KFORCE INC - FORM 10-Q - November 2, 2011

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EX-32.2 - CERTIFICATION BY THE CHIEF FINANCIAL OFFICER OF KFORCE INC. - KFORCE INC	d223016dex322.htm
EX-32.1 - CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER OF KFORCE INC. - KFORCE INC	d223016dex321.htm
EX-31.2 - CERTIFICATION BY THE CHIEF FINANCIAL OFFICER OF KFORCE INC. - KFORCE INC	d223016dex312.htm
EX-31.1 - CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER OF KFORCE INC. - KFORCE INC	d223016dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

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

For the transition period from to

Commission file number 000-26058

Kforce Inc.

(Exact name of registrant as specified in its charter)

FLORIDA

59-3264661

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1001 East Palm Avenue

TAMPA, FLORIDA

33605

(Address of principal executive offices)

(Zip-Code)

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

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

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

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

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

The number of shares outstanding of the registrant’s common stock as of October 31, 2011, was 37,869,878.

KFORCE INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2011

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements.	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	30
Item 4.	Controls and Procedures.	30

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings.	31
Item 1A.	Risk Factors.	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	31
Item 3.	Defaults Upon Senior Securities.	31
Item 4.	(Removed and Reserved).	31
Item 5.	Other Information.	31
Item 6.	Exhibits.	32

SIGNATURES		33

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

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

This report, particularly Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and Part II, Item 1A, Risk Factors, and the documents we incorporate into this report, contains certain statements that are, or may be deemed to be, forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are made in reliance upon the protections provided by such acts for forward-looking statements. Such statements may include, but may not be limited to, projections of revenue, income, losses, cash flows, capital expenditures, future prospects, anticipated costs and benefits of proposed (or future) acquisitions, integration of acquisitions, plans for future operations, capabilities of business operations, effects of interest rate variations, our ability to obtain financing and favorable terms, financing needs or plans, plans relating to services of Kforce, estimates concerning the effects of litigation or other disputes, estimates concerning our ability to collect on our accounts receivable, expectations of the economic environment, developments within the staffing sector including, but not limited to, the penetration rate and growth in temporary staffing, as well as assumptions as to any of the foregoing and all statements that are not based on historical fact but rather reflect our current expectations concerning future results and events. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the Risk Factors and MD&A sections. In addition, when used in this discussion, the terms “anticipates,” “estimates,” “expects,” “intends,” “plans,” “believes,” “will,” “may,” “could,” “should” and variations thereof and similar expressions are intended to identify forward-looking statements.

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

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements.

KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


	Three Months Ended				Nine Months Ended
	September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
Flexible billings	$	277,123	$	248,960	$	791,220	$	703,993
Search fees		11,868		10,559		34,148		28,319

Net service revenues		288,991		259,519		825,368		732,312
Direct costs of services		196,953		176,054		568,169		502,307

Gross profit		92,038		83,465		257,199		230,005
Selling, general and administrative expenses		75,134		69,321		214,520		196,483
Depreciation and amortization		3,072		3,236		9,619		9,349

Income from operations		13,832		10,908		33,060		24,173
Other expense, net		301		387		952		1,030

Income before income taxes		13,531		10,521		32,108		23,143
Income tax expense		5,085		4,077		12,037		8,847

Net income		8,446		6,444		20,071		14,296
Other comprehensive income:
Defined benefit pension and postretirement plans, net of tax		17		15		45		46

Comprehensive income	$	8,463	$	6,459	$	20,116	$	14,342


Earnings per share – basic	$	0.23	$	0.16	$	0.52	$	0.36
Earnings per share – diluted	$	0.22	$	0.16	$	0.50	$	0.35

Weighted average shares outstanding – basic		37,417		39,523		38,943		39,429
Weighted average shares outstanding – diluted		38,228		40,384		39,882		40,374

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)


	September 30, 2011		December 31, 2010
ASSETS
Current Assets:
Cash and cash equivalents	$	1,025	$	1,055
Trade receivables, net of allowances of $2,834 and $4,021, respectively		186,843		148,507
Income taxes receivable		44		5,675
Deferred tax asset, net		3,838		4,950
Prepaid expenses and other current assets		6,875		5,014

Total current assets		198,625		165,201
Fixed assets, net		35,854		38,130
Other assets, net		31,449		32,941
Deferred tax asset, net		9,518		8,907
Intangible assets, net		6,873		7,787
Goodwill		138,078		138,078

Total assets	$	420,397	$	391,044


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and other accrued liabilities	$	36,847	$	30,602
Accrued payroll costs		58,780		54,461
Credit facility – current		—		10,825
Other current liabilities		1,337		4,185
Income taxes payable		895		250

Total current liabilities		97,859		100,323
Long-term debt – credit facility		59,384		—
Long-term debt – other		1,755		2,103
Other long-term liabilities		34,749		34,801

Total liabilities		193,747		137,227


Commitments and contingencies
Stockholders’ Equity:
Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding		—		—
Common stock, $0.01 par; 250,000 shares authorized, 68,514 and 66,542 issued, respectively		685		665
Additional paid-in capital		368,685		355,869
Accumulated other comprehensive loss		(1,435)		(1,480)
Retained earnings		82,050		61,979
Treasury stock, at cost; 30,494 and 24,823 shares, respectively		(223,335)		(163,216)

Total stockholders’ equity		226,650		253,817

Total liabilities and stockholders’ equity	$	420,397	$	391,044

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT

OF CHANGES IN STOCKHOLDERS’ EQUITY

(IN THOUSANDS)


	Nine Months Ended September 30, 2011
Common stock – shares:
Shares at beginning of period		66,542
Issuance of restricted stock		1,604
Exercise of stock options and stock appreciation rights		368

Shares at end of period		68,514


Common stock – par value:
Balance at beginning of period	$	665
Issuance of restricted stock		16
Exercise of stock options and stock appreciation rights		4

Balance at end of period	$	685


Additional paid-in capital:
Balance at beginning of period	$	355,869
Issuance of restricted stock		(16)
Exercise of stock options and stock appreciation rights		2,590
Income tax benefit from stock-based compensation		1,227
Employee stock purchase plan		269
Stock-based compensation expense		8,746

Balance at end of period	$	368,685


Accumulated other comprehensive loss:
Balance at beginning of period	$	(1,480)
Pension and postretirement plans, net of tax		45

Balance at end of period	$	(1,435)


Retained earnings:
Balance at beginning of period	$	61,979
Net income		20,071

Balance at end of period	$	82,050


Treasury stock – shares:
Shares at beginning of period		24,823
Open market repurchases of common stock		5,484
Shares repurchased for minimum tax withholding on restricted stock, stock option exercises and stock appreciation rights		90
Shares tendered in payment of the exercise price of stock options		131
Employee stock purchase plan		(34)

Shares at end of period		30,494


Treasury stock – cost :
Balance at beginning of period	$	(163,216)
Open market repurchases of common stock		(56,364)
Shares repurchased for minimum tax withholding on restricted stock, stock option exercises and stock appreciation rights		(1,585)
Shares tendered in payment of the exercise price of stock options		(2,401)
Employee stock purchase plan		231

Balance at end of period	$	(223,335)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)


	Nine Months Ended
	September 30, 2011		September 30, 2010
Cash flows from operating activities:
Net income	$	20,071	$	14,296
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Deferred income tax provision, net		478		1,777
Depreciation and amortization		9,619		9,349
Stock-based compensation		8,746		4,537
Recovery of bad debts on accounts receivable and other accounts receivable reserves		(936)		(1,232)
Pension and postretirement benefit plans expense		3,280		3,021
Alternative long-term incentive award		12		841
Deferred compensation liability (decrease) increase, net		(1,873)		1,038
Tax benefit attributable to stock-based compensation		1,227		1,538
Excess tax benefit attributable to stock-based compensation		(862)		(1,051)
Loss (gain) on cash surrender value of corporate-owned life insurance		2,560		(166)
Other		295		361
(Increase) decrease in operating assets:
Trade receivables, net		(37,399)		(29,784)
Income tax refund receivable		5,631		(2,283)
Prepaid expenses and other current assets		(1,862)		(1,124)
Other assets, net		73		(300)
Increase (decrease) in operating liabilities:
Accounts payable and other accrued liabilities		3,482		2,852
Accrued payroll costs		4,820		10,060
Income taxes payable		645		(6)
Other long-term liabilities		(4,087)		(863)

Cash provided by operating activities		13,920		12,861


Cash flows from investing activities:
Capital expenditures		(4,336)		(34,639)
Premiums paid for corporate-owned life insurance policies		(2,450)		(2,686)
Proceeds from borrowings against cash surrender value of corporate-owned life insurance policies		—		4,959
Other		40		273

Cash used in investing activities		(6,746)		(32,093)


Cash flows from financing activities:
Proceeds from bank line of credit		385,260		344,930
Payments on bank line of credit		(336,701)		(327,930)
Payments of capital expenditure financing		(1,184)		(1,421)
Payments of deferred loan financing costs		(447)		—
Short-term vendor financing		303		(278)
Excess tax benefit attributable to stock-based compensation		862		1,051
Open market repurchases of common stock		(53,905)		—
Proceeds from exercise of stock options, net of shares tendered in payment of the exercise price of stock options		193		1,816
Shares repurchased for minimum tax withholding on restricted stock awards, stock option exercises and SARs		(1,585)		(1,294)

Cash (used in) provided by financing activities		(7,204)		16,874

Decrease in cash and cash equivalents		(30)		(2,358)

Cash and cash equivalents at beginning of period		1,055		2,812

Cash and cash equivalents at end of period	$	1,025	$	454


Supplemental Cash Flow Information:
Cash paid during the period for:
Income taxes, net	$	3,856	$	7,949
Interest, net	$	600	$	576
Non-Cash Transaction Information:
Employee stock purchase plan	$	500	$	—
Shares tendered in payment of the exercise price of stock options and SARs	$	2,401	$	1,316
Equipment acquired under capital lease	$	881	$	1,905
Unsettled open market repurchases of common stock	$	2,459	$	—

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

KFORCE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Kforce Inc. and subsidiaries (collectively, “Kforce”) provide professional staffing services and solutions to customers in the following segments: Technology (“Tech”), Finance and Accounting (“FA”), Health and Life Sciences (“HLS”) and Government Solutions (“GS”). Kforce provides flexible staffing services and solutions on both a temporary and full-time basis. Kforce operates through its corporate headquarters in Tampa, Florida and its 62 field offices, which are located throughout the United States (the “U.S.”). One of our subsidiaries, Kforce Global Solutions, Inc. (“Global”), provides information technology outsourcing services internationally through an office in Manila, Philippines. Our international operations comprised approximately 2% of net service revenues for the nine months ended September 30, 2011 and are included in our Tech segment.

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

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, certain information and footnotes normally required by accounting principles generally accepted in the U.S. (“GAAP”) for complete financial statements have been condensed or omitted pursuant to those rules and regulations, although Kforce believes that the disclosures made are adequate to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010. In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation of our financial condition as of September 30, 2011, our results of operations and cash flows for the nine months ended September 30, 2011. The data in the condensed consolidated balance sheet as of December 31, 2010 was derived from our audited consolidated balance sheet as of December 31, 2010, as presented in our 2010 Annual Report on Form 10-K.

Our quarterly operating results are affected by the number of billing days in a quarter and the seasonality of our customers’ businesses. In addition, we experience an increase in direct costs of services and a corresponding decrease in gross profit in the first fiscal quarter of each year as a result of certain U.S. state and federal employment tax resets. Thus, the results of operations for any interim period are not necessarily indicative of, nor comparable to, the results of operations for a full year.

Principles of Consolidation

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

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most important of these estimates and assumptions relate to the following: allowance for doubtful accounts, fallouts and other accounts receivable reserves; accounting for goodwill and identifiable intangible assets and any related impairment; self-insured liabilities for workers’ compensation and health insurance; stock-based compensation; obligations for pension and postretirement benefit plans; expected annual commission rates and accounting for income taxes. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.

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.

Accounts Receivable Reserves

Kforce establishes its reserves for expected credit losses, fallouts, early payment discounts and revenue adjustments based on past experience and estimates of potential future activity. Specific to our allowance for doubtful accounts, which comprises a majority of our 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. Trade receivables are written off by Kforce after all reasonable collection efforts have been exhausted.

Accounts receivable reserves as a percentage of gross accounts receivable were 1.5% and 2.6% as of September 30, 2011 and December 31, 2010, respectively.

Revenue Recognition

We earn revenues from two primary sources: Flexible billings and Search fees. Flexible billings are recognized as the services are provided by Kforce’s temporary employees, who are Kforce’s legal employees while they are working on assignments. Kforce pays all related costs of such employment; including workers’ compensation insurance, state and federal unemployment taxes, social security and certain fringe benefits. Search fees are recognized by Kforce when employment candidates accept offers of permanent employment and are scheduled to commence employment within 30 days. Kforce records revenues net of an estimated reserve for “fallouts,” which is based on Kforce’s historical fallout experience. Fallouts occur when a candidate does not remain employed with the client throughout the contingency period, which is typically 90 days or less.

Net service revenues represent services rendered to customers less credits, discounts, rebates and allowances. Revenues include reimbursements of travel and out-of-pocket expenses (“billable expenses”) with equivalent amounts of expense recorded in direct costs of services.

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. GS provides these services under time and materials (which account for the majority of this segment’s contracts), fixed-price, and cost-plus contracts. Our GS segment does not generate any Search fees. Except as provided below, Kforce considers amounts to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectability is reasonably assured.

Revenues for time and materials contracts, which accounts for approximately 51% of this segment’s revenue, are recorded based on contractually-established billing rates at the time services are provided.

Revenues on fixed-price contracts are recognized on the basis of the estimated percentage-of-completion. Approximately 38% 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 available. Profit in a given period is reported at the expected profit margin to be achieved on the overall contract.

Direct Costs of Services

Direct costs of services are composed primarily of payroll wages, payroll taxes, payroll-related insurance for Kforce’s flexible employees, and subcontractor costs. Direct costs of permanent placement services primarily consist of reimbursable expenses. Direct costs of services exclude depreciation and amortization expense, which is presented on a separate line in the accompanying unaudited condensed consolidated statements of operations and comprehensive income.

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 must be recorded against that asset. The tax benefits of deductions attributable to employees’ disqualifying dispositions of shares obtained from incentive stock options, exercises of non-qualified stock options, and vesting of restricted stock are reflected as increases in additional paid-in capital.

Kforce 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 uses a two-step approach to recognize and measure uncertain tax positions. First, tax positions are recognized if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination, including resolution of related appeals or litigation processes, if any. Second, tax positions are measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement. Kforce recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes in the accompanying unaudited condensed consolidated financial statements.

Fair Value Measurements

Kforce uses the framework established by the Financial Accounting Standards Board (“FASB”) for measuring fair value and disclosures about fair value measurements. Kforce uses fair value measurements in areas that include, but are not limited to: the allocation of purchase price consideration to tangible and identifiable intangible assets; impairment testing of goodwill and long-lived assets; share-based compensation arrangements and capital lease obligations. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities approximate fair value because of the short-term nature of these instruments. The carrying value of our debt approximates fair value due to the variable nature of the interest rates under Kforce’s credit facility resulting from the Third Amended and Restated Credit Agreement that it entered into on September 20, 2011 with a syndicate led by Bank of America, N.A. (the “Credit Facility”). 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.

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 shorter of the estimated useful lives of the assets or the terms of the related leases, which range from three to five years.

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 such assets are considered to be impaired, the impairment charge recognized is the amount by which the carrying amounts of the assets exceed the fair value of the assets. There were no impairment charges recorded during the three and nine months ended September 30, 2011 or 2010.

Goodwill and Other Intangible Assets

Goodwill

Kforce performs an annual review to ensure that no impairment of goodwill exists or more frequently if events or changes in circumstances indicate that the value of goodwill may not be recoverable. Kforce considered factors, including continued economic developments and the overall macro-economic environment, and determined that there were no triggering events necessitating an interim review of the carrying value of our goodwill. There were no impairment charges recorded during the three and nine months ended September 30, 2011 or 2010.

Other Intangible Assets

Identifiable intangible assets arising from certain of Kforce’s acquisitions include non-compete and employment agreements, contractual relationships, customer contracts, trademarks and trade names. The impairment evaluation for indefinite-lived intangible assets, which consist of trademarks and trade names, is conducted as of December 31 of each fiscal year or more frequently if events or changes in circumstances indicate that an asset may be impaired.

For definite-lived intangible assets, Kforce has determined that the straight-line method is an appropriate methodology to allocate the cost over the periods of expected benefit, which range from one to 15 years.

There were no impairment charges recorded during the three and nine months ended September 30, 2011 or 2010.

Capitalized Software

Kforce purchases, develops, and implements new computer software to enhance the performance of our Company-wide technology infrastructure. Direct internal costs, such as payroll and payroll-related costs, and external costs incurred during the development stage of each project, are capitalized and classified as capitalized software. Kforce capitalized development-stage implementation costs of $811 and $2,283 during the three and nine months ended September 30, 2011, respectively, compared to $1,405 and $3,656 during the three and nine months ended September 30, 2010, respectively. Capitalized software development costs are classified as other assets, net in the accompanying unaudited condensed consolidated balance sheets and are being amortized over the estimated useful lives of the software, which range from one to five years, using the straight-line method.

Commissions

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

Stock-Based Compensation

Kforce accounts for stock-based compensation by measuring the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period in which the employee is required to provide service in exchange for the award, which is usually the vesting period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. For awards settled in cash, we measure compensation expense based on the fair value of the award at each reporting date, net of estimated forfeitures. For awards issued with performance conditions, Kforce recognizes compensation expense for only the portion of the award that is expected to vest, rather than record forfeitures when they occur. If the actual number of forfeitures differs from those estimated, additional adjustments to compensation expense may be required in future periods.

Accounting for Postretirement Benefits

Kforce recognizes the overfunded or underfunded status of its defined benefit postretirement plans as an asset or liability in its consolidated balance sheets and recognizes changes in that funded status in the year in which the changes occur through other comprehensive income. Kforce also measures the funded status of the defined benefit postretirement plan as of the date of its fiscal year-end, with limited exceptions.

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

Workers’ Compensation

Kforce retains the economic burden for the first $250 per occurrence in workers’ compensation claims except: (i) in states that require participation in state-operated insurance funds and (ii) for its GS segment which is fully insured for workers’ compensation claims. Workers’ compensation includes ongoing healthcare and indemnity coverage for claims and may be paid over numerous years following the date of injury. Workers’ compensation expense includes insurance premiums paid, claims administration fees charged by Kforce’s workers’ compensation administrator, premiums paid to state-operated insurance funds and an estimate for Kforce’s liability for Incurred but Not Reported (“IBNR”) 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 liability of up to $270 annually for each health insurance plan participant. 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.

Taxes Assessed by Governmental Agencies – Revenue Producing Transactions

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

Business Combinations

Kforce utilizes the acquisition method in accounting for acquisitions whereby the amount of purchase price that exceeds the fair value of the acquired assets and assumed liabilities is allocated to goodwill. Kforce recognizes intangible assets apart from goodwill if they arise from contractual or other legal rights, or if they are capable of being separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged. Assumptions and estimates are used in determining the fair value of assets acquired and liabilities assumed in a business combination. Valuation of intangible assets acquired requires that we use significant judgment in determining fair value, whether such intangibles are amortizable and, if the asset is amortizable, the period and the method by which the intangible asset will be amortized. Changes in the initial assumptions could lead to changes in amortization charges recorded in our financial statements. Additionally, estimates for purchase price allocations may change as subsequent information becomes available.

Earnings per Share

Basic earnings per share is computed as earnings divided by the weighted average number of common shares outstanding during the period. Basic weighted average shares outstanding excludes unvested shares of restricted stock (“RS”) and performance-accelerated restricted stock (“PARS”). Diluted earnings per common share is computed by dividing the earnings attributable to common shareholders for the period by the weighted average number of common shares outstanding during the period plus the dilutive effect of stock options and other potentially dilutive securities such as unvested shares of RS using the treasury stock method, except where the effect of including potential common shares would be anti-dilutive. Weighted average shares outstanding for purposes of computing diluted earnings per common share excludes contingently issuable unvested PARS unless the performance condition has been achieved as of the end of the reporting period.

The following table sets forth the computation of basic and diluted earnings per share from continuing operations for the three and nine months ended September 30:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010

Numerator:
Net income	$	8,446	$	6,444	$	20,071	$	14,296

Denominator:
Weighted average shares outstanding – basic		37,417		39,523		38,943		39,429
Common stock equivalents		811		861		939		945

Weighted average shares outstanding – diluted		38,228		40,384		39,882		40,374

Earnings per share – basic	$	0.23	$	0.16	$	0.52	$	0.36
Earnings per share – diluted	$	0.22	$	0.16	$	0.50	$	0.35

For the three and nine months ended September 30, 2011, total weighted average awards to purchase or receive 237 and 33 shares of common stock, respectively, were not included in the computations of diluted earnings per share because their inclusion would have had an anti-dilutive effect on earnings per share. For the three and nine months ended September 30, 2010, total weighted average awards to purchase or receive 33 and 88 shares of common stock, respectively, were not included in the computations of diluted earnings per share because their inclusion would have had an anti-dilutive effect on earnings per share.

Treasury Stock

Kforce’s Board of Directors (“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 various employee share-based award plans. Treasury shares are accounted for under the cost method and reported as a reduction of stockholders’ equity in the accompanying unaudited condensed consolidated financial statements.

Comprehensive Income

Accumulated other comprehensive income represents the net after-tax impact of unrecognized actuarial gains and losses related to: (i) the supplemental executive retirement plan and supplemental executive retirement health plan, both of which cover a limited number of executives, and (ii) a defined benefit plan covering all eligible employees in our Philippine operations. Because each of these plans is unfunded as of September 30, 2011, the actuarial gains and losses arise as a result of the actuarial experience of the plans as well as changes in actuarial assumptions in measuring the associated obligation as of year-end, or at an interim date if any re-measurement is necessary. This information is provided in our unaudited condensed consolidated statements of operations and comprehensive income.

Subsequent Events

Kforce considers events that occur after the balance sheet date but before the financial statements are issued to determine appropriate accounting and disclosure for those events. We evaluated all events or transactions that occurred subsequent to September 30, 2011 and through the time of filing this Quarterly Report on Form 10-Q. We are not aware of any significant events that occurred subsequent to September 30, 2011 but prior to the filing of this report that would have a material impact on our unaudited condensed consolidated financial statements.

New Accounting Standards

In November 2008, the SEC issued for comment a proposed roadmap regarding the potential use of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”). IFRS is a set of standards and interpretations adopted by the International Accounting Standards Board. Under the proposed roadmap, Kforce would be required to prepare its financial statements in accordance with IFRS in our fiscal year ending December 31, 2015. Kforce is currently assessing the potential impact of IFRS on its financial statements and will continue to follow the proposed roadmap for future developments. In February 2010, the SEC released a policy statement confirming the continuous movement towards a vote during 2011 on whether to move ahead with a mandate for the required use of IFRS for U.S. public companies as well as an estimated timeline.

In September 2011, the FASB issued guidance which provides entities testing goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit in step 1 of the goodwill impairment test. If entities determine, on the basis of qualitative factors, that the fair value of a reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. Otherwise, further testing would not be required. This guidance is effective for all entities for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 and early adoption is permitted. Kforce does not expect the adoption of this guidance to have a material impact on our future consolidated financial statements.

Note B – Commitments and Contingencies

Litigation

As disclosed in our previous filings with the SEC, Kforce was a defendant in a California class action lawsuit alleging misclassification of California Account Managers and seeking unspecified damages. The tentative settlement referred to in our Annual Report on Form 10-K for the year ended December 31, 2010 was approved by the Court during the three months ended June 30, 2011 in the amount of $2,526, which has been recorded within accounts payable and other accrued liabilities in the accompanying unaudited condensed consolidated balance sheets.

On June 6, 2011, the Chicago District Office of the Equal Employment Opportunity Commission (“EEOC”) issued a Determination on a Charge of Discrimination, brought by an individual in 2006, that reasonable cause exists to believe that Kforce discriminated against a class of individuals because of their age by harassing and terminating them and discriminated against another class of individuals because of their age by denying them employment, in violation of the Age Discrimination in Employment Act of 1967. Kforce believes it has meritorious defenses to the EEOC’s allegations. The EEOC has invited Kforce to participate in conciliation efforts, and Kforce has accepted the invitation. At this stage of the matter, it is not feasible to predict the outcome or a range of loss, should a loss occur, and accordingly, no amounts have been provided in the accompanying unaudited condensed consolidated financial statements.

In the ordinary course of its business, Kforce is from time to time threatened with litigation or named as a defendant in various lawsuits and administrative proceedings. While management does not expect any of these other matters to have a material adverse effect on the Company’s results of operations, financial position or cash flows, litigation is subject to certain inherent uncertainties. Kforce maintains liability insurance in such amounts and with such coverage and deductibles as management believes is reasonable. The principal liability risks that Kforce insures against are workers’ compensation, personal injury, bodily injury, property damage, directors’ and officers’ liability, errors and omissions, employment practices liability and fidelity losses. There can be no assurance that Kforce’s liability insurance will cover all events or that the limits of coverage will be sufficient to fully cover all liabilities.

Other than as described above, Kforce is not aware of any litigation that would reasonably be expected to have a material adverse effect on its results of operations, its cash flows or its financial condition.

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 under certain circumstances. The agreements also provide for a severance payment of one to three times annual salary and one half to three times average annual bonus if such an agreement is terminated without good cause by the employer or for good reason by the employee. These agreements contain certain post-employment restrictive covenants. Kforce’s liability at September 30, 2011 would have been approximately $63,340 if all of the employees under contract were terminated without good cause by the employer or the employees resigned for good reason following a change in control, and $16,912 if all of the employees under contract were terminated by Kforce without good cause or the employees resigned for good reason in the absence of a change of control.

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

Note C – Credit Facility

On September 20, 2011, Kforce entered into a Third Amended and Restated Credit Agreement, with a syndicate led by Bank of America, N.A. The maximum borrowings available to Kforce under the Credit Facility are limited to: (a) a revolving credit facility of up to $100 million (the “Revolving Loan Amount”) and (b) a $15 million sub-limit included in the Credit Facility for letters of credit.

Borrowings under the Credit Facility are limited to 85% of the net amount of eligible accounts receivable, plus 80% of the net amount of eligible unbilled accounts receivable, plus 80% of the net amount of eligible employee placement accounts, minus certain minimum availability reserves. Outstanding borrowings under the Revolving Loan Amount bear interest at a rate of (a) LIBOR plus 1.25% or (b) the higher of: (i) the prime rate, (ii) the federal funds rate plus 0.50% or (iii) LIBOR plus 1.00%; plus 0.25%. Letters of credit issued under the Credit Facility require Kforce to pay a fronting fee equal to 0.125% of the amount of each letter of credit issued plus, a per annum fee equal to the applicable margin for LIBOR loans based on the total letters of credit outstanding. To the extent that Kforce has unused availability under the Credit Facility, an unused line fee is required to be paid equal to the applicable margin times the amount by which the maximum revolver amount exceeded the sum of the average daily outstanding amount of the revolving loans and the average daily undrawn face amount of outstanding letters of credit during the immediate preceding month. Borrowings under the Credit Facility are secured by substantially all of the assets of Kforce, excluding the real estate located at the Kforce’s corporate headquarters in Tampa, Florida. Under the Credit Facility, Kforce is subject to certain affirmative and negative covenants including (but not limited to) the maintenance of a fixed charge coverage ratio of at least 1.00 to 1.00 in the event that the Firm is unable to maintain certain minimum availability under the Credit Facility of less than the greater of 10% of the amount of the commitment and $11,000. As of September 30, 2011, Kforce had availability under the Credit Facility of $26,888; therefore, the minimum fixed charge coverage ratio was not applicable. Kforce believes that it will be able to maintain the minimum availability requirement; however, in the event that Kforce is unable to do so, Kforce could fail the fixed charge coverage ratio, which would constitute an event of default. Kforce believes the likelihood of default is remote. The Credit Facility expires September 20, 2016.

Note D – Employee Benefit Plans

Foreign Pension Plan

Kforce maintains a foreign defined benefit pension plan for eligible employees of the Philippines branch of Global that is required by Philippine labor law. The plan defines retirement as those employees who have attained the age of 60 and have completed at least five years of credited service. Benefits payable under the plan equate to one-half month’s salary for each year of credited service. Benefits under the plan are paid out as a lump sum to eligible employees at retirement.

The net periodic benefit cost recognized for the three and nine months ended September 30, 2011 was based upon the actuarial valuation at the beginning of the fiscal year, which utilized the assumptions noted in our Annual Report on Form 10-K for the year ended December 31, 2010. For the three and nine months ended September 30, 2011, net periodic benefit cost was $38 and $136, respectively For the three and nine months ended September 30, 2010, net periodic benefit cost was $59 and $115, respectively.

As of September 30, 2011 and December 31, 2010, the projected benefit obligation associated with our foreign defined benefit pension plan was $830 and $694, respectively, which is classified in other long-term liabilities.

Supplemental Executive Retirement Plan

Effective December 31, 2006, Kforce implemented a Supplemental Executive Retirement Plan (the “SERP”) for the benefit of certain Named Executive Officers (“NEOs”). 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 the NEOs. The SERP is a non-qualified benefit plan and does not include elective deferrals of the NEOs’ compensation.

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 is funded entirely by Kforce, and benefits are taxable to the executive officer upon receipt and 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 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 normally paid based on the lump sum present value but may be paid through a 10-year annuity for certain distribution events, as elected by the NEO upon commencement of participation in the SERP. None of the benefits earned pursuant to the SERP are attributable to services provided prior to December 31, 2006. For purposes of the measurement of the benefit obligation, Kforce has assumed that all participants will elect to take the lump sum present value option.

The following represents the components of net periodic benefit cost for the three and nine months ended:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Service cost	$	812	$	756	$	2,436	$	2,268
Interest cost		120		98		361		296
Amortization of actuarial loss		19		21		57		62

Net periodic benefit cost	$	951	$	875	$	2,854	$	2,626

The net periodic benefit cost recognized for the three and nine months ended September 30, 2011 was based upon the actuarial valuation at the beginning of the year, which utilized the assumptions noted in our Annual Report on Form 10-K for the year ended December 31, 2010. There is no requirement for Kforce to fund the SERP and, as a result, no contributions were made to the SERP during the nine months ended September 30, 2011. Kforce does not currently anticipate funding the SERP during the year ending December 31, 2011.

Supplemental Executive Retirement Health Plan

Effective April 20, 2007, the Board approved the Supplemental Executive Retirement Health Plan (“SERHP”) to provide postretirement health and welfare benefits to certain executives. The vesting and eligibility requirements mirror that of the SERP, and no advance funding is required by Kforce or the participants. Consistent with the SERP, none of the benefits earned are attributable to services provided prior to the effective date.

The net periodic postretirement benefit cost recognized for the three and nine months ended September 30, 2011 was based upon the actuarial valuation at the beginning of the year, which utilized the assumptions noted in our Annual Report on Form 10-K for the year ended December 31, 2010. For the three and nine months ended September 30, 2011, net periodic postretirement benefit cost was $94 and $283, respectively For the three and nine months ended September 30, 2010, net periodic postretirement benefit cost was $85 and $254, respectively.

Note E – Stock Incentive Plans

On June 20, 2006, the shareholders approved the 2006 Stock Incentive Plan. The aggregate number of shares of common stock that would have been subject to awards under the 2006 Stock Incentive Plan, subject to adjustment upon a change in capitalization, was 3,000. On June 16, 2009, the shareholders approved an amendment to the 2006 Stock Incentive Plan to increase the number of authorized awards that may be issued under the 2006 Stock Incentive Plan from 3,000 to 5,100. On June 25, 2010, the shareholders approved an amendment to the 2006 Stock Incentive Plan to increase the number of authorized awards that may be issued under the 2006 Stock Incentive Plan from 5,100 to 7,850.

The 2006 Stock Incentive Plan allows for the issuance of stock options, stock appreciation rights (“SARs”), PARS and RS, subject to share availability. Vesting of equity instruments issued under the 2006 Stock Incentive Plan is determined on a grant-by-grant basis. Options expire at the end of 10 years from the date of grant, and Kforce issues new shares upon exercise of options. The 2006 Stock Incentive Plan terminates on April 28, 2016. The Employee Incentive Stock Option Plan expired in 2005.

Stock Options

The following table presents the activity under each of the stock incentive plans discussed above for the nine months ended September 30, 2011:


	Employee Incentive Stock Option Plan		2006 Stock Incentive Plan		Total			Weighted Average Exercise Price per Share		Total Intrinsic Value of Options Exercised
Outstanding as of December 31, 2010		587		98		685		$	9.47
Exercised		(297)		—		(297	)	$	8.75	$	2,583
Forfeited/Cancelled		(12)		—		(12	)	$	10.75

Outstanding and exercisable as of September 30, 2011		278		98		376		$	10.00

No compensation expense was recorded during the three or nine months ended September 30, 2011 or 2010. As of September 30, 2011, there was no unrecognized compensation cost related to stock options.

Stock Appreciation Rights

Although no such requirement exists, SARs are generally granted (if any) on the first trading day of each year to certain Kforce executives based on the extent by which annual long-term incentive performance goals, which are established by Kforce’s Compensation Committee during the first 90 days of the year of performance, are certified by the Compensation Committee as having been met. SARs generally cliff vest three years from the date of issuance; however, vesting is accelerated if Kforce’s stock price exceeds the stock price at the date of grant by 30% for a period of 10 trading days, or if the Compensation Committee determines that the criteria for acceleration are satisfied. There were no SARs granted in the nine months ended September 30, 2011 and 2010.

The following table presents the activity for the nine months ended September 30, 2011:


	# of SARs			Weighted Average Exercise Price Per SAR		Total Intrinsic Value of SARs Exercised
Outstanding as of December 31, 2010		169		$	10.32
Exercised		(169	)	$	10.32	$	1,278

Outstanding and exercisable as of September 30, 2011		—		$	—

No compensation expense related to SARs was recorded during the three or nine months ended September 30, 2011 or 2010. There was no unrecognized compensation expense related to SARs as of September 30, 2011.

Performance Accelerated Restricted Stock

PARS are periodically granted to certain Kforce executives and Kforce’s Board and, for Kforce’s executives, are generally based on the extent by which annual long-term incentive performance goals, which are established by Kforce’s Compensation Committee during the first 90 days of the year of performance, are certified by the Compensation Committee as having been met. PARS granted during the three months ended March 31, 2011 will cliff vest three years from the grant date. However, vesting is accelerated if Kforce’s closing stock price exceeds the stock price at the date of grant by a pre-established percentage (which has historically ranged from 40—50%) for a period of 10 trading days, or if the Compensation Committee determines that the criteria for acceleration are satisfied.

Certain PARS granted during the three months ending March 31, 2011 are subject to forfeiture based upon the level of attainment of performance conditions established by the Compensation Committee. Vesting for these PARS may not occur until the Compensation Committee has certified the level of attainment of the performance conditions.

PARS contain voting rights and are included in the number of shares of common stock issued and outstanding. PARS granted subsequent to September 30, 2009 contain a non-forfeitable right to dividends or dividend equivalents in the form of additional shares of restricted stock containing the same vesting provisions as the underlying award. The following table presents the activity for the nine months ended September 30, 2011:


	# of PARS			Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2010		1,436		$	12.87
Granted		1,569		$	16.37
Vested		(69	)	$	13.31

Outstanding as of September 30, 2011		2,936		$	14.73

The fair market value of PARS 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 derived service period, which is determined using a lattice model. The derived service period for the PARS granted during the nine months ended September 30, 2011 is 3.00 years, which is subject to any acceleration provisions being met.

Kforce recognized total compensation expense related to PARS of $2,761 and $7,802 during the three and nine months ended September 30, 2011, respectively. Kforce recognized total compensation expense related to PARS of $1,337 and $3,745 during the three and nine months ended September 30, 2010, respectively. As of September 30, 2011, total unrecognized compensation expense related to PARS was $22,279, which will be recognized over a weighted average remaining period of 2.14 years.

Restricted Stock

RS is periodically granted to certain Kforce executives and is generally based on the extent by which annual long-term incentive performance goals, which are established by Kforce’s Compensation Committee during the first 90 days of the year of performance, are certified by the Compensation Committee as having been met. RS granted during the nine months ended September 30, 2011 had vesting terms of two years.

RS contain voting rights and are included in the number of shares of common stock issued and outstanding. RS granted subsequent to September 30, 2009 contain a non-forfeitable right to dividends or dividend equivalents in the form of additional shares of restricted stock containing the same vesting provisions as the underlying award. The following table presents the activity for the nine months ended September 30, 2011:


	# of RS			Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2010		462		$	10.68
Granted		35		$	13.78
Vested		(99	)	$	10.09

Outstanding as of September 30, 2011		398		$	11.10

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 service period.

During the three and nine months ended September 30, 2011, Kforce recognized compensation expense related to RS of $327 and $944, respectively. Kforce recognized compensation expense related to RS of $295 and $792 for the three and nine months ended September 30, 2010, respectively. As of September 30, 2011, total unrecognized compensation expense related to RS was $3,140, which will be recognized over a weighted average remaining period of 3.02 years.

Note F – Goodwill and Other Intangible Assets

The following table sets forth the activity in goodwill and other intangible assets during the nine months ended September 30, 2011:


	Goodwill		Other Intangible Assets, Net			Total
Balance as of December 31, 2010	$	138,078	$	7,787		$	145,865
Amortization of intangible assets		—		(914	)		(914	)

Balance as of September 30, 2011	$	138,078	$	6,873		$	144,951

As of September 30, 2011 and December 31, 2010, other intangible assets, net in the accompanying unaudited condensed consolidated balance sheets consisted of non-compete agreements, trade names, trademarks, customer relationships, customer contracts and customer lists. Indefinite-lived intangible assets, which consist of trade names and trademarks, amounted to $2,240 as of September 30, 2011 and December 31, 2010. All of the other intangible assets, net represented less than 5% of total assets.

As of September 30, 2011 and December 31, 2010, accumulated amortization of intangible assets was $23,296 and $22,903, respectively. The estimated remaining amortization expense is $238 for 2011, $901 for 2012, $752 for 2013, $634 for 2014 and $634 for 2015.

Note G – Reportable Segments

Kforce’s reportable segments are: (i) Tech; (ii) FA; (iii) HLS and (iv) GS. This determination was supported by, among other factors: the existence of segment presidents responsible for the operations of each segment and who also report directly to our chief operating decision maker, the nature of each segment’s operations and information presented to the Board. Kforce also reports Flexible billings and Search fees separately by segment, which has been incorporated into the table below.

Historically, and for the three and nine months ended September 30, 2011, Kforce has generated only revenue and gross profit information on a segment basis. As such, asset information by segment is not disclosed. Substantially all operations and long-lived assets are located in the U.S.

The following table provides information concerning the continuing operations of our segments for the three and nine months ended September 30, 2011 and 2010:


	Technology		Finance and Accounting		Health and Life Sciences		Government Solutions		Total
Three Months Ended September 30:
2011
Net service revenues:
Flexible billings	$	160,285	$	48,046	$	44,911	$	23,881	$	277,123
Search fees		5,191		6,251		426		—		11,868

Total net service revenues	$	165,476	$	54,297	$	45,337	$	23,881	$	288,991

Gross profit	$	49,596	$	20,726	$	13,997	$	7,719	$	92,038
2010
Net service revenues:
Flexible billings	$	137,326	$	44,437	$	41,007	$	26,190	$	248,960
Search fees		4,604		5,733		222		—		10,559

Total net service revenues	$	141,930	$	50,170	$	41,229	$	26,190	$	259,519

Gross profit	$	42,996	$	19,446	$	12,040	$	8,983	$	83,465

Nine Months Ended September 30:
2011
Net service revenues:
Flexible billings	$	449,695	$	143,433	$	128,912	$	69,180	$	791,220
Search fees		13,495		19,470		1,183		—		34,148

Total net service revenues	$	463,190	$	162,903	$	130,095	$	69,180	$	825,368

Gross profit	$	135,011	$	61,013	$	39,661	$	21,514	$	257,199
2010
Net service revenues:
Flexible billings	$	383,753	$	118,319	$	122,102	$	79,819	$	703,993
Search fees		11,944		15,428		947		—		28,319

Total net service revenues	$	395,697	$	133,747	$	123,049	$	79,819	$	732,312

Gross profit	$	116,845	$	50,286	$	37,123	$	25,751	$	230,005

Item 2.

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

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

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

•

Executive Summary – an executive summary of our results of operations for the nine months ended September 30, 2011.

•

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

•

New Accounting Standards – a discussion of recently issued accounting standards and their potential impact on our consolidated financial statements.

•

Results of Operations – an analysis of Kforce’s unaudited condensed consolidated results of operations for each of the three and nine months ended September 30, 2011 and 2010, which have been presented in its unaudited condensed consolidated financial statements. In order to assist the reader in understanding our business as a whole, certain metrics are presented for each of our segments.

•

Liquidity and Capital Resources – an analysis of cash flows, off-balance sheet arrangements, stock repurchases and the impact of changes in interest rates on our business.

EXECUTIVE SUMMARY

The following is an executive summary of what Kforce believes are important results as of and during the nine months ended September 30, 2011, which should be considered in the context of the additional discussions herein and in conjunction with its unaudited condensed consolidated financial statements. We believe such highlights are as follows:

•

Net service revenues for the nine months ended September 30, 2011 increased 12.7% to $825.4 million from $732.3 million in the comparable period in 2010.

•

Flex revenues for the nine months ended September 30, 2011 increased 12.4% to $791.2 million from $704.0 million in the comparable period in 2010.

•

Search fees for the nine months ended September 30, 2011 increased 20.6% to $34.1 million from $28.3 million in the comparable period in 2010.

•

Flex gross profit margin for the three months ended September 30, 2011 increased 50 basis points to 28.9% from 28.4% sequentially. Flex gross profit margin for the three months ended September 30, 2011 decreased 40 basis points to 28.9% from 29.3% in the comparable period in 2010, primarily resulting from increased payroll taxes.

•

Selling, general and administrative (“SG&A”) expenses as a percentage of revenues for the nine months ended September 30, 2011 decreased 80 basis points to 26.0% from 26.8% in the comparable period in 2010.

•

Total outstanding borrowings under the Credit Facility, which was amended and restated in September 2011, as of September 30, 2011 increased $48.6 million to $59.4 million from $10.8 million as of December 31, 2010, which was primarily related to the repurchase of 5.5 million shares of common stock.

•

Diluted earnings per share for the nine months ended September 30, 2011 increased 42.9% to $0.50 from $0.35 in the comparable period in 2010.

CRITICAL ACCOUNTING ESTIMATES

Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amount of assets, liabilities, revenue, 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 A, Summary of Significant Accounting Policies, of the Notes to Unaudited Condensed Consolidated Financial Statements included in Item 1. Financial Statements. Please also refer to our annual report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 4, 2011 for a more detailed discussion of our critical accounting estimates.

NEW ACCOUNTING STANDARDS

See the “New Accounting Standards” section within Note A, Summary of Significant Accounting Policies, of the Notes to the Unaudited Condensed Consolidated Financial Statements for a more detailed discussion.

RESULTS OF OPERATIONS

Three and Nine Months Ended September 30, 2011 and 2010

Net service revenues for the three and nine months ended September 30, 2011 were $289.0 million and $825.4 million, respectively, which represent an increase of 11.4% and 12.7%, respectively, over the comparable periods in 2010. These increases were primarily due to our Tech (which represents approximately 55% of our net service revenues), FA and HLS segments, which had year-over-year increases in net service revenues for the three months ended September 30, 2011 of 16.6 %, 8.2% and 10.0%, respectively, and 17.1%, 21.8% and 5.7%, respectively, for the nine months ended September 30, 2011. For the three and nine months ended September 30, 2011, net service revenues for our GS segment decreased 8.8% and 13.3%, respectively, over the comparable periods in 2010. Net service revenues for our GS segment increased 8.8% on a sequential basis for the three months ended September 30, 2011. During fiscal 2011, our GS segment has been adversely impacted by the United States (“U.S.”) Congress’s inability to pass the 2011 U.S. federal budget and continues to be adversely impacted by the U.S. Congress’s continuing to operate under a series of seven continuing resolutions thereby continuing funding at or less than 2010 levels. We believe this has significantly delayed the contract procurement process and created uncertainty about the funding levels of various programs and agencies within the Federal Government. In addition, our GS segment has been adversely impacted by the Federal Government mandates to in-source certain positions that were previously occupied by contractors.

Flex gross profit margin decreased 40 basis points to 28.9% for the three months ended September 30, 2011 as compared to 29.3% for the comparable period in 2010, and decreased 40 basis points to 28.2% for the nine months ended September 30, 2011 as compared to 28.6% for the comparable period in 2010. These decreases were primarily attributable to the increase in payroll taxes, particularly unemployment taxes. Flex gross profit margin increased sequentially 50 basis points for the three months ended September 30, 2011, which was primarily driven by improvements in the spread between our bill and pay rates in our Tech and FA segments. SG&A expenses as a percentage of net service revenues were 26.0% for both the three and nine months ended September 30, 2011, respectively, as compared to 26.7% and 26.8% for the three and nine months ended September 30, 2010.

From an economic standpoint, temporary employment figures and trends are important indicators of staffing demand, which increased during the three months ended September 30, 2011 as compared to 2010 based on data published by the Bureau of Labor Statistics (“BLS”). While we believe the macro-employment picture continues to be relatively weak with the unemployment rate at 9.1% as of September 2011, temporary employment grew 8.4% year over year in September 2011. In addition, the penetration rate (the percentage of temporary staffing to total employment) has increased from its low of 1.3% in August 2009 to over 1.7% in September 2011. We believe that the penetration rate could surpass the prior peak of 2.0% achieved in the late 1990s. If the penetration rate of temporary staffing continues to increase, we believe that our Flex revenues can grow significantly even in a relatively modest growth macro-economic environment. Management remains optimistic about the growth prospects of the temporary staffing industry, the penetration rate and in particular our revenue portfolio.

Although there can be no assurance that historical trends will continue, Search activity and Flex gross margins historically decrease heading into the troughs of an economic cycle, increase after economic conditions have shown sustained improvement, and are the strongest during the peak of an economic cycle. Search revenues increased 12.4% and 20.6% for the three and nine months ended September 30, 2011 as compared to the comparable periods in 2010. In addition, Search revenues decreased 2.6% in the third quarter of 2011 as compared to the second quarter of 2011. While Search revenue is difficult to predict, we expect this growth trend may flatten in the near term.

Over the last few years, we have undertaken several significant initiatives including: (i) further developing and optimizing our National Recruiting Center (“NRC”) and Strategic Accounts teams in support of our field operations; (ii) restructuring both our back office and field operations under our Shared Services program, which focuses on process improvement, centralization, technology infrastructure and outsourcing; (iii) upgrading our corporate systems (primarily our front-end systems) and (iv) making other technology investments designed to increase the performance of our field associates. We believe that these investments have increased our operating efficiency, enabled us to be more responsive to our clients and provided a better operating platform to support our expected future growth. We believe our field operations model, which allows us to deliver our service offerings in a disciplined and consistent manner across all geographies and business lines, as well as our highly centralized back office operations, are competitive advantages and keys to our future growth and profitability. We also believe that our diversified portfolio of service offerings, which are primarily in the U.S., will also be a key contributor to our long-term financial stability.

Net Service Revenues. The following table sets forth, as a percentage of net service revenues, certain items in our unaudited condensed consolidated statements of operations for the three and nine months ended September 30:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Net Service Revenues by Segment:
Tech		57.2	%		54.7	%		56.1	%		54.0	%
FA		18.8			19.3			19.7			18.3
HLS		15.7			15.9			15.8			16.8
GS		8.3			10.1			8.4			10.9

Net service revenues		100.0	%		100.0	%		100.00	%		100.00	%


Revenue by Time:
Flex		95.9	%		95.9	%		95.9	%		96.1	%
Search		4.1			4.1			4.1			3.9

Net service revenues		100.0	%		100.0	%		100.0	%		100.0	%

Gross profit		31.8	%		32.2	%		31.2	%		31.4	%
Selling, general and administrative expenses		26.0	%		26.7	%		26.0	%		26.8	%
Depreciation and amortization		1.1	%		1.2	%		1.2	%		1.3	%
Income before income taxes		4.7	%		4.1	%		3.9	%		3.2	%
Net income		2.9	%		2.5	%		2.4	%		2.0	%

The following table details net service revenues for Flex and Search by segment and changes from the prior period for the three and nine months ended September 30:


	Three Months Ended September 30,							Nine Months Ended September 30,
*(in $000’s)*	2011		Increase (Decrease)			2010		2011		Increase (Decrease)			2010
Tech
Flex	$	160,285		16.7	%	$	137,326	$	449,695		17.2	%	$	383,753
Search		5,191		12.7	%		4,604		13,495		13.0	%		11,944

Total Tech	$	165,476		16.6	%	$	141,930	$	463,190		17.1	%	$	395,697


FA
Flex	$	48,046		8.1	%	$	44,437	$	143,433		21.2	%	$	118,319
Search		6,251		9.0	%		5,733		19,470		26.2	%		15,428

Total FA	$	54,297		8.2	%	$	50,170	$	162,903		21.8	%	$	133,747


HLS
Flex	$	44,911		9.5	%	$	41,007	$	128,912		5.6	%	$	122,102
Search		426		91.9	%		222		1,183		24.9	%		947

Total HLS	$	45,337		10.0	%	$	41,229	$	130,095		5.7	%	$	123,049


GS
Flex	$	23,881		(8.8	)%	$	26,190	$	69,180		(13.3	)%	$	79,819
Search		—		—			—		—		—			—

Total GS	$	23,881		(8.8	)%	$	26,190	$	69,180		(13.3	)%	$	79,819

Total Flex	$	277,123		11.3	%	$	248,960	$	791,220		12.4	%	$	703,993
Total Search		11,868		12.4	%		10,559		34,148		20.6	%		28,319

Total Revenues	$	288,991		11.4	%	$	259,519	$	825,368		12.7	%	$	732,312

Flex Revenues. The primary drivers of Flex revenues are the number of consultant hours worked, the consultant bill rate per hour and, to a limited extent, the amount of billable expenses incurred by Kforce. Our quarterly operating results are affected by the number of billing days in a quarter and the seasonality of our customers’ businesses. For each of the three months ended September 30, 2011 and 2010, there were 64 billing days.

Kforce experienced Flex revenue increases for the three and nine months ended September 30, 2011 as compared to the comparable periods in 2010 across all segments except for GS, which decreased 8.8% and 13.3%, respectively.

Flex revenues for our largest segment, Tech, have been particularly strong compared to previous economic recoveries, which we believe is primarily a result of candidate skill sets that are in demand, our great people and our operating model. We believe that our operating model allows us to deliver our service offerings in a disciplined and consistent manner across all geographies and business lines. This operating model includes our NRC, which we believe has been highly effective in increasing the quality and speed of delivery of services to our clients, particularly our Strategic Accounts. We expect to see continued growth for the remainder of 2011 within our Tech segment on a sequential billing day basis and over comparable periods in 2010.

Our FA segment experienced a year-over-year increase in net service revenues of 8.2% and 21.8% during the three and nine months ended September 30, 2011, respectively. According to a Staffing Industry Analyst (“SIA”) report, the overall finance and accounting segment is expected to experience accelerated growth of 8% in 2011 and 2012. Consistent with Tech, we believe that the success of our FA segment has been enabled by our NRC, which we believe has been particularly effective in meeting the demand within the mortgage, refinancing and foreclosure space which experienced significant growth in 2010 but slowed during the nine months ending September 30, 2011. We expect to see continued growth for the remainder of 2011 within our FA segment over comparable periods in 2010.

Net service revenues for our HLS segment increased 10.0% and 5.7% for the three and nine months ended September 30, 2011, respectively, compared to 2010. Our Clinical Research business, which comprises approximately 62% of HLS segment revenues, experienced a 5.8% increase and 1.5% decrease in net service revenues during the three and nine months ended September 30, 2011 compared to 2010, respectively. While results continue to be impacted by structural changes in the outsourcing strategies of large pharmaceutical companies and delays in hiring activity resulting from several mergers within this sector, net service revenues for our Clinical Research business increased 7.7% sequentially. We expect our Clinical Research business to increase on a billing day basis for the remainder of 2011 and we believe in the long-term growth prospects of this business. Our Health Information Management (“HIM”) business consists primarily of professionals providing medical coding and transcription services to hospitals and other healthcare facilities. Net service revenues within HIM increased 17.3% and 19.7% for the three and nine months ended September 30, 2011 compared to 2010, respectively, as hospital census and spending trends continued to increase. We expect to see continued growth for the remainder of 2011 within HIM over comparable periods in 2010.

Our GS segment decreased 8.8% and 13.3% for the three and nine months ended September 30, 2011, respectively, compared to 2010. We believe these declines are primarily a result of the political landscape, including the U.S. Congress’s inability to pass the 2011 U.S. federal budget and its continuing to operate under a series of seven continuing resolutions thereby continuing funding at or less than 75% of 2010 levels, and macro-economic environment. The GS segment has been adversely impacted by delays in the timing of project awards, uncertainty about the funding levels of various programs and agencies within the Federal Government and a continuing trend by the Federal Government to in-source certain functions in an attempt to reduce expenditures. Additionally, the Continuing Resolution Authority (“CRA”) for the Federal Government’s budget limits government agencies, unless specifically authorized otherwise in the CRA, to only spend up to 75% of the Federal Government’s previous fiscal year budget. Further impacting 2011, modifications to the Federal Acquisition Reform Act of 1996 has redirected funds to small business set-asides away from larger prime contractors and emphasized a lower-cost strategy as compared to a best-value approach. The majority of our GS contracts contain an initial one-year term with four option years, which are typically exercised. At the end of this term, the contract award typically goes through a competitive bidding process to retain the contract. During 2011 and 2010, management has focused its efforts on business development activities, including bringing in new leadership at certain positions and repositioning itself to focus on certain targeted federal agencies. Management cannot predict the outcome of efforts to reduce federal spending and whether these efforts will materially impact the budgets of federal agencies that are clients of our GS segment. Although we expect net service revenues within our GS segment to remain flat on a billing day basis during the three months ending December 31, 2011 sequentially and year-over-year, we continue to believe in the long-term prospects of our GS segment.

The following table details total Flex hours for each segment and percentage changes over the prior period for the three and nine months ended September 30:


	Three Months Ended September 30,							Nine Months Ended September 30,
*(in 000’s)*	2011		Increase (Decrease)			2010		2011		Increase (Decrease)			2010
Tech		2,520		15.3	%		2,186		7,196		18.0	%		6,100
FA		1,406		4.9			1,340		4,214		17.4			3,589
HLS		560		13.6			493		1,612		9.8			1,468

Total hours		4,486		11.6	%		4,019		13,022		16.7	%		11,157

The changes in billable expenses, which are included as a component of net services revenues, are primarily attributable to increases or decreases in project work. The following table details total Flex billable expenses for each segment and percentage changes over the prior period for the three and nine months ended September 30:


	Three Months Ended September 30,							Nine Months Ended September 30,
*(in $000’s)*	2011		Increase (Decrease)			2010		2011		Increase (Decrease)			2010
Tech	$	1,301		54.9	%	$	840	$	3,226		0.2	%	$	3,220
FA		178		35.9			131		509		105.2			248
HLS		4,076		11.8			3,646		11,337		7.7			10,524
GS		210		(0.9	)		212		696		95.5			356

Total billable expenses	$	5,765		19.4	%	$	4,829	$	15,768		9.9	%	$	14,348

Search Fees. The primary drivers of Search fees are the number of permanent placements and the average placement fee. Our GS segment does not make permanent placements.

As previously mentioned, Search activity historically decreases heading into the troughs of an economic cycle, increases after economic conditions have shown sustained improvement, and is the strongest during the peak of an economic cycle. We cannot provide any assurances, however, that historical trends will continue. Search revenues increased 12.4% and 20.6% during the three and nine months ended September 30, 2011 as compared to 2010, respectively. We believe the increase over the prior year reflects clients who are selectively rebuilding staff after significant reductions during the most recent economic recession. We expect this trend may subside in the near term.

Total placements for each segment and percentage changes over the prior period were as follows for the three and nine months ended September 30:


	Three Months Ended September 30,							Nine Months Ended September 30,
	2011		Increase (Decrease)			2010		2011		Increase (Decrease)			2010
Tech		354		13.8	%		311		933		15.2	%		810
FA		499		0.4			497		1,550		15.1			1,347
HLS		31		93.8			16		75		29.3			58

Total placements		884		7.3	%		824		2,558		15.5	%		2,215

The average placement fee for each segment and percentage changes over the prior period were as follows for the three and nine months ended September 30:


	Three Months Ended September 30,							Nine Months Ended September 30,
	2011		Increase (Decrease)			2010		2011		Increase (Decrease)			2010
Tech	$	14,682		(0.9	)%	$	14,822	$	14,470		(1.9	)%	$	14,752
FA		12,516		8.5			11,533		12,560		9.7			11,452
HLS		13,695		(1.3	)		13,876		15,722		(3.8	)		16,350

Total average placement fee	$	13,424		4.7	%	$	12,819	$	13,349		4.4	%	$	12,786

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

The gross profit percentage for each segment and percentage changes over the prior period were as follows for the three and nine months ended September 30:


	Three Months Ended September 30,									Nine Months Ended September 30,
	2011			Increase (Decrease)			2010			2011			Increase (Decrease)			2010
Tech		30.0	%		(1.0	)%		30.3	%		29.1	%		(1.4	)%		29.5	%
FA		38.2	%		(1.5	)		38.8	%		37.5	%		(0.3	)		37.6	%
HLS		30.9	%		5.8			29.2	%		30.5	%		1.0			30.2	%
GS		32.3	%		(5.8	)		34.3	%		31.1	%		(3.7	)		32.3	%

Total gross profit percentage		31.8	%		(1.2	)%		32.2	%		31.2	%		(0.6	)%		31.4	%

Changes in the amount of Search fees as a percentage of total revenues can significantly impact total gross profit percentage because Search revenue contributes 100% to gross profit, as described previously. Given this dynamic, Kforce monitors the gross profit percentage as a percentage of Flex revenues, which is referred to as the Flex gross profit percentage. This provides management with the necessary insight into the other drivers of total gross profit percentage such as changes in volume evidenced by changes in hours billed for Flex and changes in the spread between bill rate and pay rate for Flex.

The net increase in Search gross profit for the three months ended September 30, 2011, compared to the same period in 2010, was $1.3 million, composed of a $0.8 million increase in volume and a $0.5 million increase in rate. The increase in Search gross profit for the nine months ended September 30, 2011, compared to the same period in 2010, was $5.8 million, composed of a $4.6 million increase in volume and a $1.2 million increase in rate. The sequential net decrease in Search gross profit was $0.3 million, composed of a $0.6 million decrease in volume and a $0.3 million increase in rate.

The following table presents, for each segment, the Flex gross profit percentage and percentage change over the prior period for the three and nine months ended September 30:


	Three Months Ended September 30,									Nine Months Ended September 30,
	2011			Increase (Decrease)			2010			2011			Increase (Decrease)			2010
Tech		27.7	%		(1.1	)%		28.0	%		27.0	%		(1.1	)%		27.3	%
FA		30.1	%		(2.6	)		30.9	%		29.0	%		(1.7	)		29.5	%
HLS		30.2	%		4.9			28.8	%		29.8	%		0.7			29.6	%
GS		32.3	%		(5.8	)		34.3	%		31.1	%		(3.7	)		32.3	%

Total Flex gross profit percentage		28.9	%		(1.4	)%		29.3	%		28.2	%		(1.4	)%		28.6	%

The net increase in Flex gross profit for the three months ended September 30, 2011, compared to the same period in 2010, was $7.3 million, composed of a $8.2 million increase in volume and a $0.9 million decrease in rate. The net increase in Flex gross profit for the nine months ended September 30, 2011, compared to the same period in 2010, was $21.4 million, composed of a $25.0 million increase in volume and a $3.6 million decrease in rate. The sequential net increase in Flex gross profit was $5.7 million, composed of a $4.4 million increase in volume and a $1.3 million increase in rate.

The Flex gross profit percentage was negatively impacted during the three and nine months ended September 30, 2011 by payroll taxes, particularly the increase in unemployment taxes in 2011 as compared to 2010, which are highest in the first quarter of the year because employees have not yet earned sufficient wages to exceed the basis on which taxes are payable, have risen in recent years and may continue to rise and negatively impact Flex gross profit. Also negatively impacting Flex gross profit has been the relative growth seen in our Strategic Accounts, which traditionally have a lower gross profit profile. A significant continued focus for Kforce is on optimizing the spread between bill rates and pay rates, which will focus on providing our associates with tools, economic knowledge and defined programs to drive improvement in the effectiveness of our pricing strategy around the staffing services we provide. We believe this strategy will serve to balance the desire for optimal volume, rate, effort and duration of assignment, while ultimately maximizing the benefit for our clients, our consultants and Kforce. We believe we are beginning to see the initial benefits of this initiative as Flex gross profit margin increased 50 basis points to 28.9% on a sequential basis. An increase in the spread between bill and pay rates is typically seen as economic growth reemerges and the demand for staffing increases.

Selling, General and Administrative Expenses (“SG&A”). For both the three and nine months ended September 30, 2011, total commissions, compensation, payroll taxes, and benefit costs as a percentage of SG&A represented 86.5%, as compared to 83.4% and 83.0% in the three and nine months ended September 30, 2010, respectively. Commissions and related payroll taxes and benefit costs are variable costs driven primarily by revenue and gross profit levels, and associated 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 these components of SG&A along with an “other” caption, which includes bad debt expense, lease expense, professional fees, travel, telephone, computer and certain other expenses, as an absolute amount and as a percentage of total net service revenues for the three and nine months ended September 30:


*(in $000’s)*	2011		% of Revenue			2010		% of Revenue
Three Months Ended September 30:
Compensation, commissions, payroll taxes and benefits costs	$	64,999		22.5	%	$	57,830		22.3	%
Other		10,135		3.5			11,491		4.4

Total SG&A	$	75,134		26.0	%	$	69,321		26.7	%


Nine Months Ended September 30:
Compensation, commissions, payroll taxes and benefits costs	$	185,618		22.5	%	$	163,006		22.3	%
Other		28,902		3.5			33,477		4.5

Total SG&A	$	214,520		26.0	%	$	196,483		26.8	%

SG&A as a percentage of net service revenues decreased 70 and 80 basis points for the three and nine months ended September 30, 2011, respectively, as compared to the comparable periods in 2010.

For the three months ended September 30, 2011, the net decrease was primarily attributable to the following:

•

Decrease in professional fees expense of 0.9% of net service revenues, which was primarily attributable to the accrual recorded during the three months ended September 30, 2010 for an expected settlement of a class action lawsuit and related legal fees.

•

Decrease in discretionary expenses of 0.3% of net service revenues, which is primarily attributable to the continued management of discretionary spending for travel, office expenses, telephone and training.

•

Increase in commission expense of 0.3% of net service revenues, which was primarily attributable to a higher estimated annual effective commission rate as a result of the increase in both Flex and Search revenues during the three months ended September 30, 2011 as compared to 2010.

•

Increase in bad debt expense of 0.3% of net service revenues, which was primarily attributable to more favorable accounts receivable trends in 2010.

For the nine months ended September 30, 2011, the net decrease was primarily attributable to the following:

•

Decrease in professional fees expense of 0.6% of net service revenues, which was primarily attributable to the accrual recorded during the three months ended September 30, 2010 for an expected settlement of a class action lawsuit and related legal fees.

•

Decrease in lease expense of 0.3% of net service revenues, which was primarily attributable to the acquisition of our corporate headquarters in May 2010.

•

Decrease in discretionary expenses of 0.2% of net service revenues, which is primarily attributable to the continued management of discretionary spending for travel, office expenses, telephone and training.

•

Increase in compensation and benefits cost of 0.4% of net service revenues, which was primarily attributable to an increase in stock-based compensation expense resulting primarily from an increase in the number of outstanding equity grants.

During fiscal 2011, our GS segment has been adversely impacted by the U.S. Congress’s inability to pass the 2011 U.S. federal budget and its continuing to operate under a series of seven continuing resolutions thereby continuing funding at or less than 2010 levels. We believe this has significantly delayed the contract procurement process and created uncertainty about the funding levels of various programs and agencies within the Federal Government. In addition, our GS reporting unit has been impacted by the Federal Government mandates to in-source certain positions that were previously occupied by contractors and the Federal Government’s seemingly anti-contractor sentiment. As a result, Kforce performed an interim goodwill impairment analysis as of the quarter ended June 30, 2011, which resulted in the fair value of the GS reporting unit exceeding the carrying amount by 3.4%. While there were no triggering events that occurred in the quarter ended September 30, 2011, a deterioration in the assumptions discussed in Note E, Goodwill and Other Intangible Assets, of the Notes to the Unaudited Condensed Consolidated Financial Statements in our Form 10-Q filed with the Securities and Exchange Commission (“SEC”) on August 4, 2011 could result in a material impairment charge. As of both September 30, 2011 and December 31, 2010, goodwill allocated to the GS reporting unit was $102.6 million

Depreciation and Amortization. The following table presents depreciation and amortization expense and percentage changes over the prior period by major category for the three and nine months ended September 30:


	Three Months Ended September 30,							Nine Months Ended September 30,
	2011		Increase (Decrease)			2010		2011		Increase (Decrease)			2010
Fixed asset depreciation	$	959		(8.0	)%	$	1,042	$	3,200		20.6	%	$	2,653
Capital lease asset depreciation		403		(8.2	)		439		1,213		(11.3	)		1,368
Capitalized software amortization		1,423		15.7			1,230		4,292		19.8			3,582
Intangible asset amortization		287		(45.3	)		525		914		(47.7	)		1,746

Total depreciation and amortization	$	3,072		(5.1	)%	$	3,236	$	9,619		2.9	%	$	9,349

The $0.5 million increase in fixed asset depreciation during the nine months ended September 30, 2011 compared to 2010 is a result of the acquisition of Kforce’s corporate headquarters in May 2010. The $0.2 million and $0.7 million increase in capitalized software amortization during the three and nine months ended September 30, 2011 compared to 2010, respectively, is a result of the significant technology investments made by Kforce in 2010. The $0.2 million and $0.8 million decrease in intangible asset amortization during the three and nine months ended September 30, 2011 compared to 2010, respectively, is the result of certain intangibles assets acquired in the 2008 acquisition of RDI Systems, Inc. becoming fully amortized.

Other Expense, Net. Other expense, net was $0.3 million and $0.4 million for the three months ended September 30, 2011 and 2010, respectively, and $1.0 million for both the nine months ended September 30, 2011 and 2010. Other expense, net consisted primarily of interest expense related to outstanding borrowings under our Credit Facility and the Second Amended and Restated Credit Agreement, dated October 2, 2006 (which in September 2011 was amended and restated in the form of our current Credit Facility).

Income Tax Expense. Income tax expense as a percentage of income before taxes (our “effective rate”) for the nine months ended September 30, 2011 and 2010 was 37.5% and 38.2%, respectively. The decrease in Kforce’s effective rate for the nine months ended September 30, 2011 is primarily a result of an increase in forecasted pre-tax net income for 2011.

Adjusted EBITDA. Adjusted EBITDA, a non-GAAP financial measure, is defined as net income before discontinued operations, non-cash impairment charges, interest, income taxes, depreciation and amortization, and amortization of stock-based compensation 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 evaluate its operations including its ability to generate cash flows and, consequently, management believes this is useful information to investors. The measure should not be considered in isolation or as an alternative to net income, cash flows or other financial statement information presented in the unaudited condensed consolidated financial statements as indicators of financial performance or liquidity. The measure is not determined in accordance with GAAP and is thus susceptible to varying calculations. Also, Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies.

Some of the items that are excluded also impacted certain balance sheet assets, resulting in all or a portion of an asset being written off without a corresponding recovery of cash we may have previously spent with respect to the asset. In addition, although we excluded stock-based compensation expense (which we expect to continue to incur in the future) because it is a non-cash expense, the associated stock issued may result in an increase in our outstanding shares of stock, which may result in the dilution of our stockholder ownership interest. We encourage you to evaluate these items and the potential risks of excluding such items when analyzing our financial position.

The following table presents Adjusted EBITDA results and includes a reconciliation of Adjusted EBITDA to net income for the three and nine months ended September 30, 2011 and 2010:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2011		Per Share		2010		Per Share		2011		Per Share		2010		Per Share
Net income	$	8,446	$	0.22	$	6,444	$	0.16	$	20,071	$	0.50	$	14,296	$	0.35
Depreciation and amortization		3,072		0.08		3,236		0.08		9,619		0.24		9,349		0.23
Amortization of RS and PARS		3,088		0.08		1,631		0.04		8,746		0.22		4,537		0.11
Interest expense and other		393		0.01		322		0.01		976		0.02		989		0.02
Income tax expense		5,085		0.13		4,077		0.10		12,037		0.30		8,847		0.22

Adjusted EBITDA	$	20,084	$	0.52	$	15,710	$	0.39	$	51,449	$	1.28	$	38,018	$	0.93

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. Kforce had $100.8 million and $64.9 million in working capital as of September 30, 2011 and December 31, 2010, respectively. Also, Kforce’s current ratio (current assets divided by current liabilities) was 2.0 and 1.6 as of September 30, 2011 and December 31, 2010, respectively.

The accompanying Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 provide a more detailed description of our cash flows. Kforce is principally focused on achieving the appropriate balance in the following areas of cash flow: (i) achieving positive cash flow from operating activities; (ii) reducing the outstanding balance of our Credit Facility; (iii) repurchasing our common stock; (iv) investing in our infrastructure to allow sustainable growth via capital expenditures; and (v) making strategic acquisitions.

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, significant 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. There is no assurance that: (i) our lenders will be able to fund our borrowings or (ii) if operations were to deteriorate and additional financing were to become necessary, we would be able to obtain financing in amounts sufficient to meet operating requirements or at terms which are satisfactory and which allow us to remain competitive.

The following table presents a summary of our net cash flows from operating, investing and financing activities for the nine months ended September 30:


	2011			2010
Cash provided by (used in):
Operating activities	$	13,920		$	12,861
Investing activities		(6,746	)		(32,093	)
Financing activities		(7,204	)		16,874

Decrease in cash and cash equivalents	$	(30	)	$	(2,358	)

Operating Activities

The significant variations in cash provided by (used in) operating activities and net income are principally related to adjustments to net income for certain non-cash charges such as depreciation and amortization expense and stock-based compensation. These adjustments are more fully detailed in our unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2011 and 2010. Our largest source of operating cash flows is the collection of trade receivables and our largest use of operating cash flows is the payment of our employee and consultant populations’ compensation, which includes base salary, commissions and bonuses.

Investing Activities

Capital expenditures for the nine months ended September 30, 2011 and 2010 were $4.3 million and $34.6 million, respectively, which exclude equipment acquired under capital leases. The decrease in cash used for capital expenditures during the nine months ended September 30, 2011 as compared to 2010 was primarily the result of the acquisition of our corporate headquarters in the second quarter of 2010 for a total purchase price, including acquisition-related costs, of $28.9 million.

We expect to continue to invest in our infrastructure in order to support the expected future growth in our business, as we believe, although we cannot provide any assurances, we are currently in the beginning stage of the next positive economic cycle. We believe that these investments will, among other things, improve the performance and profitability of our associates and increase: (i) the efficiency and effectiveness of our delivery activities; (ii) the satisfaction of our customers; and (iii) the effectiveness of our incentive compensation programs. Kforce believes it has sufficient cash and availability under its Credit Facility to make any necessary capital expenditures in the foreseeable future, although significant deterioration in the economic environment or market conditions could negatively impact the ability of our lenders to fund borrowings.

Financing Activities

During the nine months ended September 30, 2011, we repurchased 5.5 million shares of our common stock at a total cost of $56.4 million, of which $53.9 million had been settled with the designated repurchase agent as of September 30, 2011.

Credit Facility

On September 20, 2011, Kforce entered into the Credit Facility. The group of lenders under our Credit Facility includes Bank of America, N.A. and Merrill Lynch, Pierce, Fenner and Smith Inc., JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A. The maximum borrowings available to Kforce under the Credit Facility are limited to: (a) a revolving credit facility of up to $100 million (the “Revolving Loan Amount”) and (b) a $15 million sub-limit included in the Credit Facility for letters of credit.

Borrowings under the Credit Facility are limited to 85% of the net amount of eligible accounts receivable, plus 80% of the net amount of eligible unbilled accounts receivable, plus 80% of the net amount of eligible employee placement accounts, minus certain minimum availability reserves. Outstanding borrowings under the Revolving Loan Amount bear interest at a rate of (a) LIBOR plus 1.25% or (b) the higher of: (i) the prime rate, (ii) the federal funds rate plus 0.50% or (iii) LIBOR plus 1.00%; plus 0.25%. Fluctuations in the ratio of unbilled to billed receivables could result in material changes to availability from time to time. Letters of credit issued under the Credit Facility require Kforce to pay a fronting fee equal to 0.125% of the amount of each letter of credit issued plus, plus a per annum fee equal to the applicable margin for LIBOR loans based on the total letters of credit outstanding. To the extent that Kforce has unused availability under the Credit Facility, an unused line fee is required to be paid equal to the applicable margin times the amount by which the maximum revolver amount exceeded the sum of the average daily outstanding amount of the revolving loans and the average daily undrawn face amount of outstanding letters of credit during the immediate preceding month. Borrowings under the Credit Facility are secured by substantially all of the assets of Kforce, excluding the real estate located at the Kforce’s corporate headquarters in Tampa, Florida. Under the Credit Facility, Kforce is subject to certain affirmative and negative covenants including (but not limited to) the maintenance of a fixed charge coverage ratio in the event that the Firm is unable to maintain certain minimum availability under the Credit Facility of less than the greater of 10% of the amount of the commitment and $11,000. As of September 30, 2011, Kforce had availability under the Credit Facility in excess of the minimum requirement; therefore, the minimum fixed charge coverage ratio of 1.00 to 1.00 was not applicable. Kforce believes that it will be able to maintain the minimum availability requirement; however, in the event that Kforce is unable to do so, Kforce could fail the fixed charge coverage ratio, which would constitute an event of default. The Credit Facility expires September 20, 2016.

As of September 30, 2011, there was $59.4 million outstanding and $26.9 million available under the Credit Facility. During the three months ended September 30, 2011, maximum outstanding borrowings under the Credit Facility were $59.4 million. As of October 31, 2011, there was $57.4 million outstanding and $28.4 million available under the Credit Facility.

Off-Balance Sheet Arrangements

Kforce provides letters of credit to certain vendors in lieu of cash deposits. At September 30, 2011, Kforce had letters of credit outstanding for workers’ compensation and other insurance coverage totaling $2.7 million and for facility lease deposits totaling $0.2 million. Kforce does not have any additional off-balance sheet arrangements that have had, or are expected to have, a material effect on our unaudited condensed consolidated financial statements.

Stock Repurchases

As of December 31, 2008, our Board of Directors had authorized $75.0 million of repurchases of our common stock. As of December 31, 2010, $68.9 million remained available for future repurchases. During the nine months ended September 30, 2011, Kforce repurchased approximately 5.6 million shares of common stock attributable to shares repurchased in the open market and shares withheld for statutory minimum tax withholding requirements pertaining to the vesting of restricted stock awards and the exercise of stock options and SARs at a total cost of approximately $57.9 million. As of September 30, 2011, approximately $10.9 million remains available for future repurchases.

During October 2011, our Board of Directors approved an increase to the existing authorization for repurchases of common stock by $75.0 million (exclusive of any previously unused authorizations). As of November 1, 2011, approximately $84.2 million remained available for future repurchases.

Registration Statement on Form S-3

On March 18, 2009, Kforce filed a Registration Statement on Form S-3 that allows the issuance of up to $250 million of common stock and other equity, debt and financial instruments for general corporate purposes which may include capital expenditures, the repayment or refinancing of debt, investments in our subsidiaries, working capital, or the financing of possible acquisitions or business opportunities. Such filings are referred to as “Shelf Registrations.” No issuance of securities has been made under this registration statement as of October 31, 2011. There is no assurance that the existence of the Shelf Registration will assist Kforce in registering its securities in connection with future efforts to raise capital or for other purposes. The Shelf Registration will expire in March 2012, and we expect to file a new Shelf Registration upon, or shortly following, this expiration.

Item 3.

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. The sensitivity analysis presented below for our Credit Facility is based on a 10% change in interest rates. This change is a hypothetical scenario and is used to calibrate potential risk and does not represent our view of future market changes.

As of September 30, 2011, we had $59.4 million outstanding under our Credit Facility. Our weighted average effective interest rate on our Credit Facility was 1.66% at September 30, 2011. A hypothetical 10% increase in interest rates in effect at September 30, 2011 would have the effect of increasing annualized interest expense on borrowings outstanding as of September 30, 2011 by $0.1 million.

We do not believe that we have a material exposure to fluctuations in foreign currencies because our international operations represented approximately 2% of net service revenues for the nine months ended September 30, 2010, and because our international operations’ functional currency is the U.S. Dollar. However, we will continue to assess the impact that currency fluctuations could have on our operations going forward.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of September 30, 2011, we carried out an evaluation required by Rules 13a-15 and 15d-15 under the Exchange Act (the “Evaluation”), under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“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 our Disclosure Controls are effective in timely alerting them to material information required to be included in our periodic SEC reports.

Changes in Internal Control over Financial Reporting

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

Inherent Limitations of Internal Control over Financial Reporting

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

CEO and CFO Certifications

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

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings.

Otherwise, no new legal proceedings that are likely to have a material adverse impact on Kforce, and no material developments with respect to existing legal proceedings, occurred during the nine months ended September 30, 2011.

Item 1A.

Risk Factors.

There have been no material changes in the risk factors previously disclosed in our Annual Report on Form 10-K for our year ended December 31, 2010, as updated by those disclosed in our Quarterly Report on Form 10-Q for our quarter ended June 30, 2011.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

The following table presents information with respect to our repurchases of Kforce common stock during the three months ended September 30, 2011:


Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2011 to July 31, 2011		802	$	13.02		802	$	53,980,637
August 1, 2011 to August 31, 2011		2,509,336	$	8.95		2,509,336	$	31,533,707
September 1, 2011 to September 30, 2011		2,104,590	$	9.79		2,104,590	$	10,930,592

Total		4,614,728	$	9.33		4,614,728	$	10,930,592

(1)	All of the shares reported above as purchased are attributable to shares repurchased in the open market.

Item 3.

Defaults Upon Senior Securities.

None.

Item 4.

(Removed and Reserved).

None.

Item 5.

Other Information.

None.

Item 6.

Exhibits.


Exhibit Number		Description
3.1		Amended and Restated Articles of Incorporation. (1)

3.1a		Articles of Amendment to Articles of Incorporation. (2)

3.1b		Articles of Amendment to Articles of Incorporation. (2)

3.1c		Articles of Amendment to Articles of Incorporation. (2)

3.1d		Articles of Amendment to Articles of Incorporation. (3)

3.1e		Articles of Amendment to Articles of Incorporation. (4)

3.2		Amended & Restated Bylaws. (5)

10.1		Third Amended and Restated Credit Agreement, dated September 20, 2011, between Kforce Inc. and its subsidiaries and Bank of America, N.A. and the other lenders thereto. (6)

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 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.1		Part I, Item 1 of this Form 10-Q formatted in XBRL. (7)

(1)	Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File 33-91738) filed April 28, 1995.

(2)	Incorporated by reference to the Registrant’s Form S-4/A (File No. 333-111566) filed February 9, 2004, as amended.

(3)	Incorporated by reference to the Registrant’s Form 8-K (File No. 000-26058) filed May 17, 2000.

(4)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-26058) filed March 29, 2002.

(5)	Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed February 7, 2007.

(6)	Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed September 23, 2011.

(7)	The interactive data files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.

SIGNATURES

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


Kforce Inc.
(Registrant)

Date: November 2, 2011	By:	/s/ JOSEPH J. LIBERATORE
		Joseph J. Liberatore
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

Date: November 2, 2011	By:	/s/ JEFFREY B. HACKMAN
		Jeffrey B. Hackman
		Vice President and Chief Accounting Officer
		(Principal Accounting Officer)

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