Discontinued Operations

9 Months Ended

Sep. 30, 2019

Discontinued Operations and Disposal Groups [Abstract]

During 2019, management committed to a plan to divest the Government Solutions (“GS”) segment as a result of the Firm’s decision to focus solely on the commercial technical and professional staffing services and solutions space. The GS segment consisted of Kforce Government Solutions, Inc. (“KGS”), our federal government solutions business, and TraumaFX® Solutions, Inc. (“TFX”), our federal government product business.

On April 1, 2019, Kforce completed the sale of all of the issued and outstanding stock of Kforce Government Holdings, Inc., including its wholly-owned subsidiary KGS, to ManTech International Corporation for a cash purchase price of $115.0 million. Our gain on the sale of KGS, net of transaction costs, was $72.3 million. Total transaction costs were $9.6 million, which primarily includes legal and broker fees, transaction bonuses and accelerated stock-based compensation expense triggered by a change in control of KGS.

On June 7, 2019, Kforce completed the sale of all of the issued and outstanding stock of TFX to an unaffiliated third party for a cash purchase price of $18.4 million. During the three months ended September 30, 2019, we recorded an estimated loss of $0.4 million related to a post-closing working capital adjustment. Our gain on the sale of TFX, net of transaction costs, was $7.3 million. Total transaction costs were $2.2 million, which primarily includes legal and broker fees and transaction bonuses. Due to the sale of TFX, we finalized the settlement of a contingent consideration liability related to the acquisition of TFX in 2014 and paid $0.6 million during the nine months ended September 30, 2019.

Since the divestitures, Kforce has no significant continuing involvement in the operations of KGS and TFX.

The results of operations for both KGS and TFX have been reported as discontinued operations in our consolidated financial statements prior to their disposition. The following table summarizes the line items of pretax profit for the GS segment (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2019		2018		2019		2018
Revenue	$	—	$	28,868	$	27,737	$	86,809
Direct costs	—		20,532		19,494		63,531
Gross profit	—		8,336		8,243		23,278
Selling, general and administrative expenses	—		5,373		6,842		16,702
Depreciation and amortization	—		248		307		749
Income from discontinued operations	—		2,715		1,094		5,827
(Loss) gain on sale of discontinued operations	(402)		—		79,602		—
Other income (expense), net	—		8		(436)		—
(Loss) income from discontinued operations, before income taxes	(402)		2,723		80,260		5,827
Income tax expense	565		702		3,563		1,489
(Loss) income from discontinued operations, net of tax	$	(967)	$	2,021	$	76,697	$	4,338

During the three months ended September 30, 2019, we recorded $0.6 million of income tax expense related to a revision in an estimate of our tax obligation for the sale of KGS, which is included in the Loss on sale of discontinued operations, net of tax.

The effective tax rates for discontinued operations, including the gain on sale of discontinued operations, for the nine months ended September 30, 2019 and 2018 were 4.4% and 25.6%, respectively. For the nine months ended September 30, 2019, the tax rate is lower as a result of the efficient tax structure of the sale of KGS.

The accompanying Unaudited Condensed Consolidated Statements of Cash Flows are presented on a combined basis (continuing operations and discontinued operations). For the nine months ended September 30, 2019, cash provided by operating activities and cash provided by investing activities for discontinued operations were $5.1 million and $118.5 million, respectively. For the nine months ended September 30, 2018, cash provided by operating activities and cash used in investing activities for discontinued operations were $5.4 million and $0.9 million, respectively.

The following table summarizes the assets and liabilities held for sale for the GS segment as of December 31, 2018 (in thousands):


ASSETS	December 31, 2018
Current assets held for sale:
Trade receivables	$	24,336
Prepaid expenses and other current assets	5,437
Total Current assets held for sale	$	29,773
Noncurrent assets held for sale:
Fixed assets, net	$	1,496
Other assets, net	293
Deferred tax assets, net	2,604
Intangible assets	2,952
Goodwill	20,928
Total Noncurrent assets held for sale	$	28,273
LIABILITIES
Current liabilities held for sale:
Accounts payable and other accrued liabilities	$	6,064
Accrued payroll costs	5,878
Other current liabilities	16
Income taxes payable	305
Total Current liabilities held for sale	$	12,263
Noncurrent liabilities held for sale:
Other long-term liabilities	$	4,551
Total Noncurrent liabilities held for sale	$	4,551