentive Plan and the applicable Award Agreement. The portion of a Participant’s Accounts that remains unvested upon his or her Separation from Service after the application of the terms of this Section 3.3 shall be forfeited.

Article IV

Benefits


4.1	Benefits, Generally. A Participant shall be entitled to the following benefits under the Plan:

(a)

Separation from Service. Upon the Participant’s Separation from Service, he or she shall be entitled to payment of his entire vested Account Balance. Except as otherwise provided in Section 4.1(c) below, the Account is valued as of the first day of the month following the Participant’s Separation from Service and payable in a single lump sum as soon as administratively practicable following the Participant’s Separation from Service. At the time of payment, each vested RSU in the Participant's Account shall be converted into one share of Common Stock, and such share shall be distributed to the Participant. Each share of Common Stock issued pursuant to the Plan shall be made from the previously authorized and registered shares of Common Stock under the Stock Incentive Plan.

(b)

Specified Date Accounts. A Specified Date Account is payable in a single lump sum on March 15 of the year designated by the Participant. If the year designated under a Deferral Agreement occurs earlier than the vesting date for an RSU award, the payment date will automatically be the first March 15 coincident with or next following the date on which an RSU subject to such Deferral Agreement becomes fully vested. At the time of payment, each vested RSU in the Participant's Specified Date Account shall be converted into one share of Common Stock, and such share shall be distributed to the Participant. Each share of Common Stock issued pursuant to the Plan shall be made from the previously authorized and registered shares of Common Stock under the Stock Incentive Plan.

(c)

Delay for Specified Employees . Notwithstanding any provision of the Plan to the contrary, if at the time of the Participant's Separation from Service, the Participant is a "specified employee," as defined in Code Section 409A, as reasonably determined by the Company in accordance with Code Section 409A, and the delay of the commencement of any distributions that would otherwise be made under the Plan as a result of such Separation from Service is necessary in order to prevent any accelerated or additional tax under Code Section 409A, then payment of his or her Account shall be delayed until the first day of the seventh (7th) calendar month after the Participant's Separation from Service.


(d)	Application of Payment Provisions . The payment provisions of the Plan shall be in lieu of and shall supersede the payment provisions of the Award Agreements issued pursuant to the Stock Incentive Plan for any RSUs and Dividend Equivalents that a Participant has elected to defer under the Plan.

4.2

Acceleration of or Delay in Payments. The Committee, in its sole and absolute discretion, may elect to accelerate the time or form of payment of a vested benefit owed to the Participant hereunder, provided such acceleration is permitted under Treas. Reg. Section 1.409A-3(j)(4). The Committee may also, in its sole and absolute discretion, delay the time for payment of a benefit owed to the Participant hereunder, to the extent permitted under Treas. Reg. Section 1.409A-2(b)(7). If the Plan receives a domestic relations order (within the meaning of Code Section 414(p)(1)(B))

directing that all or a portion of a Participant’s Accounts be paid to an “alternate payee,” any amounts to be paid to the alternate payee(s) shall be paid in a single lump sum.

Article V

Modifications to Payment Schedules


5.1	Participant’s Right to Modify. A Participant may modify the payment year for an Account provided such modification complies with the requirements of this Article V.


5.2	Time of Election. The date on which a modification election is submitted in accordance with the procedures established by the Committee must be at least 12 months prior to the date on which payment is scheduled to commence prior to the modification.


5.3	Date of Payment under Modified Payment Schedule. The date payments are to commence under the modified Payment Schedule must be no earlier than five years after the date payment would have commenced prior to the modification. Under no circumstances may a modification election result in an acceleration of payments in violation of Code Section 409A.


5.4	Effective Date. A modification election submitted in accordance with this Article V is irrevocable upon receipt by the Committee and becomes effective 12 months after such date.

5.5

Effect on Accounts. An election to modify the payment year of a Specified Date Account is limited to such Account, and shall not be construed to affect the payment year of any other Specified Date Account. The modification of the payment year upon Separation applies to the entire Plan Account. The Committee may restrict the ability to modify Accounts in its sole discretion, but no such restriction shall modify an election that has become effective under this Article IV.

Article VI

Administration

6.1

Plan Administration. This Plan shall be administered by the Committee which shall have discretionary authority to make, amend, interpret and enforce all appropriate rules and regulations for the administration of this Plan and to utilize its discretion to decide or resolve any and all questions, including but not limited to eligibility for benefits and interpretations of this Plan and its terms, as may arise in connection with the Plan. Claims for benefits shall be filed with the Committee and resolved in accordance with the claims procedures in Article X.

6.2

Indemnification. The Company shall indemnify and hold harmless each employee, officer, director, agent or organization, to whom or to which are delegated duties, responsibilities, and authority under the Plan or otherwise with respect to administration of the Plan, including, without limitation, the Committee and its agents, against all claims, liabilities, fines and penalties, and all expenses reasonably incurred by or imposed upon him or her or it (including but not limited to reasonable attorneys’ fees) which arise as a result of his or her or its actions or failure to act in connection with the operation and administration of the Plan to the extent lawfully allowable and to the extent that such claim, liability, fine, penalty, or expense is not paid for by liability insurance purchased or paid for by the Company. Notwithstanding the foregoing, the Company shall not indemnify any person or organization if his or her or its actions or failure to act are due to gross negligence or willful misconduct or for any such amount incurred through any settlement or compromise of any action unless the Company consents in writing to such settlement or compromise.


6.3	Delegation of Authority. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with legal counsel who shall be legal counsel to the Company.


6.4	Binding Decisions or Actions. The decision or action of the Committee in respect of any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations thereunder shall be final and conclusive and binding upon all persons having any interest in the Plan.

Article VII

Amendment and Termination


7.1	Amendment. The Committee may at any time and from time to time amend the Plan. An amendment shall not reduce the vested Account Balances of any Participant or reduce any rights of a Participant under the Plan or other Plan features with respect to Deferrals made prior to the date of any such amendment or restatement without the consent of the Participant.


7.2	Termination. The Company’s Board of Directors may terminate the Plan at any time. Upon termination of the Plan, the distribution of Account Balances as of the date of termination shall be made in the manner and at the time prescribed in the Plan, except as otherwise permitted under Code Section 409A.

Article VIII

Claims

8.1

Stock Incentive Plan Controls . Except as otherwise provided in Section 4.1(d) of the Plan, the RSUs credited to a Participant's Account shall be subject to the provisions of the Stock Incentive Plan and any applicable Award Agreement, which provisions are incorporated herein by reference, including without limitation the provisions of the Stock Incentive Plan providing for the adjustment of Awards upon certain events. Section 8.2 and 8.3 of the Plan shall apply to any controversy or claim that cannot be resolved under the provisions of the Stock Incentive Plan.

8.2

Filing a Claim. Any controversy or claim arising out of or relating to the Plan shall be filed in writing with the Committee which shall make all determinations concerning such claim. Any claim filed with the Committee and any decision by the Committee denying such claim shall be in writing and shall be delivered to the Participant or Beneficiary filing a claim (“Claimant”). Notice of a denial of benefits will be provided within 90 days of the Committee’s receipt of the Claimant's claim for benefits. If the Committee determines that it needs additional time to review the claim, the Committee will provide the Claimant with a notice of the extension before the end of the initial 90-day period. The extension will not be more than 90 days from the end of the initial 90-day period and the notice of extension will explain the special circumstances that require the extension and the date by which the Committee expects to make a decision.

8.3

Legal Action. A Claimant may not bring any legal action, including commencement of any arbitration, relating to a claim for benefits under the Plan unless and until the Claimant has followed the claims procedures under the Plan and exhausted his or her administrative remedies under such claims procedures. Any such legal action must be commenced within one year of a final determination hereunder with respect to such claim.

If a Participant or Beneficiary prevails in a legal proceeding brought under the Plan to enforce the rights of such Participant or any other similarly situated Participant or Beneficiary, in whole or in part, the Company shall reimburse such Participant or Beneficiary for all legal costs, expenses, attorneys’ fees and such other liabilities incurred as a result of such proceedings.

Article IX

General Provisions

9.1

Application of Code Section 409A. Although the Company makes no guarantee with respect to the tax treatment of Deferrals, payments and benefits under the Plan, the Plan is intended to constitute a plan of deferred compensation that meets the requirements for deferral of income taxation under Code Section 409A, and shall be limited, construed, administered and interpreted in accordance with such intent. Accordingly, the Committee and the Company reserves the right to amend the provisions of the Plan at any time in order to avoid the imposition of additional tax, interest or penalties under Code Section 409A. The Committee, pursuant to its authority to interpret the Plan, may sever from the Plan or any Deferral Agreement any provision or exercise of a right that otherwise would result in a violation of Code Section 409A. In no event shall the Company or any officer, employee, director, or agent of the Company be liable for any tax, interest or penalty that may be imposed on a Participant or his or her beneficiary.

9.2

Assignment. No interest of any Participant, spouse or Beneficiary under this Plan and no benefit payable hereunder shall be assigned as security for a loan, and any such purported assignment shall be null, void and of no effect, nor shall any such interest or any such benefit be subject in any manner, either voluntarily or involuntarily, to anticipation, sale, transfer, assignment or encumbrance by or through any Participant, spouse or Beneficiary. Notwithstanding anything to the contrary herein, however, the Committee has the discretion to make payments to an alternate payee in accordance with the terms of a domestic relations order (as defined in Code Section 414(p)(1)(B)).

The Company may assign any or all of its liabilities under this Plan in connection with any restructuring, recapitalization, sale of assets or other similar transactions affecting a Company without the consent of the Participant.


9.3	No Legal or Equitable Rights or Interest. No Participant or other person shall have any legal or equitable rights or interest in this Plan that are not expressly granted in this Plan. The Company make no representations or warranties as to the tax consequences to a Participant or a Participant’s beneficiaries resulting from a deferral of income pursuant to the Plan.


9.4	Headings. The headings of Sections are included solely for convenience of reference, and if there is any conflict between such headings and the text of this Plan, the text shall control.

9.5

Invalid or Unenforceable Provisions. If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof and the Committee may elect in its sole discretion to construe such invalid or unenforceable provisions in a manner that conforms to applicable law or as if such provisions, to the extent invalid or unenforceable, had not been included.

9.6

Lost Participants or Beneficiaries. Any Participant or Beneficiary who is entitled to a benefit from the Plan has the duty to keep the Committee advised of his or her current mailing address. If benefit payments are returned to the Plan or are not presented for payment after a reasonable amount of time, the Committee shall presume that the payee is missing. The Committee, after making such efforts as in its discretion it deems reasonable and appropriate to locate the payee, shall stop payment on any uncashed checks and may discontinue making future payments until contact with the payee is restored.

9.7

Facility of Payment to a Minor. If a distribution is to be made to a minor, or to a person who is otherwise incompetent, then the Committee may, in its discretion, make such distribution: (i) to the legal guardian, or if none, to a parent of a minor payee with whom the payee maintains his or her residence, or (ii) to the conservator or committee or, if none, to the person having custody of an incompetent payee. Any such distribution shall fully discharge the Committee, the Company, and the Plan from further liability on account thereof.


9.8	Governing Law. To the extent not preempted by ERISA, the laws of the State of Florida shall govern the construction and administration of the Plan.

IN WITNESS WHEREOF, the undersigned executed this Plan as of the 15th day of November, 2017, to be effective as of the Effective Date.

Kforce, Inc.

By: Rebecca Pickett (Print Name)

Its: Director of SEC Reporting (Title)

/s/ REBECCA PICKETT (Signature)

February 8, 2016

CONFIDENTIAL AND PERSONAL

Robert Edmund

Kforce Inc.

1001 E. Palm Avenue

Tampa, FL 33605

Re: Executive Employment Agreement

Dear Rob:

We are grateful for the leadership and commitment you have demonstrated to our Firm. In recognition of your continuing contributions to our Firm, and to help retain your services going forward, Kforce Inc. (Kforce) would like to offer you continued employment on the terms and conditions outlined below (Agreement):

Employment . Kforce agrees to employ you, and you agree to be employed, as its General Counsel and Chief Compliance Officer. In this role, you agree to honor Kforce’s policies and procedures, and you also agree to serve in other senior executive capacities for Kforce’s subsidiaries and affiliates as requested. This position requires your full-time and exclusive business attention, although you may participate in outside civic, charitable, and academic organizations or interests provided that such activities do not materially interfere with your Kforce duties and responsibilities.

Compensation . Your annual base salary will be $325,000 and may be adjusted from time to time. You will also be entitled to participate in the management bonus and long-term incentive compensation plans applicable to similarly situated senior Kforce executives. Please note that no bonus is earned if you are not actively employed at the time of bonus payout. Also, for individuals hired after the start of the year, bonuses are typically prorated for the first year based on salary earned during the bonus performance period.


3.	Additional Benefits . You will also be entitled to all rights and benefits under any deferred compensation, health, insurance, and leave plan or policy that Kforce may provide to similarly situated executives, subject to the terms and conditions of those plans and policies.


4.	Change in Control . If a Change in Control occurs at any time during your employment, you will be entitled to receive the compensation and benefits outlined in this Section 4:


a.	For purposes of this Agreement, a Change in Control means:

the acquisition by any person or entity, including a “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of fifty percent (50%) or more of the combined voting power of the then-outstanding voting securities of Kforce Inc. that may be cast for the election of directors (the "Outstanding Kforce Voting Securities"); provided, however, that for purposes of this clause (i), the following acquisitions shall not constitute a Change in Control: (v) any acquisition directly from Kforce Inc. or one of its affiliates, (w) any acquisition by Kforce Inc. or one of its affiliates, (x) any acquisition by any executive benefit plan (or related trust) sponsored or maintained by Kforce Inc. or one of its affiliates, (y) any acquisition by any corporation pursuant to a transaction that complies with clauses (A), (B) and (C) of clause (iii) of this section, 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 Kforce Inc. (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of Kforce Inc. (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 Kforce'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, consolidation, sale or other disposition of all or substantially all of the assets of Kforce Inc. and its affiliates, taken together (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 Kforce Common Stock and Outstanding Kforce 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 Kforce Inc. or all or substantially all of Kforce Inc.’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 Kforce Common Stock and Outstanding Kforce 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 Kforce 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 Kforce Inc.’s shareholders of a complete liquidation or dissolution of Kforce Inc.


b.	Upon a Change in Control:

the acquiring or surviving entity shall not be entitled to reduce, terminate or adversely affect any compensation or benefits described in this Agreement, even in connection with a reduction in such benefits applicable to all similarly situated executives. If the continuation of any benefit provided to you would violate any law or statute, the acquiring or surviving entity shall pay to you the cash equivalent of any benefit you have lost; and


ii.	all stock options, restricted stock awards, equity-based incentive plans, deferred compensation, SERP and similar grants previously or immediately thereafter made that are unvested shall immediately fully vest effective as of the date of the Change in Control.


c.	If a Change of Control occurs and your employment is terminated at any time prior to the first anniversary of the Change in Control date other than for Cause, by your death or disability, or by you for any reason other than Good Reason, you shall be entitled to receive:


i.	all payments and benefits provided in Section 4(b) above;


ii.	salary through your termination date, plus any unpaid benefits and awards (including both cash and stock components) that pursuant to the terms of any plans have been earned and are otherwise payable;


iii.	as severance pay, one year’s base salary at the highest rate in effect prior to or after the Change in Control, payable in a lump sum (less applicable taxes and deductions) within thirty (30) days of your date of termination;


iv.	continuation of all benefits enjoyed by you on the date of your termination for a period of one year after the date of your termination;

one times the average of the amount of your last two years’ bonuses, paid in a lump sum (less applicable taxes and withholdings) within thirty (30) days of your date of termination, computed as follows: the acquiring or surviving entity shall compute the average of your last two years’ bonuses by including the greater of (A) the bonus, if any, that you already earned at the time of termination related to the calendar year of the termination, or (B) the bonus, if any, that you earned for the second full calendar year preceding your termination. Additionally, in the event you received in any relevant year a grant of stock, restricted stock, stock options, stock appreciation rights or an alternative long-term incentive during any relevant year (a “Grant”), then the acquiring or surviving entity shall compute the average of your 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 a restricted stock grant, 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 grant or stock appreciation right, the imputed present value of such options or rights 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 the grant; provided, however, the amount attributed to (i), (ii), (iii), and (iv) above shall not exceed $200,000 in the aggregate. If a Change in Control event occurs before you have been employed two years, the calculation shall be based on the higher of (X) the projected cash, stock, and long-term-incentive bonus compensation for the full current calendar year as performed immediately prior to the Change in Control, or (Y) your projected cash, stock, and long-term-incentive bonus compensation for the full calendar year preceding the Change in Control.


vi.	up to 12 months of outplacement services, the scope and provider of which shall be selected by you in your sole discretion, provided the overall cost of such benefits does not exceed $10,000.

As a condition to your receipt of items (iii), (iv), (v), and (vi), you must first execute and not revoke a standard release agreement acceptable to Kforce or its acquiring or succeeding entity.


d.	For purposes of this Change of Control and certain other sections of your Agreement, “Cause” shall mean any of the following:


i.	you are convicted by a court of competent jurisdiction or enter a guilty plea or a plea of nolo contendere for any felony; or


ii.	you breach any provision of this Agreement and your breach results in material injury to Kforce or its acquiring or surviving entity; or


iii.	you engage in misconduct, a policy violation, dishonesty or fraud concerning Kforce or its acquiring or surviving entity’s business or affairs and your misconduct, policy violation, dishonesty or fraud results in material injury to Kforce or its acquiring or surviving entity.


e.	Your employment shall not be subject to termination for Cause without: (i) reasonable notice to you setting forth the reasons for the intention to terminate in detail, and (ii) an opportunity for you to cure any such breach, if possible, within thirty days after receiving such notice.


f.	You may terminate your employment under this Agreement and all of your obligations under this Agreement accruing after the date of such termination (other than your obligations under Sections 7, 8, and 9) if the termination is for "Good Reason." For purposes of this Change in Control Section, “Good Reason” means:


i.	failure by our acquirer or surviving entity to perform any of its obligations in this Agreement other than an isolated, insubstantial and inadvertent failure not occurring in bad faith;


ii.	the diminution of your salary or a material diminution of your duties or benefits, except in connection with the termination of your employment for Cause or as a result of your death, disability, or termination by you other than for Good Reason;

iii. any failure by Kforce or its affiliates to obtain the assumption of this Agreement by any Kforce successor;


iv.	relocation of your position or home office to a location greater than 30 miles from your office prior to the Change of Control; or


v.	any attempt to terminate you for Cause that does not result in a valid termination for Cause.

Your termination of employment will not constitute a termination for Good Reason unless you first provide written notice to Kforce or its acquiring or surviving entity of the existence of the Good Reason within 90 days following the Good Reason occurrence, and the Good Reason remains uncorrected for more than thirty days following such written notice, and the effective date of your termination is within one year following the Good Reason occurrence.

Section 409A . With respect to the payments provided by this Agreement in Section 5 upon termination of your 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 your termination would exceed an amount (the "Minimum Amount") equal to two times the lesser of (i) your annualized compensation as in effect for the calendar year immediately preceding the calendar year during which your termination 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 your termination occurs, then, to the extent necessary to avoid the imposition of additional income taxes or penalties or interest on you under Section 409A of the Code, (x) Kforce or its acquiring or surviving entity shall pay during the first six months following your termination, 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) Kforce or its acquiring or surviving entity shall accumulate the portion of the Cash Severance Amount that exceeds the Minimum Amount and that you would otherwise be entitled to receive during the first six months following your date of termination and shall pay such accumulated amount to you in a lump sum on the first day of the seventh month following your termination date, and (z) Kforce or its acquiring or surviving entity shall pay the remainder of the Cash Severance Amount, if any, on and after the first day of the seventh month following your date of termination at the time(s) and in the form(s) provided by the applicable section(s) of this Agreement.


6.	Termination . Your employment will end at the earlier of:


a.	your death.

your resignation, in which case you will be paid your Base Salary through the effective date of your resignation plus bonus compensation only to the extent you (i) have completed the relevant full bonus period or performance measurement cycle specified in the relevant bonus plan, and (ii) were actively employed on the date the bonus is paid to similarly situated executives, plus any stock that has already vested at the time of your resignation, subject to the terms of the stock grant. All benefits end on your last day of employment. You agree to provide 30 days advance written notice to Kforce of your intent to resign, and you agree that if you provide a longer period of notice, Kforce has the right to shorten the time period of your continued employment to 30 days following first notification of your intent to resign.

termination by Kforce for Cause as defined in section 4(d) (with or without a Change in Control), in which case you will be paid your Base Salary through the effective date of your termination as determined by Kforce plus bonus compensation only to the extent you (i) have completed the relevant full bonus period or performance measurement cycle specified in the relevant bonus plan, and (ii) were actively employed on the date the bonus is paid to similarly situated executives, plus any stock that has already vested at the time of your resignation, subject to the terms of the stock grant. All benefits end on your last day of employment.

termination due to any disability that prevents you, after accounting for all reasonable accommodations, from performing the essential functions of your position. For termination due to disability, you will be paid your Base Salary through the effective date of your termination plus bonus compensation only to the extent you (i) have completed the relevant full bonus period or performance measurement cycle specified in the relevant bonus plan, and (ii) were actively employed on the date the bonus is paid to similarly situated executives, plus any stock that has already vested at the time of your resignation, subject to the terms of the stock grant. Except for certain disability-related benefits that may continue depending on the applicability of Kforce benefit plans, all other benefits end on your last day of employment.


e.	termination by Kforce without Cause (as defined in section 4(d)). If your employment is terminated without Cause in connection with a Change of Control as described in Section 4, you will be entitled to the severance and benefits outlined in that Section and no additional pay or benefits are applicable under this paragraph.

If your employment is terminated without Cause separate from a Change of Control as described in Section 4, your termination will be effective at the date set by Kforce and you will not be eligible for benefits following your termination, but you will be entitled to receive (i) your Base Salary through the effective date of your termination as determined by Kforce; plus (ii) one times your Base Salary then in effect, and (iii) one times the average of your last two years’ bonuses by including the greater of (A) the bonus, if any, that you already earned at the time of termination related to the calendar year of the termination, or (B) the bonus, if any, that you earned for the second full calendar year preceding your termination. Such payments shall be made in a lump sum within 30 days following your effective date of termination. For the avoidance of doubt, no long-term incentive payment is included in the bonus calculation for a termination without Cause that is not connected to a Change of Control as described in Section 4, although you will be entitled to any stock that has already vested at the time of your effective date of termination, subject to the terms of the stock grant.

All severance pay and benefits provided in this section are contingent on you first executing and not revoking a standard release agreement acceptable to Kforce. Such severance will be forfeited and must be paid back to the extent already paid if you violate Section 7, 8 or 9 of this Agreement.

Confidentiality . You acknowledge that as a result of your employment, you will have access to and receive Kforce trade secrets, valuable confidential business and professional information, substantial relationships with specific prospective or existing clients, contractors, or customers, and goodwill associated with our ongoing business, all of which are of particular significance to Kforce and constitute legitimate business interests that Kforce has an interest in protecting. Therefore, you agree that, except for proper Kforce business purposes, at all times during your employment and ending on the second anniversary of your date of employment termination (the "Restriction Period"), you will not 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 concerning confidential, proprietary, or trade secret information belonging to Kforce or any of its affiliates. You acknowledge and agree 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 business of Kforce or its affiliates, held or created by you, whether confidential or not, are the property of Kforce and will not be used or retained by you except on Kforce’s behalf in the course of your employment, and will not be retained by you upon termination of your employment.

Non-Solicitation . At all times during the Restriction Period, you agree you will not, directly or indirectly, solicit, induce, influence, combine or conspire with, or attempt to solicit or induce, any employee, vendor, client, contractor, or supplier of Kforce or any of its affiliates to terminate or adversely alter his, her, its, or their employment, business, or other relationship with Kforce or any of its affiliates. Without limiting this obligation, you further agree, during the Restriction Period, to refrain from directly or indirectly soliciting business from any client of Kforce or any of its affiliates with whom you had contact during the term of your Kforce employment. If you breach any term contained in this section or section 7, you immediately waive any right or entitlement to any payment described in this Agreement, and you will pay to Kforce an amount equal to any portion of any post-employment payments paid to you under this Agreement prior to Kforce learning of your breach, in addition to any damages Kforce may be able to recover. By signing below, you specifically acknowledge that the restrictions on your activity set forth in this section and section 8 are required for

Kforce’s reasonable protection and are a material inducement for Kforce to retain or continue to retain your services. You also agree that in the event of the violation by you of either of these sections of this Agreement, Kforce will suffer irreparable harm and will be entitled to equitable relief, including an order requiring specific performance of the terms of these sections, in addition to any damages that may be recoverable.


9.	Property .

During the term of this Agreement, you agree not to remove from our 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 Kforce unless necessary or appropriate in accordance with the duties and responsibilities required by or appropriate for your position. To the extent that these materials or property are removed, you agree to return them to their proper files or places of safekeeping as promptly as possible after the removal serves its specific purpose. You agree not to make, retain, remove or distribute any copies of any such materials or property for any reason whatsoever except as may be necessary in performing your duties, and you agree not to divulge to any third person the nature or contents of any of these materials or property or of any other oral or written information to which you may have access or with which for any reason you may become familiar, except as disclosure is necessary in performing your duties. Upon the terminating employment for any reason, you agree to leave with or return to us all originals and copies of any such material or property in your possession, whether prepared by you or by others.

You agree 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 that have been or are developed or created in whole or in part by you during your employment (collectively, "Intellectual Property"), shall be and remain forever Kforce’s sole and exclusive property.

You acknowledge that all 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 this Agreement, you may retain an interest in any Intellectual Property that is not copyrightable, you agree to irrevocably assign and transfer to Kforce any and all right, title, or interest that you may have in the Intellectual Property under any law, in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration.


d.	You further agree to reveal promptly all information relating to Intellectual Property to appropriate Kforce officers and to cooperate with Kforce and its affiliates and execute such documents as may be necessary or appropriate to effect the purposes of this section.

If Kforce is unable after reasonable effort to secure your signature on any of the documents referenced in Section 10(d) above, whether because of your physical or mental incapacity or for any other reason, you hereby irrevocably designate and appoint Kforce and its duly authorized officers and agents as your agent and attorney-in-fact, to act for and on your behalf 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 you.

10.

Successors . Kforce will require any successor (whether direct or indirect by purchase, merger, consolation or otherwise) to all or substantially all of its business or assets to (i) expressly assume and agree to perform this Agreement in the same manner and the same extent it would be required to perform it as if no such succession had taken place; and (ii) notify you of the assumption of this Agreement within ten days of such assumption. Failure 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, "Kforce" shall mean Kforce Inc. and any successor to its business or assets that assumes and agrees to perform this Agreement by operation of law or otherwise. This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, and distributees, devisees and legatees.

11.

Prior Employment Agreements . You represent that you have not executed any agreement with any previous employer that may impose restrictions limiting your ability to fully and completely perform all duties associated with your Kforce position. You also agree that, in the course of performing your duties, you will not utilize or disclose any confidential or proprietary information belonging to any previous employer.


12.	Transferability . Kforce’s rights and obligations under this Agreement are transferable and all covenants and agreements shall inure to the benefit of and be enforceable by or against its successors and assigns. Your rights and obligations in this Agreement are not transferable or assignable to any third party.


13.	Attorneys’ 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 attorneys’ fees and costs incurred by such party in enforcing this Agreement (including fees incurred on any appeal).

14.

Modifications and Waivers . No modifications or waivers of any provision of this Agreement will be binding or valid unless in writing and executed by both parties. Either party's failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, or prevent that party 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.


15.	Severability . The invalidity or unenforceability of any particular provision of this Agreement shall not affect any other provision, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted, and such provision shall be deemed modified to the extent necessary to make it enforceable.


16.	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. 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.


17.	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 Federal Express or UPS service to the parties at the following addresses:

To the Employer: Kforce Inc.

1001 E. Palm Ave

Tampa, Florida 33605

Attn: General Counsel


To You:	The last address on file in Kforce’s principal human resources system of record.

18.

Arbitration . Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by binding arbitration in Tampa, Florida in accordance with the employment arbitration 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.


19.	Voluntary Agreement . Both parties have had adequate time to review this Agreement and consult an attorney of their choice prior to signing this Agreement. Their execution of this agreement is voluntary and neither party has relied on any other representations or promises in entering into this Agreement other than what is reflected in this Agreement.


20.	Surviving Terms . Notwithstanding termination of this Agreement and payment of all required sums under this Agreement, sections 7, 8, and 9 shall continue in effect as provided by the terms of those sections.


21.	Tax Withholdings and Employee-Authorized Deductions . Kforce may withhold such federal, state, and local taxes from any amounts payable to you under this Agreement as may be required to be withheld under applicable law or as otherwise permitted under the terms of any applicable Kforce compensation plan. Kforce may also withhold employee-authorized deductions.

22.

Entire Agreement . This Agreement, together with any other confidentiality, nonsolicitation, and noncompetition agreements between you and Kforce or any of its affiliates, comprises the entire agreement between you and Kforce concerning the subject matters covered by these agreements. This Agreement supersedes all prior agreements and understandings between the parties with respect to its subject matter and may not be modified or terminated orally.

Rob, we appreciate your service as part of our senior leadership team. Please acknowledge your agreement to the terms above by signing and returning an original of this Agreement to me at your earliest convenience.

AGREED and ACKNOWLEDGED:

KFORCE INC.

By: /s/ DAVID M KELLY /s/ ROBERT EDMUND

David M. Kelly Robert Edmund

Chief Financial and Administrative Officer

KFORCE INC.

2017 STOCK INCENTIVE PLAN

RESTRICTED STOCK AWARD AGREEMENT



Grantee:
Type of Award:
Date of Grant:
Grant (# of awards) :
Fair Market Value on Date of Grant:

Kforce Inc. (the “Firm”), pursuant to its 2017 Stock Incentive Plan (the "Plan"), hereby grants the shares summarized above to stated Grantee. The shares are subject to the terms and conditions set forth within the Plan, and unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Agreement; however, certain terms of this award are provided below:

Vesting

Subject to the terms and conditions within Section 5 of the Plan, the restricted stock awarded to the Grantee vests, as follows: ¨ ____________________________________

Other Terms

The following “Other Terms” are applicable to this award unless otherwise addressed in an employment agreement between the employee and the Firm.

Dividend and Voting Rights

Dividend Rights:

¨ Right to dividends or dividend equivalents ¹

¨ No right to dividends or dividend equivalents rights ²

Voting Rights: the unvested restricted stock contain voting rights unless the shares have been forfeited by the grantee.

² The grantee shall not be entitled to any future payments to compensate the grantee for the award not containing dividend rights.

Tax Withholding

83(b) Election

In order for an election pursuant to IRS Code 83(b) to be valid, you are required to provide a signed election form to Kforce. Please consult your tax advisor prior to making any such 83(b) election.

General Disclaimer

The Firm undertakes no duty or responsibility for providing periodic updates to you in the future as it relates to this award.

Approval of Award (Grantor):

________________________ ________________________

(Name Printed) (Signature)

Acceptance of Award (Grantee):

________________________ ________________________

(Name Printed) (Signature)

* By signing this Award Agreement, you acknowledge receipt of the (i) ) Prospectus covering common stock issuable upon the exercise of stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards granted under the 2017 Stock Incentive Plan and (ii) a copy of our Annual Report for our most recently completed fiscal year.

KFORCE INC.

2017 STOCK INCENTIVE PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT



Grantee:
Type of Award:
Date of Grant:
Grant (# of awards) :
Fair Market Value on Date of Grant:

Kforce Inc. (the “Firm”), pursuant to its 2017 Stock Incentive Plan (the "Plan"), hereby grants the RSUs summarized above to stated Grantee, pursuant to the Other Stock-Based Award provisions of Section 9 of the Plan. Each RSU represents the right to receive a share of the Firm's common stock if the RSU becomes vested in accordance with this Agreement. The RSUs are subject to the terms and conditions set forth within the Plan, and unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Agreement; however, certain terms of this award are provided below:

Vesting

¨ ____________________________________

Dividend Equivalents

Prior to the issuance of shares in settlement of the RSUs granted above, the RSUs contain the following terms as it relates to dividend equivalents:

Dividend Equivalent Rights:

¨ Right to dividend equivalents ¹

¨ No right to dividend equivalents ²

² The grantee shall not be entitled to any future payments to compensate the grantee for the award not containing dividend equivalent rights.

Timing and Manner of Settlement of Vested RSUs

Code Section 409A

In the case of any RSUs that constitute a deferral of compensation under Code Section 409A ("Code Section 409A RSUs"), the following restrictions will apply:

•


•	The settlement of Code Section 409A RSUs may not be accelerated by the Firm except to the extent permitted under Code Section 409A. The Firm may, however, accelerate vesting of Code Section 409A RSUs without changing the settlement terms of such Code Section 409A RSUs.

General Disclaimer

The Firm undertakes no duty or responsibility for providing periodic updates to you in the future as it relates to this award.

Approval of Award (Grantor):

________________________ ________________________

(Name Printed) (Signature)

Acceptance of Award (Grantee):

________________________ ________________________

(Name Printed) (Signature)

* By signing this Award Agreement, you acknowledge receipt of the (i) Prospectus covering common stock issuable upon the exercise of stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards granted under the 2017 Stock Incentive Plan and (ii) a copy of our Annual Report for our most recently completed fiscal year.

Exhibit 21

KFORCE INC.

SUBSIDIARIES (DIRECT OR INDIRECT)

AS OF FEBRUARY 23, 2018



Name of Subsidiary		Jurisdiction of Incorporation or Formation
KFAH, LLC		Florida
KFAH II, LLC		Florida
Kforce.com, Inc.		Florida
Romac International, Inc.		Florida
Kforce Flexible Solutions, LLC		Florida
Kforce Staffing Solutions of California, LLC		Florida
Kforce Global Solutions, Inc.		Pennsylvania
Kforce Government Solutions, Inc.		Pennsylvania
Kforce Government Holdings, Inc.		Florida
Kforce Services Corporation		Florida
TraumaFX Solutions, Inc.		Florida
KGS Training Technologies, Inc.		Florida

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-188631, 333-50543, 333-94563, 333-60302, 333-142620, 333-142623, 333-144470, 333-166545, 333-168526, 333-168529, 333-211008, and 333-217541 on Form S-8 of our report dated February 23, 2018 , relating to the financial statements and financial statement schedules of Kforce Inc. and subsidiaries, and the effectiveness of Kforce Inc. and subsidiaries’ internal control over financial reporting, appearing in this Annual Report on Form 10-K of Kforce Inc. and subsidiaries for the year ended December 31, 2017 .

/s/ Deloitte & Touche LLP

Tampa, Florida

February 23, 2018

Exhibit 31.1

CERTIFICATIONS

I, David L. Dunkel, certify that:

1. I have reviewed this annual report on Form 10-K 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: February 23, 2018



	/s/ DAVID L. DUNKEL
	David L. Dunkel,
	Chief Executive Officer
	(Principal Executive Officer)

Exhibit 31.2

CERTIFICATIONS

I, David M. Kelly, certify that:

1. I have reviewed this annual report on Form 10-K of Kforce Inc.;

(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: February 23, 2018



	/s/ DAVID M. KELLY
	David M. Kelly,
	Senior Vice President, Chief Financial Officer
	(Principal Financial Officer)

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 Annual Report of Kforce Inc. (“Kforce”) on Form 10-K for the fiscal year ended December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-K”), 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-K 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-K fairly presents, in all material respects, the financial condition and results of operations of Kforce.

Date: February 23, 2018



	/s/ DAVID L. DUNKEL
	David L. Dunkel,
	Chief Executive Officer
	(Principal Executive Officer)

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 Annual Report of Kforce Inc. (“Kforce”) on Form 10-K for the fiscal year ended December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-K”), 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-K 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-K fairly presents, in all material respects, the financial condition and results of operations of Kforce.

Date: February 23, 2018



	/s/ DAVID M. KELLY
	David M. Kelly,
	Senior Vice President, Chief Financial Officer
	(Principal Financial Officer)