Discontinued Operations

6 Months Ended

Jun. 30, 2019

Discontinued Operations and Disposal Groups [Abstract]

During the three months ended March 31, 2019, management committed to a plan to divest of our 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 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. The 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 the issued and outstanding stock of TFX to an unaffiliated third party for a cash purchase price of $18.4 million, subject to a post-closing working capital adjustment. Our gain on the sale of TFX, net of transaction costs, was $7.7 million and 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 three months ended June 30, 2019.

Since the dispositions, 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 June 30,						Six Months Ended June 30,
	2019		2018		2019		2018
Revenue	$	1,311	$	29,089	$	27,737	$	57,941
Direct costs	479		21,826		19,494		42,999
Gross profit	832		7,263		8,243		14,942
Selling, general and administrative expenses	1,424		5,534		6,842		11,329
Depreciation and amortization	58		245		307		501
(Loss) income from discontinued operations	(650)		1,484		1,094		3,112
Gain on sale of discontinued operations	80,004		—		80,004		—
Other income (expense), net	428		(11)		(436)		(8)
Income from discontinued operations, before income taxes	79,782		1,473		80,662		3,104
Income tax expense	20,999		374		2,998		787
Income from discontinued operations, net of tax	$	58,783	$	1,099	$	77,664	$	2,317

There was no income tax obligation for the sale of KGS due to an effective tax structure and Kforce’s significant outside tax basis. Historically, Kforce was not required to record a deferred tax asset for the excess of the outside tax basis in the equity of KGS over the amount of the inside basis in the assets of KGS used for external reporting under GAAP, as it was not apparent that this deferred tax asset would be realized. During the three months ended March 31, 2019, we entered into a definitive agreement to sell the stock of KGS and recorded $18.5 million to deferred tax assets and income tax benefit since it became apparent that the temporary difference would reverse in the foreseeable future. This deferred tax asset of $18.5 million was utilized and recorded as income tax expense during the three months ended June 30, 2019.

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

The accompanying Unaudited Condensed Consolidated Statements of Cash Flows are presented on a combined basis (continuing operations and discontinued operations). For the six months ended June 30, 2019, cash provided by operating activities and cash provided by investing activities for discontinued operations were $5.1 million and $118.9 million, respectively. For the six months ended June 30, 2018, cash used in operating activities and cash used in investing activities for discontinued operations were $2.7 million and $0.8 million, respectively.