Note 3 - Discontinued Operations

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

Note 3. Discontinued Operations

As of June 30, 2020, our Factoring reportable segment was classified as discontinued operations as it: (i) is a component of the entity, (ii) meets the criteria as held for sale, and (iii) has a material effect on the Company's operations and financial results. On July 8, 2020, we closed on the disposition of substantially all of the operations and assets of Transport Financial Services (“TFS”), a division of Covenant Transport Solutions LLC, an indirect wholly owned subsidiary of the Company, which included substantially all of the assets and operations of our Factoring reportable segment.

Beginning with the period ended June 30, 2020, we have reflected the former Factoring reportable segment as discontinued operations in the condensed consolidated statements of operations for all periods presented. Prior periods have been adjusted to conform to the current presentation. The sale consisted primarily of $103.3 million of net accounts receivable, which included $108.7 million of gross accounts receivable, less advances and rebates of $5.4 million. 

The following table summarizes the results of our discontinued operations for the three and six months ended June 30, 2020 and 2019:

(in thousands)	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Total revenue	$	2,516	$	2,258	$	5,255	$	4,106
Operating expenses		453		444		1,030		813
Operating income		2,063		1,814		4,225		3,293
Interest expense		955		705		1,948		1,278
Income before income taxes		1,108		1,109		2,277		2,015
Income tax expense		283		283		581		514
Net income from discontinued operations, net of tax	$	825	$	826	$	1,696	$	1,501

Interest expense not directly attributable to or related to other operations has been allocated to discontinued operations in a manner consistent with debt needed to finance the net average funds employed by the Factoring reportable segment, multiplied by the Company’s weighted average interest rate.

The following table summarizes the major classes of assets and liabilities included as discontinued operations as of June 30, 2020 and December 31, 2019:

(in thousands)	June 30, 2020		December 31, 2019
Current assets:
Accounts receivable, net of allowance of $600 in 2020 and $408 in 2019	$	98,131	$	86,620
Current assets of discontinued operations		98,131		86,620
Current liabilities:
Accounts payable		5,494		6,245
Current liabilities of discontinued operations	$	5,494	$	6,245

Net cash flows used by operating activities related to discontinued operations were $10.0 million and $20.0 million for the six months ended June 30, 2020 and 2019, respectively.  There were no investing or financing cash flows related to discontinued operations for either the six months June 30, 2020 or 2019.

The following unaudited summary information is presented on a consolidated pro forma basis as if the Factoring assets were sold as of January 1, 2019.

(in thousands)	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2020			2019		2020			2019
Total revenue	$	191,689		$	217,040	$	402,502		$	434,373
(Loss) income from continuing operations		(23,168	)		5,245		(26,251	)		9,003
(Loss) income per basic and diluted share from continuing operations	$	(1.36	)	$	0.28	$	(1.49	)		0.49

The Company and the purchaser of TFS’ assets are involved in a dispute related to the disposition. The purchaser asserts that, subsequent to the closing, it identified that approximately $66.0 million of the assets acquired  related to advances against future payments to be made pursuant to long-term contractual arrangements between the obligor on such contracts and TFS’ clients for services that had not yet been performed (as opposed to advances against future payments for services that had been performed), that this fact was not disclosed to the purchaser, and the purchase of such advances was not contemplated by the purchase agreement. The Company is engaged in discussions to determine whether this dispute can be amicably resolved and is also evaluating other options should the discussions not produce an amicable resolution. It is too early to determine the likely outcome of this dispute, any liability or expenses the Company may incur, any cash the Company may need to pay or invest, any impact on the Company’s total leverage, or the gain or loss the Company ultimately may record on the transaction compared with the $26.5 million gain previously estimated. The facts are still being gathered, and a solution that is acceptable to both companies may or may not be found.