The following selected financial data reflects the results of operations and balance sheet data for the fiscal years ended November 1, 2020, November 3, 2019 and October 28, 2018, October 29, 2017 and October 30, 2016.2018. The data below should be read in conjunction with, and is qualified by reference to, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Company’s Consolidated Financial Statements and notes thereto. The financial information presented may not be indicative of our future performance.
Volt Information Sciences, Inc. and Subsidiaries
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ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto.
Note Regarding the Use of Non-GAAP Financial Measures
We have provided certain Non-GAAP financial information, which includes adjustments for special items and the impact of foreign currency fluctuations on certain line items on a constant currency basis, as additional information for segment revenue, our consolidated net income (loss) and segment operating income (loss). These measures are not in accordance with, or an alternative for, measures prepared in accordance with generally accepted accounting principles (“GAAP”) and may be different from Non-GAAP measures reported by other companies. We believe that the presentation ofOur Non-GAAP measures eliminating the impact of foreignare generally presented on a constant currency fluctuations, special itemsbasis, and exclude (i) the impact of businesses sold or exited, (ii) the impact from the migration of certain clients from a traditional staffing model to a managed service model (“MSP transitions”) and (iii) the elimination of special items. Special items generally include impairments, restructuring and severance costs, as well as certain income or expenses which the Company does not consider indicative of the current and future period performance. We believe that the difference in revenue recognition accounting under each model of the MSP transitions could be misleading on a comparative period basis. We further believe that the use of Non-GAAP measures provides useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations because they permit evaluation of the results of our operations without the effect of foreign currency fluctuations the impact of businesses sold or special items that management believes make it more difficult to understand and evaluate our results of operations.
Segments
Our reportable segments are (i) North American Staffing, (ii) International Staffing and (iii) North American MSP. All other business activities that do not meet the criteria to be reportable segments are aggregated with corporate services under the category Corporate and Other. Our reportable segments have been determined in accordance with our internal management structure, which is based on operating activities. We evaluate business performance based upon several metrics, primarily using revenue and segment operating income as the primary financial performance. Special items generally include impairments, restructuringmeasures. We believe segment operating income provides management and severance costs, as well as certaininvestors a measure to analyze operating performance of each business segment against historical and competitors’ data, although historical results, including operating income, or expensesmay not be indicative of future results as operating income is highly contingent on many factors including the state of the economy, competitive conditions and customer preferences.
We allocate all support-related costs to the operating segments except for costs not directly relating to our current or future periodoperating activities such as corporate-wide general and administrative costs. These costs are not allocated to individual operating segments because we believe that doing so would not enhance the understanding of segment operating performance and such costs are not used by management to measure segment performance.
Segments
We report our segment information in accordance with the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 280, Segment Reporting (“ASC 280”), aligning with the way the Company evaluates its business performance and manages its operations.
During the fourth quarter of fiscal 2018, in accordance with ASC 280,In June 2019, the Company determined thatexited its North American Managed Service Program (“MSP”)customer care solutions business, meets the criteria to be presentedwhich was reported as a reportable segment. To provide period over period comparability,part of the Corporate and Other category. This exit allowed the Company has recast the prior period North American MSP segment data to conformfurther strengthen its focus on its core staffing business and align its resources to the current presentation. This change did not have any impact on the consolidated financial results for any period presented. Our current reportable segments are (i) North American Staffing, (ii) International Staffingstreamline operations, improve cost competitiveness and (iii) North American MSP.increase profitability. The Company’s other non-reportable businesses arewill continue to be combined and disclosed with corporate services under the category Corporate and Other.
The Company sold the quality assurance business from within the Technology Outsourcing Services and Solutions segment on October 27, 2017, leaving the Company's call center services as the remaining activity within that reporting segment. The Company has renamed the operating segment Volt Customer Care Solutions and its results are now reported as part of the Corporate and Other category, as it does not meet the criteria for a reportable segment under ASC 280. To provide period over period comparability, the Company has recast the prior period Technology Outsourcing Services and Solutions segment data to conform to the current presentation within the Corporate and Other category. This change did not have any impact on the consolidated financial results for any period presented. In addition, Corporate and Other also included our previously owned Maintech, Incorporated (“Maintech”) business in the first six months of fiscal 2017 until its sale in March 2017.
Segment operating income (loss) is comprised of segment net revenue less cost of services, selling, administrative and other operating costs, settlement and impairment charges and restructuring and severance costs. The Company allocates to the segments all operating costs except costs not directly related to the operating activities such as corporate-wide general and administrative costs. These costs are not allocated because doing so would not enhance the understanding of segment operating performance and are not used by management to measure segment performance.
Overview
We are a global provider of staffing services (traditional time and materials-based as well as project-based). Our staffing services consist of workforce solutions that include providing contingent workers, personnel recruitment services and managed staffing services programs supporting primarily administrative and light industrial (“commercial”)(commercial) as well as technical, information technology and engineering (“professional”)(professional) positions. Our managed service programs (“MSP”) involves managing the procurement and on-boarding of contingent workers from multiple providers. OurThrough June 2019, when we exited this business, our customer care solutions specializebusiness specialized in serving as an extension of our customers'customers’ consumer relationships and processes including collaborating with customers, from help desk inquiries to advanced technical support. We also provided quality assurance services through the date of sale of this business in October 2017. In addition, through the date of the sale of Maintech in March 2017, we provided
information technology infrastructure services. Our information technology infrastructure services provided server, storage, network and desktop IT hardware maintenance, data center and network monitoring and operations.
As of October 28, 2018,November 1, 2020, we employed approximately 20,10015,600 people, including 18,60014,500 contingent workers. Contingent workers are on our payroll for the length of their assignment. We operate from 85in approximately 60 of our own locations with approximatelyand have an on-site presence in over 50 customer locations. Approximately 88% of our revenuesrevenue is generated in the United States. Our principal international markets include Europe, CanadaAsia Pacific and several Asia PacificCanada locations. The industry is highly fragmented and very competitive in all of the markets we serve.
COVID-19 and Our Response
The global spread of COVID-19, which was declared a global pandemic by the World Health Organization (“WHO”) on March 11, 2020, has created significant volatility, uncertainty and global macroeconomic disruption. Our business experienced significant changes in revenue trends at the mid-point of our second quarter of fiscal 2020 as market conditions rapidly deteriorated and continued to decline through the beginning of our third quarter of fiscal 2020. During the second half of fiscal 2020, revenue has increased sequentially month over month as a result of a combination of existing customers returning to work, expanding business with existing customers and winning new customers.
Beginning in mid-March 2020 and continuing throughout the year, a number of countries and U.S. federal, state and local governments issued stay-at-home orders requiring persons who were not engaged in essential activities and businesses as defined in those specific orders to remain at home. Many other countries and jurisdictions without stay-at-home orders required nonessential businesses to close or otherwise reduce operations and capacity. Our first priority, with regard to the COVID-19 pandemic, was to ensure the health and safety of our employees, clients, suppliers and others with whom we partner in our business activities to continue our business operations in this unprecedented business environment. Our business was largely converted to a remote in-house workforce and remained open as we provided key services to essential businesses, both remotely and onsite at our customers’ locations.
We created a COVID-19 Incident Response Team comprised of key senior leaders in the organization, to track and manage our COVID-19 activities, including monitoring the most up-to-date developments and safety standards from the Centers for Disease Control and Prevention, WHO, Occupational Safety and Health Administration and other key authorities. All internal and external information and communications relating to our COVID-19 safety protocols, FAQs and reporting on COVID-19 incidents are managed by this central team. In addition to updating our external website, we actively shared information via regular emails, conference and video calls and other digital communications with clients and employees on how companies and workers can protect themselves during this time. While certain locations remained fully operational throughout the pandemic, other offices have opened on a limited voluntary basis. We continue to monitor the environment to determine whether to close offices, reduce capacity or change required mitigation measures based on federal, state and local regulations as well as guidance from the key authorities described above.
The impact on sales has varied for each segment based on different levels of COVID-19 related measures enacted across geographies, the diverse customer industries we serve, as well as the quality and capability of the talent provided to successfully work remotely to support the customers’ needs. In our largest segment, North American Staffing, essential businesses represented approximately 80% of the segment’s portfolio of business and in our International Staffing segment most of our contractors were able to work from home during the lockdown.
We shifted our sales approach to include a response to the pandemic and secured new business wins in opportunities that arose as a direct result of COVID-19. These work orders included making face shields and masks to help protect our healthcare professionals, requests to meet the needs of additional cleaning requirements and safety protocols, as well as expanding into other COVID-19 impacted industries. Our focus on sales and recruitment has shifted to be centered around businesses that are actively hiring in the current environment and these COVID-19 specific opportunities remained available throughout 2020 and may remain in some form into 2021 until a vaccine is available and widely distributed.
Prior to the outbreak of COVID-19, we were focused on reducing our operating expenses and as the impact of the pandemic began to unfold, we took additional measures to manage our costs, including:
•Reduced compensation for the CEO, CFO and members of the Board of Directors
•Managed our cost base through a combination of headcount reductions, furloughs and reduced hours
•Implemented an early halt on all domestic and international travel
•Eliminated most discretionary spending
•Continued to negotiate reductions of committed spend
•Assessed our real estate footprint, including consolidating and exiting certain leased office locations throughout North America where we can be fully operational and successfully support our clients and business operations remotely
•Temporarily suspended the matching contributions under the Volt Information Sciences, Inc. Savings Plan
In addition, we continue to actively pursue further options to increase financial flexibility.
While our global business environment is and will continue to operate in various stages of economic turbulence, we have continued to see a gradual increase in order activity and demand throughout the Company, including certain positive impacts of customers reopening previously shut down site operations. Although there is still significant uncertainty related to COVID-19, our ability to continue successfully serving our existing customers during this pandemic as well as our agility in responding to immediate and critical demands in new areas has allowed us to mitigate the more significant adverse impacts of this global environment to date.
Recent Developments
On November 7, 2018, Linda Perneau, interim President and Chief Executive Officer ofDecember 17, 2020, the Company was appointed President and Chief Executive Officer ofamended its long-term accounts receivable securitization program (“DZ Financing Program”) with DZ Bank AG Deutsche Zentral-Genossenschaftsbank (“DZ Bank”). The modifications to the Company. Ms. Perneau was also appointed byagreement were to (1) extend the Company’s Board of Directors to serveAmortization Date, as a director of the Company.
On November 8, 2018, the Company issued a press release stating that its Board of Directors had ended its previously announced review of strategic alternatives.
On January 4, 2019, we amendeddefined in the DZ Financing Program. Key changes to the amendment were to: (1) extend the term of the programProgram, from January 25, 2023 to January 25, 2021; (2) revise an existing financial covenant to maintain Tangible Net Worth (as2024, and extend the Facility Maturity Date, as defined underin the DZ Financing Program) of at least $30.0 million through fiscal year 2019, which will revert backProgram, from July 25, 2023 to $40.0 million in fiscal 2020; (3)July 25, 2024; (2) revise an existing covenant to maintain positive net income in any fiscal year ending after 2019;2020 to any fiscal year ending after 2021; (3) replace the existing Tangible Net Worth (“TNW”) covenant requirement, as defined in the DZ Financing Program, to a minimum TNW of $20.0 million through the Company’s fiscal quarter ending on or about July 31, 2021 and $25.0 million in each quarter thereafter; and (4) increaserevise the eligibility threshold for obligors with payment terms in excessthe receivables of 60 daysa large North American Staffing customer from 2.5%5% of eligible receivables to 10.0%8%, which will add flexibility and borrowing capacity forincrease our overall availability under the Company.Program by $1.0 - $3.0 million. All other material terms and conditions of the DZ Financing Program remain substantially unchanged.
Consolidated Results of Continuing Operations and Financial Highlights (Fiscal 20182020 (52 weeks) vs. Fiscal 2017)2019 (53 weeks))
Results of Continuing Operations by Segment (Fiscal 2018 2020 (52 weeks) vs. Fiscal 2017)2019 (53 weeks))
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended November 1, 2020 |
(in thousands) | Total | | North American Staffing | | International Staffing | | North American MSP | | Corporate and Other | | Elimination |
Net revenue | $ | 822,055 | | | $ | 689,095 | | | $ | 95,308 | | | $ | 37,915 | | | $ | 674 | | | $ | (937) | |
Cost of services | 694,204 | | | 586,255 | | | 79,087 | | | 29,471 | | | 328 | | | (937) | |
Gross margin | 127,851 | | | 102,840 | | | 16,221 | | | 8,444 | | | 346 | | | — | |
| | | | | | | | | | | |
Selling, administrative and other operating costs | 137,666 | | | 85,776 | | | 14,484 | | | 5,370 | | | 32,036 | | | — | |
Restructuring and severance costs | 2,641 | | | 883 | | | 338 | | | — | | | 1,420 | | | — | |
Impairment charges | 16,913 | | | 1,859 | | | — | | | — | | | 15,054 | | | — | |
Operating income (loss) | (29,369) | | | 14,322 | | | 1,399 | | | 3,074 | | | (48,164) | | | — | |
Other income (expense), net | (3,173) | | | | | | | | | | | |
Income tax provision | 1,045 | | | | | | | | | | | |
Net loss | $ | (33,587) | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended October 28, 2018 |
(in thousands) | Total | | North American Staffing | | International Staffing | | North American MSP | | Corporate and Other (1) | | Elimination (2) |
Net revenue | $ | 1,039,170 |
| | $ | 860,544 |
| | $ | 117,351 |
| | $ | 29,986 |
| | $ | 35,228 |
| | $ | (3,939 | ) |
Cost of services | 885,492 |
| | 735,050 |
| | 98,640 |
| | 22,637 |
| | 33,104 |
| | (3,939 | ) |
Gross margin | 153,678 |
| | 125,494 |
| | 18,711 |
| | 7,349 |
| | 2,124 |
| | — |
|
| | | | | | | | | | | |
Selling, administrative and other operating costs | 173,337 |
| | 112,459 |
| | 15,986 |
| | 5,571 |
| | 39,321 |
| | — |
|
Restructuring and severance costs | 8,242 |
| | 932 |
| | 328 |
| | 145 |
| | 6,837 |
| | — |
|
Settlement and impairment charges | 506 |
| | — |
| | — |
| | — |
| | 506 |
| | — |
|
Operating income (loss) | (28,407 | ) | | 12,103 |
| | 2,397 |
| | 1,633 |
| | (44,540 | ) | | — |
|
Other income (expense), net | (3,320 | ) | | | | | | | | | | |
Income tax provision | 958 |
| | | | | | | | | | |
Net loss | $ | (32,685 | ) | | | | | | | | | | |
| | | Year Ended October 29, 2017 | | Year Ended November 3, 2019 |
(in thousands) | Total | | North American Staffing | | International Staffing | | North American MSP | | Corporate and Other (1) | | Elimination (2) | (in thousands) | Total | | North American Staffing | | International Staffing | | North American MSP | | Corporate and Other (1) | | Elimination (2) |
Net revenue | $ | 1,194,436 |
| | $ | 919,260 |
| | $ | 119,762 |
| | $ | 36,783 |
| | $ | 125,089 |
| | $ | (6,458 | ) | Net revenue | $ | 997,090 | | | $ | 830,947 | | | $ | 114,377 | | | $ | 39,010 | | | $ | 15,320 | | | $ | (2,564) | |
Cost of services | 1,007,041 |
| | 782,405 |
| | 101,064 |
| | 29,309 |
| | 100,721 |
| | (6,458 | ) | Cost of services | 844,527 | | | 708,824 | | | 95,552 | | | 28,324 | | | 14,391 | | | (2,564) | |
Gross margin | 187,395 |
| | 136,855 |
| | 18,698 |
| | 7,474 |
| | 24,368 |
| | — |
| Gross margin | 152,563 | | | 122,123 | | | 18,825 | | | 10,686 | | | 929 | | | — | |
| | | | | | | | | | | | |
Selling, administrative and other operating costs | 197,130 |
| | 119,320 |
| | 15,836 |
| | 4,861 |
| | 57,113 |
| | — |
| Selling, administrative and other operating costs | 157,052 | | | 103,437 | | | 15,422 | | | 5,595 | | | 32,598 | | | — | |
Restructuring and severance costs | 1,379 |
| | 382 |
| | 14 |
| | — |
| | 983 |
| | — |
| Restructuring and severance costs | 4,656 | | | 719 | | | 510 | | | 68 | | | 3,359 | | | — | |
Gain from divestitures | (51,971 | ) | | — |
| | — |
| | — |
| | (51,971 | ) | | — |
| |
Settlement and impairment charges | 1,694 |
| | — |
| | — |
| | — |
| | 1,694 |
| | — |
| |
Operating income | 39,163 |
| | 17,153 |
| | 2,848 |
| | 2,613 |
| | 16,549 |
| | — |
| |
| Impairment charges | | Impairment charges | 688 | | | 4 | | | — | | | — | | | 684 | | | — | |
Operating income (loss) | | Operating income (loss) | (9,833) | | | 17,963 | | | 2,893 | | | 5,023 | | | (35,712) | | | — | |
Other income (expense), net | (6,950 | ) | | | | | | | | | | | Other income (expense), net | (4,375) | | |
Income tax provision | 3,388 |
| | | | | | | | | | | Income tax provision | 978 | | |
Net income from continuing operations | 28,825 |
| | | | | | | | | | | |
Loss from discontinued operations, net of income taxes | (1,693 | ) | | | | | | | | | | | |
Net income | $ | 27,132 |
| | | | | | | | | | | |
| Net loss | | Net loss | $ | (15,186) | | |
(1) Revenues are primarily derived from Volt Customer Care Solutions. In addition, fiscal 2017 included our previously owned quality assuranceSolutions business as well as our information technology infrastructure services through the date of sale of Maintech in March 2017.June 2019.
(2) The majority of intersegment sales results from North American Staffing providing resources to Volt Customer Care Solutions and our previously owned quality assurance business.
Results of Operations Consolidated (Fiscal 20182020 (52 weeks) vs. Fiscal 2017)2019 (53 weeks))
Net revenue in fiscal 20182020 decreased $155.2$175.0 million, or 13.0%17.6%, to $1,039.2$822.1 million from $1,194.4$997.1 million in fiscal 2017.2019, including the impact of fiscal 2020 consisting of 52 weeks while fiscal 2019 consisted of 53 weeks. The revenue decline was primarily driven by the absence of $82.3 million in revenue from non-core businesses sold in fiscal 2017, which were included in the Corporate and Other category, as well as a decreasedue to decreases in our North American Staffing segment of $58.8$141.8 million, our International Staffing segment of $19.1 million and the Corporate and Other category of $14.6 million (related to the exit from our customer care solutions business in June 2019). Excluding the impact on net revenue of the 53rd week in fiscal 2019 of approximately $18.9 million, $14.6 million in revenue from a business exited last year, $14.1 million related to MSP transitions and negative foreign currency fluctuations of $6.5 million.$0.1 million, net revenue decreased $127.6 million, or 13.4%. While difficult to accurately estimate the exact amount, approximately $90.0 million to $105.0 million of this decline is attributable to the impact of COVID-19 in the form of business shutdowns or reduced hours from some of our customers and remain at home orders from various states and municipalities.
Operating resultsloss in fiscal 2018 decreased $67.62020 increased $19.6 million, or 198.7%, to an operating loss of $28.4$29.4 million from operating income of $39.2$9.8 million in fiscal 2017.2019 primarily due to higher impairment charges in fiscal 2020 and the additional week in fiscal 2019. Excluding the gain onbusiness exited last year, the saleimpact of non-core businessesthe additional week in fiscal 2017 of $52.0 million and $9.3 million in operating income reported by the businesses sold or exited,2019, as well as the increase in restructuring and severance costs of $6.8 million and the decrease in settlement and impairment charges, of $1.2 million, operating loss in fiscal 20182020 increased $0.6 million.$4.7 million, or 90.8%. This increase in operating loss of $4.7 million was primarily the resultdue to lower results in our North American MSP segment of a decline in$1.8 million, our International Staffing segment of $1.4 million and our North American Staffing and North Americansegment of $0.9 million.
MSP operating income offset by reductions in corporate support costs and improved operating results from our Volt Customer Care Solution business.
Results of Continuing Operations by Segments (Fiscal 20182020 (52 weeks) vs. Fiscal 2017)2019 (53 weeks))
Net Revenue
The North American Staffing segment revenue decrease of $58.8decreased $141.8 million, or 6.4%17.1%, to $689.1 million in fiscal 2020 from $830.9 million in fiscal 2019. Excluding the impact of the 53rd week in fiscal 2019 of approximately $15.8 million, $14.4 million in revenue from MSP transitions and revenue from our customer care solutions business exited in June 2019 of $0.7 million, revenue decreased $110.9 million, or 13.9% in fiscal 2020. While difficult to accurately estimate the exact amount, approximately, $90.0 million to $100.0 million of this decline is attributable to the impact of COVID-19 in the form of business shutdowns or reduced hours from some of our customers and remain at home orders from various states and municipalities. In addition, the segment's revenue was primarily drivenimpacted by lower demand from ourcertain larger customers, partially offset by growth from new and existing customers. The decrease was primarily experienced in our professional andlight industrial, information technology, as well as administrative and office job categories. This decrease was partially offset by a 12.3% increase in direct hire and conversion revenue. Year-over-year decrease in total revenue improved from a decline of 7.6% in fiscal 2017 compared to fiscal 2016.
The International Staffing segment revenue decreased $2.4$19.1 million, or 2.0%.16.7%, to $95.3 million in fiscal 2020 from $114.4 million in fiscal 2019. Excluding the positivenegative impact of foreign currency fluctuations of $6.5$0.1 million partially offset by $2.5and the impact of the 53rd week in fiscal 2019 of approximately $2.2 million, of revenue from businesses exited, International Staffing revenue declined $6.4decreased by $17.0 million, or 5.2%15.1%, primarily due to lower demandadjustments to work orders related to statutory legislation changes in the United Kingdom and decreases in France, partially offset by increasesimprovements in Belgium and Singapore.
The North American MSP segment revenue decrease of $6.8decreased $1.1 million, or 18.5%2.8%, to $37.9 million in fiscal 2020 from $39.0 million in fiscal 2019. Excluding the 53rd week in fiscal 2019 of approximately $0.9 million partially offset by $0.4 million in revenue from MSP transitions, revenue decreased $0.5 million, or 1.4%. The decrease was primarily driven by lower payroll service revenue as athe result of the winding downcompletion of certain customer programsone project in fiscal 2019 and the impact of COVID-19 on headcount in a small number of clients partially offset by several new programs which beganincreased demand in fiscal 2018.their payroll service business.
The Corporate and Other category revenue decrease of $89.9decreased $14.6 million, wasor 95.6%, to $0.7 million in fiscal 2020 from $15.3 million in fiscal 2019 primarily attributable to a $59.0 million and $23.3 million decline as a result of our exit from the salecustomer care solutions business in the beginning of our quality assurance business and Maintech, respectively, in fiscal 2017. In addition, our Volt Customer Care Solutions revenue declined $7.4 million due to normal fluctuations in call center activity.June 2019.
Cost of Services and Gross Margin
Cost of services in fiscal 20182020 decreased $121.5$150.3 million, or 12.1%17.8%, to $885.5$694.2 million from $1,007.0$844.5 million in fiscal 2017.2019. Excluding the impact on cost of services of the 53rd week and a business exited in fiscal 2019 of approximately $29.6 million, cost of services in fiscal 2020 decreased $120.7 million, or 14.8%. This decrease wasis primarily the result of fewer staff on assignment, consistent with the related decrease in revenues in all segments, as well as a decrease in Corporate and Other due to the sale13.4% decline in adjusted revenue partially offset by improvements in gross margin as a percent of Maintech in March 2017 and the quality assurance business in October 2017. revenue.
Gross margin as a percent of revenue in fiscal 2018 decreased2020 increased to 14.8%15.6% from 15.7%15.3% in fiscal 2017. The decrease2019. Excluding the customer care solutions business which we exited in June 2019 and the additional week in fiscal 2019, gross margin as a percentage of revenue in fiscal 2020 increased to 15.6% from 15.4% in fiscal 2019. Our North American Staffing segment margin as a percent of revenue increased primarily due to higher positive workers’ compensation adjustments and claims development and lower payroll tax expense as a percent of direct labor offset by other state-mandated benefit costs as a percent of revenue. In addition, the impact of COVID-19 resulted in lower non-billable expenses. This was duepartially offset by a decrease in partdirect hire revenue in fiscal 2020 and a decline in administrative fee revenue as a result of the exit from our customer care solutions business. Our International Staffing segment margin as a percentage of revenue increased due to the sale of non-core businesses and businesses exited. Excluding these businesses, gross margin would have been 15.0%decline in fiscal 2017.lower-margin business. Our North American StaffingMSP segment margins declined slightly due tomargin decreased as a result of a higher mix of larger price-competitive customerspayroll service revenue and competitive pricing pressure, partially offset by a reduction in California unemployment tax rates. Our Corporate and Otherlower margins declined as a result of higher non-billable training costs in the Volt Customer Care Solutions operating segment in fiscal 2018. These decreases in gross margin were partially offset by improved margins in North American MSP segment primarily due to a higher mix of managed service revenue.business.
Selling, Administrative and Other Operating Costs
Selling, administrative and other operating costs in fiscal 20182020 decreased $23.8$19.4 million, or 12.1%12.3%, to $173.3$137.7 million from $197.1$157.1 million in fiscal 2017. This2019. Excluding the impact on selling, administrative and other operating costs of the 53rd week in fiscal 2019 of approximately $2.6 million, selling, administrative and other operating costs in fiscal 2020 decreased $16.8 million, or 10.9%. The decrease was primarily due to on-going cost reductions in all areas of the businessand COVID-19 restrictions on travel and working remotely, including $13.8$12.3 million in labor and related costs primarily due to lower headcount, and $11.4 million in costs attributed to the previously-owned quality assurance and Maintech businesses as well as business exited in Taiwan. These decreases were partially offset by an increase of $2.0 million in legallower non-capitalized professional fees, $1.2 million in facility related costs and consulting fees related to corporate and cost-efficiency initiatives.$1.2 million in travel expenses. In addition, other professional fees decreased by $1.4 million in fiscal 20172020 and fiscal 2019 included the releaseamortization of a reserve related todeferred gain on the dissolutionsale of the Employee Welfare Benefit Trustreal estate of $1.4$1.9 million. As a percent of revenue, these costs were 16.7% and 16.5%15.8% in fiscal 2018years 2020 and 2017,2019, respectively. Excluding the $11.4 million from the sale of non-core businesses and businesses exited, selling, administrative and other operating costs decreased $12.4 million, or 6.7%.
Restructuring and Severance Costs
OnRestructuring and severance costs in fiscal 2020 decreased $2.1 million to $2.6 million from $4.7 million in fiscal 2019. The costs in fiscal 2020 were primarily due to our continued efforts to reduce costs and to offset COVID-19 related revenue losses. This included our plan to leverage the global capabilities of our staffing operations based in Bangalore, India and offshore a significant number of strategically identified roles to this location.
In October 16, 2018, the Company approved a restructuring plan (the “2018 Plan”) based on an organizational and process redesign intended to optimize ourthe Company's strategic growth initiatives and overall business performance. InThe costs in fiscal 2019 primarily included $2.1 million of severance and lease termination costs in connection with exiting our customer care solutions business, $1.0 million incurred under the 2018 Plan weand $0.9 million incurred a restructuring charge of $4.3 million in accordance with the fourth quarter of fiscal 2018 comprised of $1.5 million related to severance and benefit costs and $2.8 million related to facility and lease termination costs.
As previously reported, Mr. Dean departed from his role as President and Chief Executive Officer of the Company and is no longer a member of the Board of Directors. The Company and Mr. Dean subsequently executed a separation agreement effective June 29, 2018with our former Chief Financial Officer. The remaining $0.7 million of restructuring and we incurred related restructuringseverance costs of $2.6 million in the third quarter of fiscal 2018.
During fiscal 2018, there were from other restructuring actions taken by the Company as part of ourits continued efforts to reduce costs and achieve operational efficiency. We recorded severance costs of $1.3 million, primarily resulting from the elimination of certain positions.
Additionally, we incurred restructuring and severance costs of $1.4 million during fiscal 2017, under a cost reduction plan implementedImpairment Charges
Impairment charges in fiscal 2016 resulting primarily2020 increased $16.2 million to $16.9 million from a reduction$0.7 million in workforce, facility consolidation and lease termination costs.
Gain from Divestitures
In the fourth quarter of fiscal 2017, we completed the sale of the quality assurance business within our Technology Outsourcing Services and Solutions segment to Keywords Studio plc and recognized a gain on the sale of $48.1 million.
In the second quarter of fiscal 2017, we completed the sale of Maintech to Maintech Holdings LLC, a newly formed holding company and affiliate of Oak Lane Partners, LLC and recognized a gain on the sale of $3.9 million.
Settlement and Impairment Charges
2019. In fiscal 2018,2020, impairment charges were primarily related to consolidating and exiting certain leased office locations throughout North America based on where we can be fully operational and successfully support our clients and business operations remotely. In fiscal 2019, impairment charges were primarily related to the Company made the decision to forgo future useimpairment of aequipment used in our customer care solutions business and previously purchased software, which resulted in an impairment charge of $0.5 million.
In October 2017, we entered into a settlement agreement with NewNet Communication Technologies, LLC. The settlement agreement relates to our previously disclosed sale of our Computer Systems segment pursuant to the Membership Interest Purchase Agreement. As a result of an early payment of the note in the fourth quarter of fiscal 2017, the Company recorded a settlement charge of $1.4 million.
The Company determined that a previously purchased software module will not be used as part of the new back-office financial suite, which resulted in an impairment charge of $0.3 million recorded and disclosed in the second quarter of fiscal 2017.software.
Other Income (Expense), net
Other expense in fiscal 20182020 decreased $3.7$1.2 million, or 52.2%27.5%, to $3.3$3.2 million from $7.0$4.4 million in fiscal 2017, primarily related2019 due to non-cash net foreign exchange loss on intercompany balances and lowera decrease in interest expense as a result of lower borrowingrates and a decrease in fiscal 2018.non-cash foreign exchange losses primarily on intercompany balances.
Income Tax Provision
Income tax provision in fiscal 2018 amounted toof $1.0 million compared to $3.4 million in both fiscal 2017. The provision in fiscal 20182020 and 2019, respectively, was primarily related to locations outside of the United States, partially offset by a $1.1 million reversal of reserves on uncertain tax provisions where the statute of limitations expired during fiscal 2018. The Company continues to have a full valuation allowance on its domestic losses as it more likely than not that they will be utilized. The provision in fiscal 2017 primarily related to locations outside of the United States, partially offset by the release of $1.3 million in uncertain tax provisions related to the completion of the IRS and associated state audits. In fiscal 2017, the provision included additional state and foreign taxes from the sale of non-core businesses.
Discontinued Operations
In October 2017, we entered into a settlement agreement with NewNet Communication Technologies, LLC. The settlement agreement relates to our previously disclosed sale of our Computer Systems segment pursuant to the Membership Interest Purchase Agreement. The result of the settlement, which included a working capital adjustment and certain indemnity claims, is presented as discontinued operations and excluded from continuing operations and from segment results in fiscal 2017.
States.
Liquidity and Capital Resources
Our primary sourcessource of liquidity areis cash flows from operations and proceeds from our financing arrangements with DZ Bank AG Deutsche Zentral-Genossenschafsbank (“DZ Bank”) and with PNC Bank, National Association (“PNC Bank”) until the termination of the PNC Financing Program in January 2018.Bank. Borrowing capacity under these arrangements is directly impacted by the level of accounts receivable, which fluctuates during the year due to seasonality and other factors. Our business is subject to seasonality with our fiscal first quarter billings typically the lowest due to the holiday season and generally increasing in the fiscal third and fourth quarters when our customers increase the use of contingent labor. Generally, the first and fourth quarters of our fiscal year are the strongest for operating cash flows. Our operating cash flows consist primarily of collections of customer receivables offset by payments for payroll and related items for our contingent staff and in-house employees; federal, foreign, state and local taxes; and trade payables. We generally provide customers with 15 - 45 day credit terms, with few extenuating exceptions, while our payroll and certain taxes are paid weekly.
We manage our cash flow and related liquidity on a global basis. We fund payroll, taxes and other working capital requirements using cash supplemented as needed from our borrowings. Our weekly payroll payments inclusive of employment-related taxes and payments to vendors are approximately $20.0$15.0 million. We generally target minimum global liquidity to be 1.5 to 2.0 times our average weekly requirements.requirements taking into account seasonality and cyclical trends. We also maintain minimum effective cash balances in foreign operations and use a multi-currency netting and overdraft facility for our European entities to further minimize overseas cash requirements. We believe our cash flow from operations and planned liquidity will be sufficient to meet our cash needs for the next twelve months.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act which, among other things, permits the deferral of the employer’s portion of social security tax payments between March 27, 2020 and December 31, 2020. As a result, $26.2 million of employer payroll tax payments were deferred with 50% due by December 31, 2021 and the remaining 50% by December 31, 2022. In addition, certain state governments have delayed payment of various state payroll taxes for a shorter period of time. State payroll taxes of approximately $3.5 million deferred from the third quarter of fiscal 2020 were paid in the fourth quarter of fiscal 2020. The Company's payment of approximately $4.1 million of state payroll taxes will be deferred from the fourth quarter of fiscal 2020 with payments scheduled to begin in the first quarter of fiscal 2021.
Capital Allocation
We have prioritized our capital allocation strategy to strengthen our balance sheet and increase our competitiveness in the marketplace. The timing of these initiatives is highly dependent upon attaining the profitability objectives outlined in our plan. We also see this as an opportunity to demonstrate our ongoing commitment to Volt shareholders as we continue to execute on our plan and return to sustainable profitability. Our capital allocation strategy includes the following elements:
•Maintaining appropriate levels of working capital. Our business requires a certain level of cash resources to efficiently execute operations. Consistent with similar companies in our industry and operational capabilities, weWe estimate thisthe amount to be 1.5 to 2.0 times our weekly cash distributions on a global basis and must accommodate seasonality and cyclical trends;
•Reinvesting in our business. We continue to execute on our company-wide initiative of disciplined reinvestment in our business including investing in an experienced industry leadership team and in our sales and recruiting process, which are critical to drive profitable growth. We also continue to invest in ourupdating new information technology systems, which will support our front-end recruitment and placement capabilities as well as increase efficiencies in our back-office financial suite;suite. We are also investing in our sales and
recruiting process, which are critical to drive profitable growth;
•Deleveraging our balance sheet. By lowering our debt level, we will strengthen our balance sheet, reduce interest costs and reduce risk going forward.
Initiatives to Improve Operating Income, Cash Flows and Liquidity
We continue to make progress on several initiatives undertaken to enhance our liquidity position and shareholder value.
On July 19, 2019, we amended and restated the DZ Financing Program, which was originally executed on January 25, 2018, we entered into a two-year $115.0 million2018. The restated agreement allows for the inclusion of certain accounts receivable securitization program with DZ Bank and exited our financing relationship with PNC Bank. The new agreement better aligns our current financing requirements with our strategic initiatives and reduces our overallfrom an originator in the United Kingdom, which added $5.0 - $7.0 million in borrowing costs. In addition to better pricing, the new facility has fewer restrictions on use of proceeds, which will improve available liquidity and allowavailability. This allowed us to continue to advance our capital allocation plan. Overall, the DZ Financing Program enhances our financial flexibilityplan and debt maturity profile, while providingwill provide us with additional resources to execute our business strategy.
On January 14, 2020, the Company executed an amendment to the DZ Financing Program. The modifications to the agreement were to (1) extend the Amortization Date, as defined in the DZ Financing Program, from January 25, 2021 to January 25, 2023 and extend the Facility Maturity Date, as defined in the DZ Financing Program, from July 25, 2021 to July 25, 2023; and (2) revise an existing covenant to maintain positive net income in any fiscal year ending after 2020. All other terms and conditions remain unchanged.
On March 12, 2020, the Company executed an amendment to the DZ Financing Program. The modifications to the agreement were to revise an existing covenant to maintain a TNW, as defined in the DZ Financing Program, from $40.0 million to $35.0 million through the Company’s fiscal quarter ending on or about July 31, 2020 and at least $40.0 million in each quarter thereafter. All other terms and conditions remain unchanged.
On June 11, 2020, the Company amended the DZ Financing Program to replace the existing TNW covenant requirement, as defined in the DZ Financing Program, to a minimum TNW of $20.0 million through the Company’s fiscal quarter ending on or about July 31, 2021 and $40.0 million in each quarter thereafter. In October 2017, we completedaddition to this change, the sale of the quality assurance business within the Technology Outsourcing Services and Solutions segment and received net proceeds of $66.8 million after certain transaction related fees and expenses that were usedCompany elected to reduce outstanding debt by $50.0 million.the Maximum Facility Amount, as defined in the DZ Financing Program, from $115.0 million to $100.0 million to better reflect our asset base level and reduce borrowing costs going forward. All other terms and conditions remain unchanged.
In March 2017, we completedOn October 2, 2020 the saleCompany amended the DZ Financing Program to replace the existing TNW covenant requirement, as defined, in the DZ Financing Program, to a minimum TNW of Maintech$25.0 million for the Company’s fiscal quarter ending on or about October 31, 2021 and received gross proceeds of $18.3 million.$40.0 million in each quarter thereafter. All other terms and conditions remain unchanged.
On December 17, 2020, the Company amended the DZ Financing Program. The net proceeds from the transaction amounted to $13.1 million after certain transaction related fees and expenses and repayment of loan balances. Due
modifications to the sale of Maintech, our minimum liquidity requirement under our PNCagreement were to (1) extend the Amortization Date, as defined in the DZ Financing Program, increased from January 25, 2023 to January 25, 2024, and extend the Facility Maturity Date, as defined in the DZ Financing Program, from July 25, 2023 to July 25, 2024; (2) revise an existing covenant to maintain positive net income in any fiscal year ending after 2020 to any fiscal year ending after 2021; (3) replace the existing TNW covenant requirement, as defined in the DZ Financing Program, to a minimum TNW of $20.0 million tothrough the Company’s fiscal quarter ending on or about July 31, 2021 and $25.0 million untilin each quarter thereafter; and (4) revise the PNC Financingeligibility threshold for the receivables of a large North American Staffing customer from 5% of eligible receivables to 8%, which will increase our overall availability under the Program was subsequently amended in August 2017.by $1.0 - $3.0 million. All other terms and conditions remain substantially unchanged.
In February 2017, the IRS approved the federal portion
As of the IRS refund from the filing of our amended tax returns for our fiscal years 2004 through 2010 and we received $13.8 million. The remaining receivable of approximately $1.6 million primarily related to refunds as a result of the IRS audit conclusion and was received in fiscal 2018.
Entering fiscal 2019,November 1, 2020, we have significant tax benefits including federal net operating loss carryforwards of $187.5$212.0 million, U.S. state NOL carryforwards of $224.1$230.0 million, international NOL carryforwards of $10.3 million and federal tax credits of $51.3$54.7 million, which are fully reserved with a valuation allowance which we will be able to utilize against future profits. We also have capital lossAs of November 1, 2020, the U.S. federal NOL carryforwards of $12.9 million, which we will be able to utilize against future capital gains that may ariseexpire at various dates beginning in 2031 (with some indefinite), the near future.U.S. state NOL carryforwards expire at various dates beginning in 2021 (with some indefinite), the international NOL carryforwards expire at various dates beginning in 2021 (with some indefinite) and federal tax credits expire between 2021 and 2040.
As previously discussed, we continue to add functionality to our underlying information technology systems and to improve our competitiveness inapproved a restructuring plan during the marketplace. Through our strategyfirst quarter of improving efficiency in all aspectsfiscal 2020 (the “2020 Plan”) as part of our strategic initiative to optimize cost infrastructure. The 2020 Plan leverages the global capabilities of our staffing operations based in Bangalore, India by offshoring a significant number of strategically identified roles to this location. The 2020 Plan affected approximately 125 employees. To date, we believe we can realize organic growth opportunities, reduceincurred a total pre-tax restructuring charge of approximately $1.2 million of severance and benefit costs and increase profitability. Duringin fiscal 2018, we also took certain restructuring actions that will improve selling, general and administrative costs by approximately $13.5 million in annualized savings. This is due in part from efficiencies gained from our information technology investment, as well as2020. As a result of the offshoring under the 2020 Plan, along with executing on additional headcount reduction and lease termination initiatives taken under our 2018 Plan. Consistent with our ongoing strategic efforts,organizational cost savings initiatives during fiscal 2020, we estimate we will be used to strengthen our operations.realize annualized net savings of approximately $14.0 million.
Liquidity Outlook and Further Considerations
As previously noted, our primary sources of liquidity are cash flows from operations and proceeds from our bank financing programs.arrangement. Both operating cash flows and borrowing capacity under our financing arrangements arearrangement is directly related to the levels of accounts receivable generated by our businesses. Our level of borrowing capacity under the long-term accounts receivable securitization program (“DZ Financing Program”)Program increases or decreases in tandem with any increases or decreases in accounts receivable based on revenue fluctuations.fluctuations, among other factors.
We experienced a decline in the demand for our services in the second half of March 2020 due to the impact of the COVID-19 pandemic. As a result, our operating cash flow increased and accounts receivable balances decreased as customer collections outpaced sales. This pattern is not sustainable in the event the pandemic continues at resurgence levels or an economic downturn continues for an extended period. However, we experienced improved client payment patterns in the second half of fiscal 2020 and we expect this trend to continue in fiscal 2021. We will continue to monitor default risks and diligently pursue payments from our customers consistent with original payment terms.
Many governments in countries and territories in which we do business have announced that certain payroll, income and other tax payments may be deferred without penalty for a certain period of time as well as providing other cash flow related relief packages. We have determined that we will qualify for the payroll tax deferral which allows us to delay payment of the employer portion of payroll taxes and we are evaluating whether we qualify for certain employment tax credits. If we qualify for such credits, the credits will be treated as government subsidies which will offset related operating expenses. At this time, we do not anticipate this to be material. We continue to actively monitor these relief packages to take advantage of all of those which are available to us.
At October 28, 2018,November 1, 2020, the Company had outstanding borrowings under the DZ Financing Program of $50.0$60.0 million, borrowing availability, as defined underin the DZ Financing Program, of $38.3$2.8 million and global liquidity of $56.0$39.0 million.
On January 4, 2019, we amended the DZ Financing Program. Key changes to the amendment were to: (1) extend the term of the program to January 25, 2021; (2) revise an existing financial covenant to maintain Tangible Net Worth (as defined under the DZ Financing Program) of at least $30.0 million through fiscal 2019, which will revert back to $40.0 million in fiscal 2020; (3) revise an existing covenant to maintain positive net income in any fiscal year ending after 2019; and (4) increase the eligibility threshold for obligors with payment terms in excess of 60 days from 2.5% to 10.0%, which will add flexibility and borrowing capacity for the Company. All other material terms and conditions remain substantially unchanged.
Our DZ Financing Program is subject to termination under certain events of default such as breach of covenants, including the aforementioned financial covenants. At October 28, 2018,November 1, 2020, we were in compliance with all debt covenants.covenants, as defined in the DZ Financing Program. We believe, based on our 2019 plan,2020 Plan, we will continue to be able to meet our financial covenants under the amended DZ Financing Program.
The following table sets forth our cash and global liquidity levels at the end of our last fiscal five quarters:
| | | | | | | | | | | | | | | | | |
Global Liquidity | | | | | |
| November 3, 2019 | February 2, 2020 | May 3, 2020 | August 2, 2020 | November 1, 2020 |
Cash and cash equivalents (a) | $ | 28,672 | | $ | 30,876 | | $ | 26,223 | | $ | 30,928 | | $ | 38,550 | |
| | | | | |
Total outstanding debt | $ | 55,000 | | $ | 55,000 | | $ | 60,000 | | $ | 60,000 | | $ | 60,000 | |
| | | | | |
Cash in banks (b) (c) | $ | 19,945 | | $ | 21,287 | | $ | 22,876 | | $ | 26,126 | | $ | 36,218 | |
DZ Financing Program | 22,271 | | 11,302 | | 4,202 | | 5,122 | | 2,828 | |
Global liquidity | 42,216 | | 32,589 | | 27,078 | | 31,248 | | 39,046 | |
Minimum liquidity threshold | 15,000 | | 15,000 | | 15,000 | | 15,000 | | 15,000 | |
Available liquidity | $ | 27,216 | | $ | 17,589 | | $ | 12,078 | | $ | 16,248 | | $ | 24,046 | |
| | | | | |
|
| | | | | | | | | | | | | | | |
Global Liquidity | | | | | |
| October 29, 2017 | January 28, 2018 | April 29, 2018 | July 29, 2018 | October 28, 2018 |
Cash and cash equivalents (a) | $ | 37,077 |
| $ | 53,868 |
| $ | 34,177 |
| $ | 29,929 |
| $ | 24,763 |
|
| | | | | |
Total outstanding debt | $ | 50,000 |
| $ | 80,000 |
| $ | 50,000 |
| $ | 50,000 |
| $ | 50,000 |
|
| | | | | |
Cash in banks (b) (c) | $ | 40,685 |
| $ | 57,262 |
| $ | 26,443 |
| $ | 22,454 |
| $ | 17,685 |
|
PNC Financing Program | 54,129 |
| — |
| — |
| — |
| — |
|
DZ Financing Program (d) | — |
| 21,528 |
| 32,943 |
| 30,280 |
| 38,302 |
|
Global liquidity | 94,814 |
| 78,790 |
| 59,386 |
| 52,734 |
| 55,987 |
|
Minimum liquidity threshold (e) | 40,000 |
| 15,000 |
| 15,000 |
| 15,000 |
| 15,000 |
|
Available liquidity | $ | 54,814 |
| $ | 63,790 |
| $ | 44,386 |
| $ | 37,734 |
| $ | 40,987 |
|
| | | | | |
a.Per financial statements. | |
a. | Per financial statements. |
| |
b. | Balance generally includes outstanding checks. |
| |
c. | As of October 28, 2018, amounts in the USB collections account are excluded from cash in banks as the balance is included in the borrowing availability under the DZ Financing Program. As of October 28, 2018, the balance in the USB collections account included in the DZ Financing Program availability was $6.4 million. |
| |
d. | The DZ Financing Program excludes accounts receivable from the United Kingdom. |
| |
e. | At October 29, 2017, the minimum liquidity threshold included a borrowing base block of $35.0 million. |
b. Amount generally includes outstanding checks.
c. Amounts in the USB collections account are excluded from cash in banks as the balance is included in the borrowing availability under the DZ Financing Program. As of November 1, 2020, the balance in the USB collections account included in the DZ Financing Program availability was $11.0 million.
Cash flows from operating, investing and financing activities, as reflected in our Consolidated Statements of Cash Flows, are summarized in the following table:
| | | | | | | | | | | |
| For the Year Ended |
(in thousands) | November 1, 2020 | | November 3, 2019 |
Net cash provided by operating activities | $ | 18,154 | | | $ | 7,368 | |
Net cash used in investing activities | (4,629) | | | (8,842) | |
Net cash provided by financing activities | 4,580 | | | 3,899 | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (116) | | | (525) | |
Net increase in cash and cash equivalents | $ | 17,989 | | | $ | 1,900 | |
|
| | | | | | | |
| For the Year Ended |
(in thousands) | October 28, 2018 | | October 29, 2017 |
Net cash provided by (used in) operating activities | $ | (5,496 | ) | | $ | 4,569 |
|
Net cash provided by (used in) investing activities | (3,234 | ) | | 72,666 |
|
Net cash used in financing activities | (1,740 | ) | | (48,290 | ) |
Effect of exchange rate changes on cash and cash equivalents | (1,844 | ) | | 1,746 |
|
Net increase (decrease) in cash and cash equivalents | $ | (12,314 | ) | | $ | 30,691 |
|
Fiscal Year Ended October 28, 2018 ComparedNovember 1, 2020 compared to the Fiscal Year Ended October 29, 2017November 3, 2019
Cash Flows – Operating Activities
The net cash used inprovided by operating activities in fiscal 20182020 was $5.5$18.2 million, a decreasean increase of $10.1$10.8 million from fiscal 2017.2019. This decreaseincrease resulted primarily from the receipt of the IRS refund of $13.8$18.4 million increase in fiscal 2017 and the net settlement of the NewNet note and working capital adjustment of $5.0 million in fiscal 2017, as well as the net loss in fiscal 2018 partially2020 which was offset by an increasenon-cash adjustments including increases in cash provided byimpairment charges of $16.2 million, amortization of operating lease assets of $7.6 million, amortization of a gain on sale leaseback of property of $1.9 million in fiscal 2019, increases in share-based compensation of $1.2 million and depreciation expense of $1.0 million. In addition, the change in operating assets and liabilities primarily fromincluded a $9.6 million increase in accounts receivablepayable and accrued expenses.expenses, partially offset by a $8.4 million decrease in accounts receivable.
Cash Flows – Investing Activities
The net cash used in investing activities in fiscal 20182020 was $3.2$4.6 million, principally from the purchases of property, equipment and software of $3.6$5.3 million primarily relating to our investment in updating our business processes, back-office financial suite and information technology tools. The net cash providedtools partially offset by investing activities in fiscal 2017 was $72.7$0.4 million principally from the netof proceeds from the sale of the quality assurance business of $65.9property, equipment and software. The net cash used in investing activities in fiscal 2019 was $8.8 million, through October 29, 2017 and the sale of Maintech of $15.2 million, partially offset byprincipally from the purchases of property, equipment and software of $9.3$9.1 million primarily relating to our investment in updating our business processes, back-office financial suite and information technology tools.
Cash Flows – Financing Activities
The net cash used inprovided by financing activities in fiscal 20182020 was $1.7$4.6 million principally from a $5.0 million increase in net borrowing under the DZ Financing Program, partially offset by the payment of debt issuance costs of $1.5$0.3 million related to the DZ Financing Program. The net cash used inprovided by financing activities in fiscal 20172019 was $48.3$3.9 million principally from thea $5.0 million increase in net repayment of borrowings of $47.1 million.
Financing Program
On January 25, 2018, we entered intoborrowing under the DZ Financing Program, a two-year $115.0partially offset by the payment of debt issuance costs of $0.8 million accounts receivable securitization program with DZ Bank and exited our financing relationship (“PNC Financing Program”) with PNC Bank. While the borrowing capacity was reduced from $160.0 million under the PNC Financing Program, the new agreement increases available liquidity and provides greater financial flexibility with less restrictive financial covenants and fewer restrictions on use of proceeds, as well as reduces overall borrowing costs. The size ofrelated to the DZ Financing Program may be increased with the approval of DZ Bank.Program.
Financing Program
The DZ Financing Program is fully collateralized by certain receivables of the Company that are sold to a wholly-owned, consolidated, bankruptcy-remote subsidiary. To finance the purchase of such receivables, we may request that DZ Bank make loans from time to time to the Company that are secured by liens on those receivables.
On June 8, 2018, weJuly 19, 2019, the Company amended ourand restated the DZ Financing Program, to modify a provisionwhich was originally executed on January 25, 2018. The restated agreement allows for the inclusion of certain accounts receivable from an originator in the calculationUnited Kingdom, which added $5.0 - $7.0 million in borrowing availability. All other material terms and conditions of eligible receivables, as defined. This amendment permits us to exclude the receivables of a single large, high-quality customer from its threshold limitation, resulting in additional borrowing capacity of approximately $10.0 million.original agreement remained substantially unchanged.
On January 4, 2019, we amended14, 2020, the Company executed an amendment to the DZ Financing Program. Key changesThe modifications to the amendmentagreement were to:to (1) extend the term ofAmortization Date, as defined in the programDZ Financing Program, from January 25, 2021 to January 25, 2021;2023; (2) revise an existing financial covenant to maintain Tangible Net Worth (asextend the Facility Maturity Date, as defined underin the DZ Financing Program) of at least $30.0 million through fiscal 2019, which will revert backProgram, from July 25, 2021 to $40.0 million in fiscal 2020;July 25, 2023; and (3) revise an existing covenant to maintain positive net income in any fiscal year ending after 2019;2020. All other terms and conditions remain unchanged.
On March 12, 2020, the Company executed an amendment to the DZ Financing Program. The modifications to the agreement were to revise an existing covenant to maintain a TNW, as defined in the DZ Financing Program, from $40.0 million to $35.0 million through the Company’s fiscal quarter ending on or about July 31, 2020 and at least $40.0 million in each quarter thereafter. All other terms and conditions remain unchanged.
On June 11, 2020, the Company amended the DZ Financing Program to replace the existing TNW covenant requirement, as defined in the DZ Financing Program, to a minimum TNW of $20.0 million through the Company’s fiscal quarter ending on or about July 31, 2021 and at least $40.0 million in each quarter thereafter. In addition to this change, the Company elected to reduce the Maximum Facility Amount, as defined in the DZ Financing Program, from $115.0 million to $100.0 million to better reflect our asset base level and reduce borrowing costs going forward. All other terms and conditions remain unchanged.
On October 2, 2020 the Company amended the DZ Financing Program to replace the existing TNW covenant requirement, as defined in the DZ Financing Program, to a minimum TNW of $25.0 million for the Company’s fiscal quarter ending on or about October 31, 2021 and $40.0 million in each quarter thereafter. All other terms and conditions remain unchanged.
On December 17, 2020, the Company amended the DZ Financing Program. The modifications to the agreement were to (1) extend the Amortization Date, as defined in the DZ Financing Program, from January 25, 2023 to January 25, 2024, and extend the Facility Maturity Date, as defined in the DZ Financing Program, from July 25, 2023 to July 25, 2024; (2) revise an existing covenant to maintain positive net income in any fiscal year ending after 2020 to require the Company to maintain positive net income in any fiscal year ending after 2021; (3) replace the existing TNW covenant requirement, as defined in the DZ Financing Program, to a minimum TNW of $20.0 million through the Company’s fiscal quarter ending on or about July 31, 2021 and $25.0 million in each quarter thereafter; and (4) increaserevise the eligibility threshold for obligors with payment terms in excessthe receivables of 60 daysa large North American Staffing customer from 2.5%5% of eligible receivables to 10.0%8%, which will add flexibility and borrowing capacity forincrease our overall availability under the Company.Program by $1.0 - $3.0 million. All other material terms and conditions remain substantially unchanged.
Loan advances may be made under the DZ Financing Program through January 25, 20212024 and all loans will mature no later than July 25, 2021.2024. Loans will accrue interest (i) with respect to loans that are funded through the issuance of commercial paper notes, at the CP rate and (ii) otherwise, at a rate per annum equal to adjusted LIBOR. The CP rate will be based on the rates paid by the applicable lender on notes it issues to fund related loans. Adjusted LIBOR is based on LIBOR for the applicable interest period and the rate prescribed by the Board of Governors of the Federal Reserve System for determining the reserve requirements with respect to Eurocurrency funding. If an event of default occurs, all loans shall bear interest at a rate per annum equal to the prime rate (the federal funds rate plus 3%) plus 2.5%.
The DZ Financing Program also includes a letter of credit sub-facility with a sub-limit of $35.0 million. As of October 28, 2018,November 1, 2020, the letter of credit participation was $25.4$24.5 million inclusive of $23.5$23.3 million for the Company’s casualty insurance program $1.1and $1.2 million for the security deposit required under certain real estate lease agreements and $0.8 million for the Company's corporate credit card program. The Company used $30.0 million of funds available under the DZ Financing Program to temporarily collateralize the letters of credit, until the letters of credit were established with DZ Bank on January 31, 2018.agreements.
The DZ Financing Program contains customary representations and warranties as well as affirmative and negative covenants, with such covenants being less restrictive than those under the PNC Financing Program.covenants. The agreement also contains customary default, indemnification and termination provisions. The DZ Financing Program is not an off-balance sheet arrangement, as the bankruptcy-remote subsidiary is a 100%-owned consolidated subsidiary of the Company.
We areThe Company is subject to certain financial and portfolio performance covenants under ourthe DZ Financing Program, including (1) a minimum TNW, as defined in the DZ Financing Program, of $20.0 million through the Company's fiscal quarter ending on or about July 31, 2021, $25.0 million in each quarter thereafter; (2) positive net income in any fiscal year ending after 2021; (3) maximum debt to TNW ratio of 3:1; and (4) a minimum of $15.0 million in liquid assets, as defined in the DZ Financing Program. At October 28, 2018, we wereNovember 1, 2020, there was $2.8 million of borrowing availability, as defined, and the Company was in compliance with all debt covenants.covenants, as amended.
We used funds made available by the DZ Financing Program to repay all amounts outstanding under the PNC Financing Program, which terminated in accordance with its terms, and expect to use remaining availability from the DZ Financing Program from time to time for working capital and other general corporate purposes.
Until the termination date, the PNC Financing Program was secured by receivables from certain staffing services businesses in the United States and Europe that are sold to a wholly-owned, consolidated, bankruptcy-remote subsidiary. The bankruptcy-remote subsidiary’s sole business consisted of the purchase of the receivables and subsequent granting of a security interest to
PNC Bank under the program, and its assets were available first to satisfy obligations to PNC Bank and were not available to pay creditors of the Company’s other legal entities. Borrowing capacity under the PNC Financing Program was directly impacted by the level of accounts receivable.
In addition to customary representations, warranties and affirmative and negative covenants, the PNC Financing Program was subject to termination under standard events of default including change of control, failure to pay principal or interest, breach of the liquidity or performance covenants, triggering of portfolio ratio limits, or other material adverse events, as defined.
On January 11, 2018, we entered into Amendment No. 10 to the PNC Financing Program, which gave us the option to extend the termination date of the program from January 31, 2018 to March 2, 2018, and amended the financial covenant requiring the Company to meet the minimum earnings before interest and taxes levels for the fiscal quarter ended October 29, 2017. All other material terms and conditions remained substantially unchanged, including interest rates.
Off-Balance Sheet Arrangements
As of October 28, 2018,November 1, 2020, we issued letters of credit against our DZ Financing Program totaling $25.4$24.5 million including of $23.5$23.3 million for the Company'sCompany’s casualty insurance program $1.1and $1.2 million for the security deposit required under certain lease agreements.
As of November 3, 2019, we issued letters of credit against our DZ Financing Program totaling $24.2 million including $22.8 million for the Company’s casualty insurance program, $1.2 million for the security deposit required under certain lease agreements and $0.8$0.2 million for the Company’s corporate credit card program.
As of October 29, 2017,November 1, 2020, we issued letters of credit against our PNC Financing Program totaling $28.3 million inclusive of $26.9 million for the Company's casualty insurance program and $1.4 million for the security deposit required under the Orange facility lease agreement. Other than an additional letter of credit with Bank of America totaling $0.4 million, there werehad no other off-balance sheet transactions, arrangements that have, or other relationships with unconsolidated entitiesare reasonably likely to have, a current or other persons in fiscal 2018 and 2017 that would have affectedfuture material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or the availability of or requirements for capital resources.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial position and results of operations are based upon our Consolidated Financial Statements, which are included in Item 8, Financial Statements and Supplementary Data of this report and have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates, judgments, assumptions and valuations that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. While management believes that its estimates, judgments and assumptions are appropriate, significant differences in actual experience or significant changes in assumptions may materially affect our future results. Management believes the critical accounting policies and areas that require the most significant estimates, judgments, assumptions or valuations used in the preparation of our financial statements are those summarized below.
Goodwill
We perform our annual impairment test for goodwill during the second quarter of the fiscal year and when a triggering event occurs between annual impairment tests. When testing goodwill, the Company has the option to first assess qualitative factors for reporting units that carry goodwill. International Staffing is the only segment which carries goodwill. The qualitative assessment includes assessing the totality of relevant events and circumstances that affect the fair value or carrying value of the reporting unit. These events and circumstances include macroeconomic conditions, industry and competitive environment conditions, overall financial performance, reporting unit specific events and market considerations. We may also consider recent valuations of the reporting unit, including the magnitude of the difference between the most recent fair value estimate and the carrying value, as well as both positive and adverse events and circumstances and the extent to which each of the events and circumstances identified may affect the comparison of a reporting unit’s fair value with its carrying value. If the qualitative assessment results in a conclusion that it is more likely than not that the fair value of a reporting unit exceeds the carrying value, then no further testing is performed for that reporting unit.
When a qualitative assessment is not used, or if the qualitative assessment is not conclusive and it is necessary to calculate the fair value of a reporting unit, then the impairment analysis for goodwill is performed at the reporting unit level using a one-step approach (“Step 1”) as we have early adoptedunder Accounting Standards Update 2017-04, Intangibles - Goodwill and Other (Topic 350)Simplifying
the Test for Goodwill Impairment. In conducting our goodwill impairment testing, we compare the fair value of the reporting unit with goodwill to the carrying value, using various valuation techniques including income (discounted cash flow) and market approaches. The Company believes the blended use of both modelsapproaches compensates for the inherent risk associated with using either model if usedone on a stand-alone basis and this combination is indicative of the factors a market participant would consider when performing a similar valuation.
For theOur fiscal 20182020 test performed in the second quarter we elected to bypass the qualitative assessment and prepared a Step 1 analysis. Our Step 1 analysis used significant assumptions including expected revenue and expense growth rates, forecasted capital expenditures, working capital levels and a discount rate of 12%15.0%. Under the market-based approach, significant assumptions included relevant comparable company earnings multiples including the determination of whether a premium or discount should be applied to those comparables. During the second quarter of fiscal 2018,2020, it was determined that no adjustment to the carrying value of goodwill of $5.7$5.2 million was required, as our Step 1 analysis resulted in the fair value of the reporting unit exceeding its carrying value. There were no triggering events since the annual goodwill impairment assessment that caused the Company to perform an interim impairment assessment.
Long-Lived Assets
Long-lived assets primarily consist of right-of-use assets, capitalized software costs, leasehold improvements and office equipment. We review these assets for impairment under Accounting Standards Codification 360 Property, Plant and Equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors that could trigger an impairment review include a current period operating or cash flow loss combined with a history of operating or cash flow losses and a projection or forecast that demonstrates continuing losses or insufficient income associated with the use of a long-lived asset or asset group. Other factors include a significant change in the manner of the use of the asset or a significant negative industry or economic trend. If circumstances require a long-lived asset or asset group be reviewed for possible impairment, the Company first compares undiscounted cash flows expected to be generated by each asset or asset group to its carrying value. An impairment loss is recognized when the estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value based on discounted cash flow analysis or other valuation techniques.
Due to the economic impact and continued uncertainty related to the COVID-19 pandemic, we began to assess our real estate footprint to evaluate potential opportunities for consolidation and downscaling. During the second half of fiscal 2020, the Company made decisions that impacted several leased office locations throughout North America, triggering impairment reviews which resulted in impairment charges of $16.1 million to reduce the carrying value of these assets to their estimated fair value.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using current tax laws and rates in effect for the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We must then assess the likelihood that our deferred tax assets will be realized. If we do not believe that it is more likely than not that our deferred tax assets will be realized, a valuation allowance is established. When a valuation allowance is increased or decreased, a corresponding tax expense or benefit is recorded.
Accounting for income taxes involves uncertainty and judgment in how to interpret and apply tax laws and regulations within our annual tax filings. Such uncertainties may result in tax positions that may be challenged and overturned by a tax authority in the future which would result in additional tax liability, interest charges and possible penalties. Interest and penalties are classified as a component of income tax expense.
We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized upon ultimate settlement. Changes in recognition or measurement are reflected in the period in which the change in estimate occurs.
Realization of deferred tax assets is dependent upon reversals of existing taxable temporary differences, taxable income in prior carryback years and future taxable income. Significant weight is given to positive and negative evidence that is objectively verifiable. We have a three-year cumulative loss position which is significant negative evidence in considering whether deferred tax assets are realizable and the accounting guidance restricts the amount of reliance we can place on projected taxable income to support the recovery of the deferred tax assets. A valuation allowance has been recognized due to the uncertainty of
realization of our loss carryforwards and other deferred tax assets. Management believes that the remaining deferred tax assets are more likely than not to be realized based upon consideration of all positive and negative evidence, including scheduled reversal of deferred tax liabilities and tax planning strategies determined on a jurisdiction-by-jurisdiction basis.
Casualty Insurance Program
We purchase workers’ compensation insurance through mandated participation in certain state funds and the experience-rated premiums in these state plans relieve us of any additional liability. Liability for workers’ compensation in all other states as well as automobile and general liability is insured under a paid loss deductible casualty insurance program for losses exceeding specified deductible levels and we are financially responsible for losses below the specified deductible limits. The casualty program is secured by a letter of credit against the Company's DZ Financing Program of $23.5$23.3 million as of October 28, 2018.November 1, 2020.
We recognize expenses and establish accruals for amounts estimated to be incurred, up to the policy deductible, both reported and not yet reported, policy premiums and related legal and other claims administration costs. We develop estimates for claims as well as claims incurred but not yet reported using actuarial principles and assumptions based on historical and projected claim incidence patterns, claim size and the length of time over which payments are expected to be made. Actuarial estimates are updated as loss experience develops, additional claims are reported or settled and new information becomes available. Any changes in estimates are reflected in operating results in the period in which the estimates are changed. Depending on the policy year, adjustments to final expected paid amounts are determined as of a future date, between four or five years after the end of the respective policy year or through the ultimate life of the claim.
Medical Insurance Program
We are self-insured for a portion of our medical benefit programs for our employees. Eligible contingent staff on assignment with customers are offered medical benefits through a fully insured program administered through a third party. Employees contribute a portion of the cost of these medical benefit programs.
The liabilityTo limit exposure on a per claimant basis for the self-insured medical benefits, is limited on a per claimant basis through the purchase ofCompany purchases stop-loss insurance. Our retained liability for the self-insured medical benefits is determined utilizing actuarial estimates of expected claims based on statistical analysis of historical data.
Litigation
We are subject to certain legal proceedings as well as demands, claims and threatened litigation that arise in the normal course of our business. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, a liability and an expense are recorded for the estimated loss. Significant judgment is required in both the determination of probability and the determination of whether an exposure is reasonably estimable. Development of the accrual includes consideration of many factors including potential exposure, the status of proceedings, negotiations, discussions with internal and outside counsel, results of similar litigation and, in the case of class action lawsuits, participation rates. As additional information becomes available, we will revise the estimates. If the actual outcome of these matters is different than expected, an adjustment is charged or credited to expense in the period the outcome occurs or the period in which the estimate changes. To the extent that an insurance company is contractually obligated to reimburse us for a liability, we record a receivable for the amount of the probable reimbursement.
Accounts Receivable
We make ongoing estimates relating to the collectability of our trade accounts receivable and maintain an allowance for estimated losses resulting from the inability of our customers to make required payments, sales adjustments and permanent placement candidates not remaining with a client for a guaranteed period.payments. In determining the amount of the allowance for uncollectible accounts receivable, we make judgments on a customer by customercustomer-by-customer basis based on the customer’s current financial situation, such as bankruptcies and other difficulties collecting amounts billed. Losses from uncollectible accounts have not exceeded our allowance historically. As we cannot predict with certainty future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates. If the financial condition of our customers were to deteriorate, resulting in their inability to make payments, a larger allowance may be required. In the event we determined that a smaller or larger allowance was appropriate, we would record a credit or a charge to Selling, administrative and other operating costs in the period in which we made such a determination.
In addition, for billing adjustments related to errors, service issues and compromises on billing disputes, we also include a provision for sales allowances, based on our historical experience, in our allowance for uncollectible accounts receivable. If sales allowances vary from our historical experience, an adjustment to the allowance may be required, and we would record a credit or charge to revenue from services in the period in which we made such a determination.
New Accounting Standards
For additional information regarding new accounting guidance see our Note on1 - Summary of Business and Significant Accounting Policies in our Consolidated Financial Statements.
31
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ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market risk is the potential economic gain or loss that may result from changes in market rates and prices. In the normal course of business, the Company’s earnings, cash flows and financial position are exposed to market risks relating to the impact of interest rate changes and foreign currency exchange rate fluctuations. We limit these risks through risk management policies and procedures.
Interest Rate Risk
We centrally manage our debt and investment portfolios considering investment opportunities and risks, tax consequences and overall financing strategies. At October 28, 2018,November 1, 2020, we had cash and cash equivalents on which interest income is earned at variable rates. At October 28, 2018,November 1, 2020, we had a long-term $115.0$100.0 million accounts receivable securitization program, which can be increased subject to credit approval from DZ Bank, to provide additional liquidity to meet our short-term financing needs.
The interest rates on these borrowings and financings are variable and, therefore, interest and other expense and interest income are affected by the general level of U.S. and foreign interest rates. We consider the use of derivative instruments to hedge interest rate risk; however, as of October 28, 2018, we did not utilize any of these instruments as they were not considered to be cost effective. Based upon the current levels of cash invested, notes payable to banks and utilization of the securitization program, on a short-term basis, a hypothetical 1-percentage-point increase in interest rates would have increased net interest expense by $0.1 milliona minimal amount or a hypothetical 1-percentage-point decrease in interest rates would have decreased net interest expense by $0.1 milliona minimal amount in fiscal 2018.2020.
Foreign Currency Risk
We have operations in several foreign countries and conduct business in the local currency in these countries. As a result, we have risk associated with currency fluctuations as the value of foreign currencies fluctuates against the dollar, in particular the British Pound, Euro, CanadianSingapore Dollar, SingaporeCanadian Dollar and Indian Rupee. These fluctuations impact reported earnings.
Fluctuations in currency exchange rates also impact the U.S. dollar amount of our net investment in foreign operations. The assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at the exchange rates in effect at the fiscal year-end balance sheet date. Income and expenses accounts are translated at an average exchange rate during the year which approximates the rates in effect at the transaction dates. The resulting translation adjustments are recorded in stockholders’ equity as a component of accumulated other comprehensive income.income (loss). The U.S. dollar strengthened relative to many foreign currencies as of October 28, 2018November 1, 2020 compared to October 29, 2017.November 3, 2019. Consequently, stockholders’ equity decreasedincreased by $1.8$0.3 million as a result of the foreign currency translation as of October 28, 2018.November 1, 2020.
Based upon the current levels of net foreign assets, a hypothetical 10% devaluation of the U.S. dollar as compared to these currencies as of October 28, 2018November 1, 2020 would result in an approximate $2.4$1.9 million positive translation adjustment recorded in other comprehensive income within stockholders’ equity. Conversely, a hypothetical 10% appreciation of the U.S. dollar as compared to these currencies as of October 28, 2018November 1, 2020 would result in an approximately $2.4$1.9 million negative translation adjustment recorded in other comprehensive income within stockholders’ equity. We do not use derivative instruments for trading or other speculative purposes.
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ITEM 8.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Our financial statements and supplementary data are included at the end of this report beginning on page F-1. See the index appearing on the pages following this report.
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ITEM 9.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None
| CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of the Company’s management, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) were effective as of October 28, 2018November 1, 2020 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on the Company’s assessment, management has concluded that its internal control over financial reporting was effective as of October 28, 2018November 1, 2020 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.
This Annual Report on Form 10-K does not include an audit report on internal control over financial reporting by the Company'sCompany’s registered public accounting firm. The Company'sCompany’s internal control over financial reporting was not subject to audit by the Company'sCompany’s registered public accounting firm pursuant to the SEC’s Exchange Act Rule 12b-2 that permits the Company to provide only management'smanagement’s assessment report for the year ended October 28, 2018.November 1, 2020.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting which occurred during the fiscal quarter ended October 28, 2018,November 1, 2020, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations of Internal Control
Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of internal controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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ITEM 9B. | OTHER INFORMATION |
ITEM 9B. OTHER INFORMATION
Amendment No. 2 to DZ Financing ProgramNone
On January 4, 2019, the Company entered into Amendment No. 2 to the DZ Financing Program. Key changes to the amendment were to: (1) extend the term of the program to January 25, 2021; (2) revise an existing financial covenant to maintain Tangible Net Worth (as defined under the DZ Financing Program) of at least $30.0 million through fiscal 2019, which will revert back to $40.0 million in fiscal 2020; and (3) revise an existing covenant to maintain positive net income in any fiscal year ending after 2019; (4) increase the eligibility threshold for obligors with payment terms in excess of 60 days from 2.5% to 10.0%, which will add flexibility and borrowing capacity for the Company. All other material terms and conditions remain substantially unchanged.
A copy of Amendment No. 2 is attached to this Annual Report as Exhibit 10.51, and this summary is qualified in its entirety by reference to such exhibit.
PART III
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ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required to be furnished pursuant to this item will be set forth under the captions “Proposal One: Election of Directors,” “Executive Officers,” “Corporate Governance,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Miscellaneous - Available Information” in the Company’s Proxy Statement for our 20192021 Annual Meeting of Shareholders (the “Proxy Statement”) or in an amendment to this Annual Report, which information is incorporated herein by reference.
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ITEM 11. | EXECUTIVE COMPENSATION |
ITEM 11. EXECUTIVE COMPENSATION
The information required to be furnished pursuant to this item is incorporated by reference from the information set forth under the caption “Executive Compensation” in the Proxy Statement or in an amendment to this Annual Report, which information is incorporated herein by reference.
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ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required to be furnished pursuant to this item will be set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement or in an amendment to this Annual Report, which information is incorporated herein by reference.
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ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required to be furnished pursuant to this item will be set forth under the captions “Transactions With Related Persons” and “Corporate Governance - Director Independence” in the Proxy Statement or in an amendment to this Annual Report, which information is incorporated herein by reference.
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ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required to be furnished pursuant to this item will be set forth under the caption “Principal Accountant Fees and Services” in the Proxy Statement or in an amendment to this Annual Report, which information is incorporated herein by reference.
PART IV
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ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The following documents are filed as a part of this report:
(a)(2) Financial Statement Schedules
All schedules have been omitted because the required information is included in the Consolidated Financial Statements or the notes thereto, or because they are not required.
(b) Exhibits - The following exhibits are filed as part of, or incorporated by reference into, this report:
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Exhibits | | Description |
2.13.1 | | |
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2.2 | | Stock Purchase Agreement, dated as of March 6, 2017, entered into by and among Volt Delta Resource Holdings, Inc., Maintech Holdings, LLC, MTECH Holdings, LLC and Volt Information Sciences, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed March 7, 2017; File No. 001-09232) |
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2.3 | | |
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3.1 | | |
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3.2 | | |
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10.1* | | |
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10.2* | | |
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10.3* | | |
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10.4*10.3* | | |
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10.5* | | |
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10.6* | | |
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10.7* | | |
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10.8*10.4 | | Employment Agreement, dated May 1, 1987, by and between the Company and Jerome Shaw (incorporated by reference to Exhibit 19.02 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 1, 1987; File No. 001-09232) |
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10.9* | | Amendment to Employment Agreement, dated January 3, 1989, by and between the Company and Jerome Shaw (incorporated by reference to Exhibit 10.4(a) to the Company’s Annual Report on Form 10-K for the fiscal year ended October 28, 1989; File No. 001-09232) |
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10.10 | | |
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10.11*10.5* | | |
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10.12*10.6* | | |
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10.13* | | |
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10.14 | | Receivables Financing Agreement, dated as of July 30, 2015, by and among Volt Funding Corp., as borrower, PNC Bank, National Association, as letter of credit bank and administrative agent, the persons from time to time party thereto as lenders and letter of credit participants, and the Company, as initial servicer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 6, 2015; File No. 001-9232) |
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10.15 | | Purchase and Sale Agreement, dated as of July 30, 2015, by and among P/S Partner Solutions, Ltd., VMC Consulting Corporation, the Company, and Volt Management Corp., as originators, the Company, as servicer, and Volt Funding Corp., as buyer (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 6, 2015; File No. 001-9232) |
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10.16 | | Purchase and Sale Agreement, dated as of August 1, 2015, by and among Volt Europe Limited and Volt Consulting Group Limited, as originators, the Company, as servicer, PNC Bank, National Association, as administrative agent, and Volt Funding Corp., as buyer (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed August 6, 2015; File No. 001-9232) |
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10.17 | | |
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10.18* | | |
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10.19 | | |
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10.20 | | Amendment No. 1, dated as of January 5, 2016, to the Receivables Financing Agreement, dated as of July 30, 2015, by and among Volt Funding Corp., PNC Bank, National Association, as letter of credit bank and administrative agent, the persons from time to time party thereto as lenders and letter of credit participants, and the Company, as initial servicer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 11, 2016; File No. 001-9232) |
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10.2110.7 | | Amendment No. 2, dated as of July 29, 2016, to the Receivables Financing Agreement, dated as of July 30, 2015, by and among Volt Funding Corp., as borrower, PNC Bank, National Association, as letter of credit bank and administrative agent, the persons from time to time party thereto as lenders and letter of credit participants, and Volt Information Sciences, Inc., as initial servicer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 2, 2016; File No. 001-9232) |
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10.22 | | Amendment No. 3, dated as of September 6, 2016, to the Receivables Financing Agreement, dated as of July 30, 2015, by and among Volt Funding Corp., as borrower, PNC Bank, National Association, as letter of credit bank and administrative agent, the persons from time to time party thereto as lenders and letter of credit participants, and Volt Information Sciences, Inc., as initial servicer (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2016 filed September 9, 2016; File No. 001-9232) |
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10.23 | | Amendment No. 4, dated as of October 28, 2016, to the Receivables Financing Agreement, dated as of July 30, 2015, by and among Volt Funding Corp., as borrower, PNC Bank, National Association, as letter of credit bank and administrative agent, the persons from time to time party thereto as lenders and letter of credit participants, and Volt Information Sciences, Inc., as initial servicer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 1, 2016; File No. 001-9232) |
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10.24 | | Amendment No. 5, dated as of January 6, 2017, to the Receivables Financing Agreement dated as of July 30, 2015 and Amendment No. 1 to Performance Guaranty, dated as of January 5, 2016, by and among Volt Funding Corp., as borrower, PNC Bank, National Association, as letter of credit bank and administrative agent, and Volt Information Sciences, Inc., as initial servicer (incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the fiscal year ended October 30, 2016 filed January 12, 2017; File No. 001-9232) |
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10.25 | | |
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10.26 | | |
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10.27 | | |
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10.28 | | |
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10.29*10.8* | | |
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10.30*10.9* | | |
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10.31*10.10* | | |
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10.32 | | Amendment to Loan and Security Agreement, dated as of February 17, 2017, to the Loan and Security Agreement, dated as of February 17, 2016, between Maintech, Incorporated, as Borrower, and Bank of America, N.A., as lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 23, 2017; File No. 001-09232) |
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10.33* | | |
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10.34 | | |
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10.35* | | |
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10.3610.11* | | Amendment No. 7, dated as of July 14, 2017, to the Receivables Financing Agreement, dated as of July 30, 2015, by and among Volt Funding Corp., as borrower, PNC Bank, National Association, as letter of credit bank and administrative agent, the persons from time to time party thereto as lenders and letter of credit participants, and Volt Information Sciences, Inc., as initial servicer Form of Performance Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 20, 2017;June 19, 2018; File No. 001-09232)001-9232) |
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10.3710.12* | | Amendment No. 8, dated as of August 25, 2017, to the Receivables Financing Agreement, dated as of July 30, 2015, by and among Volt Funding Corp., as borrower, PNC Bank, National Association, as letter of credit bank and administrative agent, the persons from time to time party thereto as lenders and letter of credit participants, and Volt Information Sciences, Inc., as initial servicer Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 19, 2018; File No. 001-9232) |
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10.13* | | |
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10.3810.14* | | |
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10.15* | | Amended and Restated Employment Agreement by and between Volt Information Sciences, Inc. and Lori M. Schultz, dated as of October 16, 2017, to the Receivables Financing Agreement, dated as of July 30, 2015, by and among Volt Funding Corp., as borrower, PNC Bank, National Association, as letter of credit bank and administrative agent, the persons from time to time party thereto as lenders and letter of credit participants, and Volt Information Sciences, Inc., as initial servicerJune 25, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 20, 2017;June 27, 2019; File No. 001-09232)001-9232) |
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10.3910.16 | | AssignmentAmended and Consent, dated as of October 20, 2017, entered into by and among Volt Funding Corp., Volt Information Sciences, Inc., P/S Partner Solutions, Ltd., Volt Management Corp., VMC Consulting Corporation, Volt Canada Inc. and PNC Bank, National Association (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 30, 2017; File No. 001-09232) |
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10.40 | | Amendment No. 10, dated as of January 11, 2018, to the Receivables Financing Agreement dated as of July 30, 2015 and Reaffirmation of the Performance Guaranty, by and among Volt Funding Corp., as borrower, PNC Bank, National Association, as letter of credit bank and administrative agent, and Volt Information Sciences, Inc., as initial servicer (incorporated by reference to Exhibit 10.41 to the Company’s Annual Report on Form 10-K for the fiscal year ended October 29, 2017 filed January 12, 2018; File No. 001-09232) |
| | |
10.41 | | Restated Receivables Loan and Security Agreement, dated as of January 25, 2018,July 19, 2019, by and among Volt Funding II, LLC, as borrower, Volt Information Sciences, Inc., as servicer, the lenders and letter of credit participants party thereto from time to time, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as agent, and Autobahn Funding Company LLC and DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as letter of credit issuers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 29, 2018;July 24, 2019; File No. 001-9232) |
| | |
10.4210.17 | | Amended and Restated Receivables Purchase and Sale Agreement, dated as of January 25, 2018,July 19, 2019, among Volt Management Corp. and P/S Partner Solutions, Ltd., as originators, Volt Information Sciences, Inc. and Volt Funding II, LLC, as buyer (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed January 29, 2018;July 24, 2019; File No. 001-9232) |
| | |
10.4310.18 | | |
10.19 | | Amended and Restated Limited Guaranty, dated as of January 25, 2018,July 19, 2019, by Volt Information Sciences, Inc. in favor of DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as agent (incorporated by reference to Exhibit 10.310.4 to the Company’s Current Report on Form 8-K filed January 29, 2018;July 24, 2019; File No. 001-9232) |
10.20* | | |
10.44* | | |
| | |
10.21* | | |
| | |
10.22* | | |
| | |
10.23* | | |
| | |
10.24* | | |
| | |
10.4510.25* | | |
| | |
10.26* | | |
| | |
10.27 | | Amendment No. 1, dated June 8, 2018,January 14, 2020, to the Amended and Restated Receivables Loan and Security Agreement,Agreement. dated as of January 25, 2018,July 19, 2019 by and among Volt Funding II, LLC, as borrower, Volt Information Sciences, Inc., as servicer, the lenders and letter of credit participants party thereto from time to time, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as agent, and Autobahn Funding Company LLC and DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as conduit lender,letter of credit issuers (incorporated by reference to Exhibit 10.39 to the otherCompany's Annual Report on Form 10-K for the fiscal year ended November 3, 2019 filed January 16, 2020; File No. 001-9232) |
| | |
10.28 | | Amendment No. 2 dated March 12, 2020 to the Amended and Restated Receivables Loan and Security Agreement dated as of July 19, 2019, among Volt Funding II, LLC, as borrower, Volt Information Sciences, Inc., as servicer, the lenders and letter of credit participants party thereto from time to time, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as agent, and Autobahn Funding Company LLC and DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as letter of credit issuers(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed March 13, 2020; File No. 001-9232) |
| | |
10.29 | | Amendment No. 3 dated June 11, 2020 to the Amended and Restated Receivables Loan and SecurityAgreementdated as of July 19, 2019, among Volt Funding II, LLC, as borrower, Volt Information Sciences, Inc., as servicer, thelenders and letter of credit participants party thereto from time to time, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as agent, and Autobahn Funding Company LLC and DZBANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as letter of credit issuers(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed June 17, 2020; File No. 001-9232) |
| | |
10.30 | | Amendment No. 4 dated October 2, 2020 to the Amended and Restated Receivables Loan and Security Agreement, dated as of July 19, 2019, among Volt Funding II, LLC, as borrower, Volt Information Sciences, Inc., as servicer, the lenders and letter of credit participants party thereto from time to time, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as agent, and Autobahn Funding Company LLC and DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as letter of credit issuers (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 29, 2018 filed September 7, 2018; File No. 001-09232) |
| | |
10.46* | | |
| | |
10.47*21 | | |
| | |
10.48* | | |
| | |
10.49* | | |
| | |
10.50* | | |
| | |
10.51 | | Amendment No. 2, dated January 4, 2019, to the Receivables Loan and Security Agreement, dated as of January 25, 2018, among Volt Funding II, LLC, as borrower, Volt Information Sciences, Inc., as servicer, Autobahn Funding Company LLC, as conduit lender, the other lenders party thereto, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as agent, and Autobahn Funding Company LLC and DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as letter of credit issuers |
| | |
21 | | |
| |
23 | | |
| | |
31.1 | | |
| |
31.2 | | |
| |
32.1 | | |
| |
101.INS | | XBRL Instance Document. |
| |
101.SCH | | XBRL Taxonomy Extension Schema Document. |
| |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |
| |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. |
| |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |
| | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Management contracts and compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | |
| VOLT INFORMATION SCIENCES, INC. |
| | | |
Date: January 13, 2021 | By: | | | /s/ Linda Perneau |
| | | | Linda Perneau |
| | | | President and Chief Executive Officer (Principal Executive Officer) |
| | | |
Date: January 13, 2021 | By: | | | /s/ Herbert M. Mueller |
| | | | Herbert M. Mueller |
| | | | Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
| | | | |
| VOLT INFORMATION SCIENCES, INC. |
| | | |
Date: January 9, 201913, 2021 | By: | | | /s/ Linda Perneau |
| | | | Linda Perneau |
| | | | President and Chief Executive Officer
(Principal Executive Officer) |
| | | |
Date: January 9, 2019 | By: | | | /s/ Paul Tomkins |
| | | | Paul Tomkins |
| | | | Senior Vice President and Chief Financial Officer
(Principal Financial Officer) |
| | | | |
Date: January 9, 2019 | By: | | | /s/ Leonard Naujokas |
| | | | Leonard Naujokas |
| | | | Controller and Chief Accounting Officer
(Principal Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
Date: January 13, 2021 | By: | | | /s/ William J. Grubbs |
| | | | William J. Grubbs |
| | | | Chairman of the Board |
| | | | |
Date: January 9, 201913, 2021 | By: | | | /s/ Nick S. Cyprus |
| | | | Nick S. Cyprus |
| | | | Chairman of the Board |
| | | | |
Date: January 9, 2019 | By: | | | /s/ Linda Perneau |
| | | | Linda Perneau |
| | | | President and Chief Executive Officer
(Principal Executive Officer) |
| | | |
Date: January 9, 201913, 2021 | By: | | | /s/ Dana MessinaCelia R. Brown |
| | | | Dana MessinaCelia R. Brown |
| | | | Director |
| | | |
Date: January 9, 201913, 2021 | By: | | | /s/ Nick S. Cyprus |
| | | | Nick S. Cyprus |
| | | | Director |
| | | |
Date: January 13, 2021 | By: | | | /s/ Bruce G. Goodman |
| | | | Bruce G. Goodman |
| | | | Director |
| | | | |
Date: January 9, 201913, 2021 | By: | | | /s/ William Grubbs |
| | | | William Grubbs |
| | | | Director |
| | | | |
Date: January 9, 2019 | By: | | | /s/ Laurie Siegel |
| | | | Laurie Siegel |
| | | | Director |
| | | | |
Date: January 9, 2019 | By: | | | /s/ Arnold Ursaner |
| | | | Arnold Ursaner |
| | | | Director |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Volt Information Sciences, Inc. and subsidiaries:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Volt Information Sciences, Inc. and subsidiaries (the Company) as of October 28, 2018November 1, 2020 and October 29, 2017,November 3, 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders'loss, stockholders’ equity and cash flows for the years then ended and the related notes (collectively referred to as the consolidated“consolidated financial statements)statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at October 28, 2018November 1, 2020 and October 29, 2017,November 3, 2019 and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
Adoption of ASU No. 2016-02
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in fiscal 2020 due to the adoption of ASU No. 2016-02, Leases (Topic 842) and the related amendments.
Basis for Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company'sCompany’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1968.
New York, New York
January 9, 201913, 2021
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
| | | Year Ended | | Year Ended |
| October 28, 2018 | | October 29, 2017 | | November 1, 2020 | | November 3, 2019 |
NET REVENUE | $ | 1,039,170 |
| | $ | 1,194,436 |
| NET REVENUE | $ | 822,055 | | | $ | 997,090 | |
Cost of services | 885,492 |
| | 1,007,041 |
| Cost of services | 694,204 | | | 844,527 | |
GROSS MARGIN | 153,678 |
| | 187,395 |
| GROSS MARGIN | 127,851 | | | 152,563 | |
| | | | |
Selling, administrative and other operating costs | 173,337 |
| | 197,130 |
| Selling, administrative and other operating costs | 137,666 | | | 157,052 | |
Restructuring and severance costs | 8,242 |
| | 1,379 |
| Restructuring and severance costs | 2,641 | | | 4,656 | |
Gain from divestitures | — |
| | (51,971 | ) | |
Settlement and impairment charges | 506 |
| | 1,694 |
| |
OPERATING INCOME (LOSS) | (28,407 | ) | | 39,163 |
| |
| Impairment charges | | Impairment charges | 16,913 | | | 688 | |
OPERATING LOSS | | OPERATING LOSS | (29,369) | | | (9,833) | |
| | | | |
OTHER INCOME (EXPENSE), NET | | | | OTHER INCOME (EXPENSE), NET | |
Interest income | 173 |
| | 39 |
| Interest income | 78 | | | 274 | |
Interest expense | (2,765 | ) | | (3,790 | ) | Interest expense | (2,297) | | | (3,156) | |
Foreign exchange gain (loss), net | 403 |
| | (1,637 | ) | Foreign exchange gain (loss), net | (85) | | | (612) | |
Other income (expense), net | (1,131 | ) | | (1,562 | ) | Other income (expense), net | (869) | | | (881) | |
TOTAL OTHER INCOME (EXPENSE), NET | (3,320 | ) | | (6,950 | ) | TOTAL OTHER INCOME (EXPENSE), NET | (3,173) | | | (4,375) | |
| | | | | | | |
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (31,727 | ) | | 32,213 |
| |
LOSS BEFORE INCOME TAXES | | LOSS BEFORE INCOME TAXES | (32,542) | | | (14,208) | |
Income tax provision | 958 |
| | 3,388 |
| Income tax provision | 1,045 | | | 978 | |
INCOME (LOSS) FROM CONTINUING OPERATIONS | (32,685 | ) | | 28,825 |
| |
| | | | |
DISCONTINUED OPERATIONS | | | | |
Loss from discontinued operations, net of income taxes | — |
| | (1,693 | ) | |
NET INCOME (LOSS) | $ | (32,685 | ) | | $ | 27,132 |
| |
| NET LOSS | | NET LOSS | $ | (33,587) | | | $ | (15,186) | |
| | | | | | | |
PER SHARE DATA: | | | | PER SHARE DATA: | |
Basic: | | | | Basic: | |
Income (loss) from continuing operations | $ | (1.55 | ) | | $ | 1.38 |
| |
Loss from discontinued operations | — |
| | (0.08 | ) | |
Net income (loss) | $ | (1.55 | ) | | $ | 1.30 |
| |
| Net loss | | Net loss | $ | (1.56) | | | $ | (0.72) | |
Weighted average number of shares | 21,051 |
| | 20,942 |
| Weighted average number of shares | 21,507 | | | 21,119 | |
Diluted: |
| | | Diluted: | |
Income (loss) from continuing operations | $ | (1.55 | ) | | $ | 1.37 |
| |
Loss from discontinued operations | — |
| | (0.08 | ) | |
Net income (loss) | $ | (1.55 | ) | | $ | 1.29 |
| |
| Net loss | | Net loss | $ | (1.56) | | | $ | (0.72) | |
Weighted average number of shares | 21,051 |
| | 21,017 |
| Weighted average number of shares | 21,507 | | | 21,119 | |
The accompanying notes are an integral part of these consolidated financial statements.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)Loss
(In thousands)
| | | | | | | | | | | |
| Year Ended |
| November 1, 2020 | | November 3, 2019 |
NET LOSS | $ | (33,587) | | | $ | (15,186) | |
Other comprehensive income (loss): | | | |
Foreign currency translation adjustments net of taxes of $0 and $0, respectively | 343 | | | 269 | |
| | | |
COMPREHENSIVE LOSS | $ | (33,244) | | | $ | (14,917) | |
|
| | | | | | | |
| Year Ended |
| October 28, 2018 | | October 29, 2017 |
NET INCOME (LOSS) | $ | (32,685 | ) |
| $ | 27,132 |
|
Other comprehensive income (loss): | | | |
Foreign currency translation adjustments net of taxes of $0 and $0, respectively | (1,809 | ) | | 5,351 |
|
Total other comprehensive income (loss) | (1,809 | ) | | 5,351 |
|
COMPREHENSIVE INCOME (LOSS) | $ | (34,494 | ) | | $ | 32,483 |
|
The accompanying notes are an integral part of these consolidated financial statements.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share amounts)
| | | October 28, 2018 | | October 29, 2017 | | November 1, 2020 | | November 3, 2019 |
ASSETS | | | | ASSETS | | | |
CURRENT ASSETS: | | | | CURRENT ASSETS: | |
Cash and cash equivalents | $ | 24,763 |
| | $ | 37,077 |
| Cash and cash equivalents | $ | 38,550 | | | $ | 28,672 | |
Restricted cash | 11,781 |
| | 17,020 |
| Restricted cash | 17,883 | | | 9,772 | |
Short-term investments | 3,063 |
| | 3,524 |
| Short-term investments | 2,853 | | | 3,022 | |
Trade accounts receivable, net of allowances of $759 and $1,249, respectively | 157,445 |
| | 173,818 |
| |
Recoverable income taxes | 96 |
| | 1,643 |
| |
Trade accounts receivable, net of allowances of $219 and $117, respectively | | Trade accounts receivable, net of allowances of $219 and $117, respectively | 121,916 | | | 135,950 | |
Other current assets | 7,348 |
| | 11,755 |
| Other current assets | 7,058 | | | 7,252 | |
TOTAL CURRENT ASSETS | 204,496 |
| | 244,837 |
| TOTAL CURRENT ASSETS | 188,260 | | | 184,668 | |
Property, equipment and software, net | | Property, equipment and software, net | 22,167 | | | 25,890 | |
Right of use assets - operating leases | | Right of use assets - operating leases | 25,107 | | | 0 | |
Other assets, excluding current portion | 7,808 |
| | 10,851 |
| Other assets, excluding current portion | 6,311 | | | 7,446 | |
Property, equipment and software, net | 24,392 |
| | 29,121 |
| |
TOTAL ASSETS | $ | 236,696 |
| | $ | 284,809 |
| TOTAL ASSETS | $ | 241,845 | | | $ | 218,004 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
CURRENT LIABILITIES: |
| | | CURRENT LIABILITIES: | |
Accrued compensation | $ | 27,120 |
| | $ | 24,504 |
| Accrued compensation | $ | 18,357 | | | $ | 21,507 | |
Accounts payable | 33,498 |
| | 36,895 |
| Accounts payable | 31,221 | | | 36,341 | |
Accrued taxes other than income taxes | 15,275 |
| | 20,467 |
| Accrued taxes other than income taxes | 12,983 | | | 11,244 | |
Accrued insurance and other | 23,335 |
| | 30,282 |
| Accrued insurance and other | 15,908 | | | 24,654 | |
Short-term borrowings, including current portion of long-term debt | — |
| | 50,000 |
| |
Operating lease liabilities | | Operating lease liabilities | 7,144 | | | 0 | |
Income taxes payable | 1,097 |
| | 808 |
| Income taxes payable | 891 | | | 1,570 | |
TOTAL CURRENT LIABILITIES | 100,325 |
| | 162,956 |
| TOTAL CURRENT LIABILITIES | 86,504 | | | 95,316 | |
Accrued insurance and other, excluding current portion | 13,478 |
| | 10,828 |
| |
Accrued payroll taxes and other, excluding current portion | | Accrued payroll taxes and other, excluding current portion | 29,988 | | | 12,029 | |
Operating lease liabilities - excluding current portion | | Operating lease liabilities - excluding current portion | 38,232 | | | 0 | |
Deferred gain on sale of real estate, excluding current portion | 22,216 |
| | 24,162 |
| Deferred gain on sale of real estate, excluding current portion | 0 | | | 20,270 | |
Income taxes payable, excluding current portion | 600 |
| | 1,663 |
| Income taxes payable, excluding current portion | 90 | | | 289 | |
Deferred income taxes | 510 |
| | 1,206 |
| Deferred income taxes | 3 | | | 17 | |
Long-term debt, excluding current portion, net | 49,068 |
| | — |
| |
Long-term debt, net | | Long-term debt, net | 59,154 | | | 53,894 | |
TOTAL LIABILITIES | 186,197 |
| | 200,815 |
| TOTAL LIABILITIES | 213,971 | | | 181,815 | |
Commitments and contingencies |
| |
| Commitments and contingencies | 0 | | 0 |
STOCKHOLDERS’ EQUITY: | | | | STOCKHOLDERS’ EQUITY: | |
Preferred stock, par value $1.00; Authorized - 500,000 shares; Issued - none | — |
| | — |
| |
Common stock, par value $0.10; Authorized - 120,000,000 shares; Issued - 23,738,003; Outstanding - 21,179,068 and 21,026,253, respectively | 2,374 |
| | 2,374 |
| |
Preferred stock, par value $1.00; Authorized - 500,000 shares; Issued - NaN | | Preferred stock, par value $1.00; Authorized - 500,000 shares; Issued - NaN | 0 | | | 0 | |
Common stock, par value $0.10; Authorized - 120,000,000.00 shares; Issued - 23,738,003; Outstanding - 21,729,400 and 21,367,821, respectively | | Common stock, par value $0.10; Authorized - 120,000,000.00 shares; Issued - 23,738,003; Outstanding - 21,729,400 and 21,367,821, respectively | 2,374 | | | 2,374 | |
Paid-in capital | 79,057 |
| | 78,645 |
| Paid-in capital | 79,937 | | | 77,688 | |
Retained earnings | 9,738 |
| | 45,843 |
| |
Retained deficit | | Retained deficit | (29,793) | | | (10,917) | |
Accumulated other comprehensive loss | (7,070 | ) | | (5,261 | ) | Accumulated other comprehensive loss | (6,458) | | | (6,801) | |
Treasury stock, at cost; 2,558,935 and 2,711,750 shares, respectively | (33,600 | ) | | (37,607 | ) | |
Treasury stock, at cost; 2,008,603 and 2,370,182 shares, respectively | | Treasury stock, at cost; 2,008,603 and 2,370,182 shares, respectively | (18,186) | | | (26,155) | |
TOTAL STOCKHOLDERS’ EQUITY | 50,499 |
| | 83,994 |
| TOTAL STOCKHOLDERS’ EQUITY | 27,874 | | | 36,189 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 236,696 |
| | $ | 284,809 |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 241,845 | | | $ | 218,004 | |
The accompanying notes are an integral part of these consolidated financial statements.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(In thousands, except number of share data)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock $0.10 Par Value | | | | | | | | | | |
| Shares | | Amount | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total Stockholders’ Equity |
BALANCE AT OCTOBER 30, 2016 | 23,738,003 |
| | $ | 2,374 |
| | $ | 76,564 |
| | $ | 21,000 |
| | $ | (10,612 | ) | | $ | (40,361 | ) | | $ | 48,965 |
|
Net income | — |
| | — |
| | — |
| | 27,132 |
| | — |
| | — |
| | 27,132 |
|
Share-based compensation expense | — |
| | — |
| | 2,595 |
| | — |
| | — |
| | — |
| | 2,595 |
|
Issuance of common stock | — |
| | — |
| | (514 | ) | | (2,289 | ) | | — |
| | 2,754 |
| | (49 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 5,351 |
| | — |
| | 5,351 |
|
BALANCE AT OCTOBER 29, 2017 | 23,738,003 |
| | 2,374 |
| | 78,645 |
| | 45,843 |
| | (5,261 | ) | | (37,607 | ) | | 83,994 |
|
Net loss | — |
| | — |
| | — |
| | (32,685 | ) | | — |
| | — |
| | (32,685 | ) |
Share-based compensation expense | — |
| | — |
| | 1,270 |
| | — |
| | — |
| | — |
| | 1,270 |
|
Issuance of common stock | — |
| | — |
| | (858 | ) | | (3,420 | ) | | — |
| | 4,007 |
| | (271 | ) |
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (1,809 | ) | | — |
| | (1,809 | ) |
BALANCE AT OCTOBER 28, 2018 | 23,738,003 |
| | $ | 2,374 |
| | $ | 79,057 |
| | $ | 9,738 |
| | $ | (7,070 | ) | | $ | (33,600 | ) | | $ | 50,499 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock $0.10 Par Value | | Paid-in Capital | | (Accumulated Deficit) Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total Stockholders’ Equity |
| Shares | | Amount | | | | | |
BALANCE AT OCTOBER 28, 2018 | 23,738,003 | | | $ | 2,374 | | | $ | 79,057 | | | $ | 9,738 | | | $ | (7,070) | | | $ | (33,600) | | | $ | 50,499 | |
Effect of new accounting principle | — | | | — | | | — | | | 426 | | | — | | | — | | | 426 | |
Net loss | — | | | — | | | — | | | (15,186) | | | — | | | — | | | (15,186) | |
Share-based compensation | — | | | — | | | 499 | | | — | | | — | | | — | | | 499 | |
Issuance of common stock | — | | | — | | | (1,868) | | | (5,895) | | | — | | | 7,445 | | | (318) | |
Other comprehensive income | — | | | — | | | — | | | — | | | 269 | | | — | | | 269 | |
BALANCE AT NOVEMBER 3, 2019 | 23,738,003 | | | $ | 2,374 | | | $ | 77,688 | | | $ | (10,917) | | | $ | (6,801) | | | $ | (26,155) | | | $ | 36,189 | |
Effect of new accounting principle | — | | | — | | | — | | | 22,216 | | | — | | | — | | | 22,216 | |
Net loss | — | | | — | | | — | | | (33,587) | | | — | | | — | | | (33,587) | |
Share-based compensation | — | | | — | | | 1,736 | | | — | | | — | | | — | | | 1,736 | |
Issuance of common stock | — | | | — | | | 513 | | | (7,505) | | | — | | | 7,969 | | | 977 | |
Other comprehensive income | — | | | — | | | — | | | — | | | 343 | | | — | | | 343 | |
BALANCE AT NOVEMBER 1, 2020 | 23,738,003 | | | $ | 2,374 | | | $ | 79,937 | | | $ | (29,793) | | | $ | (6,458) | | | $ | (18,186) | | | $ | 27,874 | |
The accompanying notes are an integral part of these consolidated financial statements.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
| | | Year Ended | | Year Ended |
| October 28, 2018 | | October 29, 2017 | | November 1, 2020 | | November 3, 2019 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income (loss) | $ | (32,685 | ) | | $ | 27,132 |
| |
Loss from discontinued operations, net of income taxes | — |
| | (1,693 | ) | |
Income (loss) from continuing operations | (32,685 | ) | | 28,825 |
| |
Net loss | | Net loss | $ | (33,587) | | | $ | (15,186) | |
| | | | |
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: | | | | |
| | Adjustments to reconcile net loss to cash provided by (used in) operating activities: | | Adjustments to reconcile net loss to cash provided by (used in) operating activities: | |
Depreciation and amortization | 7,209 |
| | 8,025 |
| Depreciation and amortization | 7,981 | | | 6,955 | |
Provisions (release) of doubtful accounts and sales allowances | (198 | ) | | 1,039 |
| |
Operating lease asset amortization | | Operating lease asset amortization | 7,611 | | | 0 | |
Release of doubtful accounts and sales allowances | | Release of doubtful accounts and sales allowances | (13) | | | (245) | |
Unrealized foreign currency exchange loss | 27 |
| | 1,262 |
| Unrealized foreign currency exchange loss | 621 | | | 510 | |
Settlement and impairment charges | 506 |
| | 1,694 |
| |
Impairment charges | | Impairment charges | 16,913 | | | 688 | |
(Gain) loss on dispositions of property, equipment and software | | (Gain) loss on dispositions of property, equipment and software | (287) | | | 14 | |
Amortization of gain on sale leaseback of property | (1,944 | ) | | (1,946 | ) | Amortization of gain on sale leaseback of property | — | | | (1,944) | |
Gain (loss) from divestitures | 266 |
| | (51,959 | ) | |
Deferred income tax provision | 24 |
| | 719 |
| |
Deferred income tax benefit | | Deferred income tax benefit | (11) | | | (88) | |
Share-based compensation expense | 1,270 |
| | 2,755 |
| Share-based compensation expense | 1,736 | | | 499 | |
Change in operating assets and liabilities: | | | | Change in operating assets and liabilities: | |
Trade accounts receivable | 16,735 |
| | 5,928 |
| Trade accounts receivable | 14,057 | | | 22,472 | |
Restricted cash | 5,239 |
| | (6,673 | ) | |
| Other assets | 5,111 |
| | 6,760 |
| Other assets | 1,209 | | | 432 | |
Accounts payable | (3,723 | ) | | 4,475 |
| Accounts payable | (5,166) | | | 2,839 | |
Accrued expenses and other liabilities | (4,107 | ) | | (11,072 | ) | Accrued expenses and other liabilities | 7,897 | | | (9,712) | |
Income taxes | 774 |
| | 14,737 |
| Income taxes | (807) | | | 134 | |
Net cash provided by (used in) operating activities | (5,496 | ) | | 4,569 |
| |
Net cash provided by operating activities | | Net cash provided by operating activities | 18,154 | | | 7,368 | |
| | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |
Sales of investments | 755 |
| | 884 |
| Sales of investments | 822 | | | 391 | |
Purchases of investments | (443 | ) | | (380 | ) | Purchases of investments | (582) | | | (221) | |
Net proceeds from divestitures | — |
| | 81,102 |
| |
| Proceeds from sales of property, equipment and software | 19 |
| | 372 |
| Proceeds from sales of property, equipment and software | 399 | | | 41 | |
Purchases of property, equipment, and software | (3,565 | ) | | (9,312 | ) | |
Net cash provided by (used in) investing activities | (3,234 | ) | | 72,666 |
| |
Purchases of property, equipment and software | | Purchases of property, equipment and software | (5,268) | | | (9,053) | |
Net cash used in investing activities | | Net cash used in investing activities | (4,629) | | | (8,842) | |
| | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | |
Repayment of borrowings | (124,696 | ) | | (77,050 | ) | Repayment of borrowings | (15,000) | | | (20,000) | |
Draw-down on borrowings | 124,696 |
| | 30,000 |
| Draw-down on borrowings | 20,000 | | | 25,000 | |
Debt issuance costs | (1,469 | ) | | (1,190 | ) | Debt issuance costs | (343) | | | (783) | |
Proceeds from exercise of stock options | — |
| | 2 |
| |
Withholding tax payment on vesting of restricted stock awards | (271 | ) | | (52 | ) | Withholding tax payment on vesting of restricted stock awards | (77) | | | (318) | |
Net cash used in financing activities | (1,740 | ) | | (48,290 | ) | |
Net cash provided by financing activities | | Net cash provided by financing activities | 4,580 | | | 3,899 | |
| | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | (1,844 | ) | | 1,746 |
| |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | (116) | | | (525) | |
| | | | |
Net increase (decrease) in cash and cash equivalents | (12,314 | ) | | 30,691 |
| |
Net increase in cash, cash equivalents and restricted cash | | Net increase in cash, cash equivalents and restricted cash | 17,989 | | | 1,900 | |
| | | | |
Cash and cash equivalents, beginning of year | 37,077 |
| | 6,386 |
| |
Cash and cash equivalents, end of year | $ | 24,763 |
| | $ | 37,077 |
| |
Cash, cash equivalents and restricted cash, beginning of year | | Cash, cash equivalents and restricted cash, beginning of year | 38,444 | | | 36,544 | |
Cash, cash equivalents and restricted cash, end of year | | Cash, cash equivalents and restricted cash, end of year | $ | 56,433 | | | $ | 38,444 | |
| | | | | | | |
Cash paid during the year: | | | | Cash paid during the year: | |
Interest | $ | 2,765 |
| | $ | 3,840 |
| Interest | $ | 2,297 | | | $ | 3,156 | |
Income taxes | $ | 3,341 |
| | $ | 3,521 |
| Income taxes | $ | 1,979 | | | $ | 1,194 | |
| Reconciliation of cash, cash equivalents and restricted cash | | Reconciliation of cash, cash equivalents and restricted cash | |
Current assets: | | Current assets: | |
Cash and cash equivalents | | Cash and cash equivalents | $ | 38,550 | | | $ | 28,672 | |
Restricted cash | | Restricted cash | 17,883 | | | 9,772 | |
Cash, cash equivalents and restricted cash, end of the period | | Cash, cash equivalents and restricted cash, end of the period | $ | 56,433 | | | $ | 38,444 | |
The accompanying notes are an integral part of these consolidated financial statements.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
November 1, 2020
NOTE 1: Summary of Business and Significant Accounting Policies
We are a global provider of staffing services (traditional time and materials-based as well as project-based). Our staffing services consist of workforce solutions that include providing contingent workers, personnel recruitment services and managed staffing services programs supporting primarily administrative and light industrial (“commercial”)(commercial) as well as technical, information technology and engineering (“professional”)(professional) positions. Our managed service programs (“MSP”) involvesinvolve managing the procurement and on-boarding of contingent workers from multiple providers. OurThrough the time of our exit from the customer care solutions business specializes in servingJune 2019, we served as an extension of our customers'customers’ consumer relationships and processes including collaborating with customers, from help desk inquiries to advanced technical support. We also provided quality assurance services through the date of sale of this business in October 2017. In addition, through the date of the sale of Maintech in March 2017, we provided information technology infrastructure services. Our information technology infrastructure services provided server, storage, network and desktop IT hardware maintenance, data center and network monitoring and operations.
Our complementary businesses offer customized talent and supplier management solutions to a diverse client base. Volt services global industries including aerospace, automotive, banking and finance, consumer electronics, information technology, insurance, life sciences, manufacturing, media and entertainment, pharmaceutical, software, telecommunications, transportation and utilities. The Company was incorporated in New York in 1957. The Company'sCompany’s stock iswas traded on the NYSE AMERICAN under the symbol “VISI” until September 6, 2019. As of September 9, 2019, the Company’s stock was traded on the NYSE AMERICAN under the symbol “VOLT”.
(a)Fiscal Year
The Company’s fiscal year ends on the Sunday nearest October 31st. The fiscal years 2018 and 2017year 2020 consisted of 52 weeks and fiscal 2019 consisted of 53 weeks.
(b)Consolidation
The consolidated financial statements include the accounts of the Company and all subsidiaries over which the Company exercises control. All intercompany balances and transactions have been eliminated in consolidation.
(c)Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company evaluates its estimates, assumptions and judgments, including those related to revenue recognition, allowance for doubtful accounts, casualty reserves, valuation of goodwill, intangible assets and other long-lived assets, stockshare-based compensation, employee benefit plans, restructuring and severance accruals, income taxes and related valuation allowances and loss contingencies. Actual results could differ from those estimates and changes in estimates are reflected in the period in which they become known.
(d)Revenue is generally recognized when persuasive evidence of an arrangement exists, products have been delivered or services have been rendered, the fee is fixed or determinable, and collectability is reasonably assured. For any arrangements within the scope of the multiple-deliverable guidance, a deliverable constitutes a separate unit of accounting when it has stand-alone value and there are no customer-negotiated refunds or return rights for the delivered elements.Recognition
Services are sometimes provided despite a customer arrangement not yet being finalized. In these cases, revenue is deferred until arrangements are finalized or in some cases until cash is received. The cumulative revenue deferred for each arrangement is recognized in the period the revenue recognition criteria are met. The following revenue recognition policies define the manner in which the Company accounts for specific transaction types:
Staffing Services
Revenue is primarily derived from supplying contingent staffrecognized when control of the promised services is transferred to the Company’sCompany's customers at an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. The majority of customer contracts have performance obligations that the Company satisfies over time and revenue is recognized by consistently applying a method of measuring progress toward satisfaction of that performance obligation. The Company will generally utilize an input measure of time (e.g., hours, weeks, months) of service provided, which depicts the progress toward completion of each performance obligation.
Certain customer contracts have variable consideration, including rebates, guarantees, credits, or providing other servicessimilar items that reduce the transaction price. The Company will generally estimate the variable consideration using the expected value method to predict the amount of consideration to which it will become entitled, based on the circumstances of each customer contract and historical evidence. Revenue is recognized net of variable consideration to the extent that it is probable that a significant future reversal will not occur.
In scenarios where a third-party vendor is involved in the Company's revenue transactions with its customers, the Company will evaluate whether it is the principal or the agent in the transaction. When Volt acts as the principal, it controls the performance obligation prior to transfer of the service to the customer and reports the related consideration as gross revenues and the costs as cost of services. When Volt acts as an agent, it does not control the performance obligation prior to transfer of the service to the customer and it reports the related amounts as revenue on a time and materialnet basis. Contingent staff primarily consist of contingent workers working under a contract for a fixed period of time or on a specific customer project. Revenue is also derived from permanent placement services, which is generally recognized after placements are made and when the fees are not contingent upon any future event. Our technology outsourcing services, from our quality assurance business, which was sold in the fourth quarter of fiscal 2017, provided pre- and post- production development support, testing, and customer support to companies in the mobile, gaming, and technology devices industries.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
November 1, 2020
Reimbursable costs, including thoseRefer to Note 3, Revenue Recognition for the revenue policies related to travel and out-of-pocket expenses, are also included in Net revenue, and equivalent amounts of reimbursable costs are included in Cost of services.each specific transaction type.
Under certain of the Company’s service arrangements, contingent staff are provided to customers through contracts involving other vendors or contractors. When the Company is the principal in the transaction and therefore the primary obligor for the contingent staff, we record the gross amount of the revenue and expense from the service arrangement. When the Company acts only as an agent for the customer and is not the primary obligor for the contingent staff, we record revenue net of vendor or contractor costs.(e)Expense Recognition
The Company is generally the primary obligor when responsible for the fulfillment of services under the contract, even if the contingent workers are neither employees of the Company nor directly contracted by the Company. Usually, in these situations, the contractual relationship with the vendors and contractors is exclusively with the Company and the Company bears customer credit risk and generally has latitude in establishing vendor pricing and has discretion in vendor or contractor selection.
The Company is generally not the primary obligor when we provide comprehensive administration of multiple vendors for customers that operate significant contingent workforces, referred to as managed service programs. The Company is considered an agent in these transactions if it does not have responsibility for the fulfillment of the services by the vendors or contractors (referred to as associate vendors). In such arrangements, the Company is typically designated by its customers to be a facilitator of consolidated associate vendor billing and a processor of the payments to be made to the associate vendors on behalf of the customer. Usually in these situations the contractual relationship is between the customers, the associate vendors and the Company, with the associate vendors being the primary obligor and assuming the customer credit risk and the Company generally earning negotiated fixed mark-ups and not having discretion in supplier selection.
Information Technology Infrastructure Services
Revenue from hardware maintenance, computer and network operations infrastructure services under fixed-price contracts and stand-alone post-contract support was generally recognized ratably over the contract period, provided that all other revenue recognition criteria are met, and the cost associated with these contracts were recognized as incurred. For time and material contracts, the Company recognized revenue and costs as services are rendered, provided that all other revenue recognition criteria are met.
Cost of services within staffingServices
Cost of services consists primarily of contingent worker payroll, related employment taxes and benefits and the cost of facilities used by contingent workers in fulfilling assignments and projects for staffing services customers, including reimbursable costs. Indirect cost of staffing services iscosts are included in Selling, administrative and other operating costs in the Consolidated Statements of Operations. The Cost of services differ from the cost included within Selling, administrative and other operating costs in that they arise specifically and directly from the actions of providing staffing services to customers.
Cost of information technology infrastructure services consisted of the direct and indirect cost of providing non-staffing services, which include payroll and related employment taxes, benefits, materials, and equipment costs.
Gross margin is calculated as revenue less direct costs for staffing services and revenue less direct and indirect costs for non-staffingcost of services.
Selling, Administrative and Other Operating Costs
Selling, administrative and other operating costs primarily relate to the Company’s selling and administrative efforts, as well as the indirect costs associated with providing staffing services.
| |
(f) | Comprehensive Income (Loss) |
(f)Comprehensive Income (Loss)
Comprehensive income (loss) is the net income (loss) of the Company combined with other changes in stockholders’ equity not involving ownership interest changes. The Company recognizes foreign currency translation as comprehensive income (loss).
| |
(g) | Cash and Cash Equivalents |
(g)Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
(h)Short-Term Investments and Related Deferred Compensation, Net
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
| |
(h) | Short-Term Investments and Related Deferred Compensation, Net |
The Company has a nonqualified deferred compensation and supplemental savings plan that permits eligible employees to defer a portion of their compensation. The employee compensation deferral is invested in short-term investments corresponding to the employees’ investment selections, primarily mutual funds, which are held in a trust and are reported at current market prices. The liability associated with the nonqualified deferred compensation and supplemental savings plan consists of participant deferrals and earnings thereon and is reflected as a current liability within Accrued compensation in an amount equal to the fair value of the underlying short-term investments held in the plan. Changes in asset values result in offsetting changes in the liability as the employees realize the rewards and bear the risks of their investment selections.
| |
(i) | Property, Equipment and Software, Net |
(i)Property, Equipment and Software, Net
Property and equipment are stated at cost and depreciation is calculated on the straight-line method over the estimated useful lives of the assets. Costs for both on-premise and cloud computing software that will be used for internal purposes and incurred during the application development stage are capitalized and amortized to expense over the estimated useful life of the underlying software. Training and maintenance costs are expensed as incurred.
The major classifications of property, equipment and software, including their respective expected useful lives, consisted of the following: |
| | | | |
Buildings | 25 to 32 years |
Machinery and Equipment | 3 to 15 years |
Leasehold improvements | Shorter of length of lease or life of the asset |
Software | 3 to 7 years |
Property, equipment and software are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or it is no longer probable that software development will be completed. If circumstances require a long-lived asset or asset group be reviewed for possible impairment, the Company first compares undiscounted cash flows expected to be generated by each asset or asset group to its carrying value. If the carrying value of the
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds the fair value.
(j)Leases
The Company adopted Accounting Standards Codification (“ASC”) 842, Leases in the first quarter of fiscal 2020. As such, the Company implemented new accounting policies and recognized assets and liabilities for leases with lease terms greater than twelve months in the statement of financial position. Refer to Note 2: Leases for a description of the accounting policies.
(k)Goodwill
Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. The Company early-adopted and applies the method of assessing goodwill for possible impairment permitted by Accounting Standards Update (“ASU”) No. 2017-04, Intangibles – Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment. The Company first assesses the qualitative factors for reporting units that carry goodwill. If the qualitative assessment results in a conclusion that it is more likely than not that the fair value of a reporting unit exceeds the carrying value, then no further testing is performed for that reporting unit.
When a qualitative assessment is not used, or if the qualitative assessment is not conclusive and it is necessary to calculate fair value of a reporting unit, then the impairment analysis for goodwill is performed at the reporting unit level using a one-step approach. In conducting the goodwill impairment test, the fair value of a reporting unit is compared with its carrying amount utilizing various valuation techniques. If the fair value of the reporting unit exceeds its carrying value, then no further testing is performed. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill.
The Company performs its annual impairment review of goodwill in its second fiscal quarter and when a triggering event occurs between annual impairment tests.
(l)Income Taxes
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using current tax laws and rates in effect for the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized within income in the period that includes the enactment date. The Company must then assess the likelihood that its deferred tax assets will be realized. If the Company does not believe that it is more likely than not that its deferred tax assets will be realized, a valuation allowance is established. When a valuation allowance is increased or decreased, a corresponding tax expense or benefit is recorded.
Accounting for income taxes involves uncertainty and judgment in how to interpret and apply tax laws and regulations within the Company’s annual tax filings. Such uncertainties may result in tax positions that may be challenged and overturned by a tax authority in the future, which would result in additional tax liability, interest charges and possible penalties. Interest and penalties are classified as a component of income tax expense.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized upon ultimate settlement. Changes in recognition or measurement are reflected in the period in which the change in estimate occurs.
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(l) | Share-Based Compensation |
(m)Share-Based Compensation
The Company accounts for share-based awards as either equity or liability awards based upon the characteristics of each instrument. The compensation cost is measured based on the grant date fair value of the award. The fair value of liability awards is re-measured periodically based on the effect that the market condition has on these awards. The share-based compensation expense for all awards areis recognized over the requisite service or performance periods as a cost in Selling, administrative and other operating costs in the Company’s Consolidated Statement of Operations. The Company has elected to account for forfeitures as they occur. If there are any modifications or cancellations of the underlying unvested awards, the Company may be required to accelerate any remaining unearned stock-basedshare-based compensation cost or incur incremental cost.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
(n)Foreign Currency
Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where that local currency is the functional currency, are translated to U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense accounts are translated at average exchange rates during the year which approximate the rates in effect at the transaction dates. The resulting translation adjustments are directly recorded to a separate component of Accumulated other comprehensive income (loss). Gains and losses arising from intercompany foreign currency transactions that are of a long-term nature are reported in the same manner as translation adjustments. Gains and losses arising from intercompany foreign currency transactions that are not of a long-term nature and certain transactions of the Company’s subsidiaries which are denominated in currencies other than the subsidiaries’ functional currency are recognized as incurred in Foreign exchange gain (loss), net in the Consolidated Statements of Operations.
| |
(n) | Fair Value Measurement |
(o)Fair Value Measurement
In accordance with Accounting Standards Codification (“ASC”)ASC 820, Fair Value Measurements (“ASC 820”), the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Quoted prices in active markets for similar assets and liabilities, quoted prices for identically similar assets or liabilities in markets that are not active and models for which all significant inputs are observable either directly or indirectly.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions or external inputs for inactive markets.
The Company uses this framework for measuring fair value and disclosures about fair value measurement. The Company uses fair value measurements in areas that include: the allocation of purchase price consideration to tangible, and identifiable intangible assets; impairment testing using level 3 inputs for goodwill, andright-of-use (“ROU”) assets as well as other long-lived assets; share-based compensation arrangements and financial instruments. The carrying amounts of the Company’s financial instruments, which include cash, cash equivalents, restricted cash, accounts receivable and accounts payable, and short-term borrowings under the Company’s credit facilities, approximated their fair values due to the short-term nature of these instruments, and theinstruments. The fair value of the long-term debt is based on the interest rates the Company believes it could obtain for borrowings with similar terms.terms and is classified as a Level 2 in the fair value hierarchy.
The Company recognizes transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer.
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(o) | Legal and Other Contingencies |
(p)Legal and Other Contingencies
The Company is involved in various demands, claims and actual and threatened litigation that arise in the normal course of business. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, a liability and an expense are recorded for the estimated loss. Significant judgment is required in both the determination of probability and the determination of whether an exposure is reasonably estimable. Actual expenses could differ from these estimates in subsequent periods as additional information becomes known.
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(p) | Concentrations of Credit Risk |
(q)Concentrations of Credit Risk
Cash and cash equivalents are maintained with several financial institutions and deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and the Company mitigates its credit risk by spreading its deposits across multiple financial institutions and monitoring their respective risk profiles.
| |
(q) | Restructuring and Severance Charges |
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
(r)Restructuring and Severance Costs
The Company accounts for restructuring activities in accordance with ASC 420, Exit or Disposal Cost Obligations. Under the guidance, for the cost of restructuring activities that do not constitute a discontinued operation, the liability for the current fair value of expected future costs associated with such restructuring activity is recognized in the period in which the liability is incurred. The costs of restructuring activities taken pursuant to a management approved restructuring plan are segregated.
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(r) | Earnings (Loss) Per Share |
(s)Earnings (Loss) Per Share
Basic earnings per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. The diluted earnings per share computation includes the effect of potential common shares outstanding during the period. Potential common shares include the dilutive effects of shares that would be issuable upon the exercise of outstanding "in the money" stock options and unvested restricted stock units. The dilutive impact is determined by applying the treasury stock method. Performance-based share awards are included in the computation of diluted earnings per share only to the extent that the underlying performance conditions: (i) are satisfied by the end of the reporting period, or (ii) would be satisfied if the end of the reporting period were the end of the related performance period and the result would be dilutive.
(t)Treasury Stock
The Company records treasury stock at the cost to acquire it and includes treasury stock as a component of Stockholders’ Equity. In determining the cost of the treasury shares when either sold or issued, the Company uses the FIFO (first-in, first-out) method. If the proceeds from the sale of the treasury shares are greater than the cost of the shares sold, the excess proceeds are recorded as additional paid-in capital. If the proceeds from the sale of the treasury shares are less than the original cost of the shares sold, the excess cost first reduces any additional paid-in capital arising from previous sales of treasury shares for that class of stock and any additional excess is recorded as a reduction of retained earnings.
(u)New Accounting Pronouncements
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
| |
(t) | Assets and Liabilities Held for Sale |
The Company classifies long-lived assets (disposal group) to be sold as held for sale in accordance with ASU 2014-08, Presentation Of Financial Statements (Topic 205) And Property, Plant, And Equipment (Topic 360): Reporting Discontinued Operations And Disclosures Of Disposals Of Components Of An Entity (“ASU 2014-08“), in the period in which all of the following criteria are met: management, having the authority to approve the action, commits to a plan to sell the asset (disposal group); the asset (disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (disposal group); an active program to locate a buyer and other actions required to complete the plan to sell the asset (disposal group) have been initiated; the sale of the asset (disposal group) is probable, and transfer of the asset (disposal group) is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond our control extend the period of time required to sell the asset (disposal group) beyond one year; the asset (disposal group) is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
A long-lived asset (disposal group) that is classified as held for sale is initially measured at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset (disposal group) until the date of sale.
The fair value of a long-lived asset (disposal group) less any costs to sell is assessed each reporting period it remains classified as held for sale and any subsequent changes are reported as an adjustment to the carrying value of the asset (disposal group), as long as the new carrying value does not exceed the carrying value of the asset at the time it was initially classified as held for sale. Upon determining that a long-lived asset (disposal group) meets the criteria to be classified as held for sale, the Company reports the assets and liabilities of the disposal group for all periods presented, if material, in the line items Assets held for sale and Liabilities held for sale, respectively, in the Consolidated Balance Sheets.
| |
(u) | Discontinued Operations |
The results of operations of a component or a group of components of the Company that either has been disposed of or is classified as held for sale is reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on the Company’s operations and financial results. For any transaction expected to be structured as a sale of shares of an entity and not a sale of assets, the Company classifies the deferred taxes as part of Assets or Liabilities held for sale.
Certain reclassifications have been made to the prior year financial statements in order to conform to the current year’s presentation. Currently, the reclassifications are related to segment reporting changes.
| |
(w) | New Accounting Pronouncements |
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial position or results of operations upon adoption.
New Accounting Standards Not Yet Adopted by the Company
On August 29, 2018,In March 2020, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract2020-04, Reference Rate Reform (Topic 848) (“ASU 2018-15”2020-04”), which align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). ASU 2018-15 is effective2020-04 provides optional expedients and exceptions for fiscal years beginning after December 15, 2019applying GAAP to contracts, hedging relationships and interim periods within those fiscal years. Early adoption of the amendments is permitted including adoption in any interim period.other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The Company intends to apply ASU 2018-15 should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. ASU 2018-15 is effective for the Company2020-04 in the first quarter of fiscal 2021. The Company is currently evaluating the2021 and does not anticipate a significant impact that ASU 2018-15 has upon adoption on its consolidated financial statements.statements upon adoption.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
OnIn August 28, 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which changes the fair value measurement disclosure requirements of ASC 820. ASU 2018-13 is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of ASU 2018-13. ASU 2018-13 is effective for the Company in the first quarter of fiscal 2021. The Company does not anticipate a significant impact on the consolidated financial statements upon adoption.
In June 2016, the FASB issued ASU 2016-13 (ASC Topic 326), as clarified in ASU 2019-04, ASU 2019-05, ASU 2019-11 and ASU 2018-19, amending how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. Under this model, an entity recognizes an allowance for expected credit losses based on historical experience, current conditions and forecasted information rather than the current methodology of delaying recognition of credit losses until it is probable a loss has been incurred. The amendments are effective for fiscal years beginning after December 15, 2022, which for the Company will be the first quarter of fiscal 2024. Although the impact upon adoption will depend on the financial instruments held by the Company at that time, the Company does not anticipate a
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
significant impact on its consolidated financial statements based on the instruments currently held and its historical trend of bad debt expense relating to trade accounts receivable.
Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on the Company’s consolidated financial statements and related disclosures.
Recently Adopted by the Company
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718)18): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 expands the guidance in Topic 718 to include share-based payments for goods and services to non-employees and generally aligns it with the guidance for share-based payments to employees. The amendments areASU 2018-07 was effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, which for the Company will bein the first quarter of fiscal 2020. The Company does not anticipate a significant2020 and the adoption of this guidance had no impact upon adoption.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. An entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The amendments are effective for annual periods beginning after December 15, 2017, which for the Company will be the first quarter of fiscal 2019. The Company does not anticipate a significant impact upon adoption based on the historical and current trend of the Company’s modifications for share-based awards, but the impact could be affected by the types of modifications, if any, at that time.
In February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Non-financial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Non-financial Assets (“ASU 2017-05”). ASU 2017-05 clarifies the scope and application of ASC 610-20 on the sale or transfer of non-financial assets and in substance non-financial assets to non-customers, including partial sales. The amendments are effective for annual reporting periods beginning after December 15, 2017, which for the Company will be the first quarter of fiscal 2019. The Company does not anticipate a significant impact upon adoption.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments: A Consensus of the FASB Emerging Issues Task Force. The amendments provide guidance on eight specific cash flow classification issues: debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, corporate and bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows and application of the predominance principle. The amendments are effective for fiscal years beginning after December 15, 2017, which for the Company will be the first quarter of fiscal 2019. The Company does not anticipate a significant impact upon adoption.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 provides guidance for recognizing credit losses on financial instruments based on an estimate of current expected credit losses model. The amendments are effective for fiscal years beginning after December 15, 2019, which for the Company will be the first quarter of fiscal 2021. Although the impact upon adoption will depend on the financial instruments held by the Company at that time, the Company does not anticipate a significant impact on its consolidated financial statements based on the instruments currently held and its historical trend of bad debt expense relating to trade accounts receivable.statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). This ASU 2016-02 requires that lessees recognize assets and liabilities for leases with lease terms greater than twelve months in the statement of financial position and also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The FASB issued subsequent amendments to improve and clarify the implementation guidance of Topic 842. The amendments areThis ASU was effective for fiscal years beginning after December 15, 2018, which for the Company will be the first quarter of fiscal 2020. The Company has preliminarily evaluated the impact of our pending adoption of ASU 2016-02 on our consolidated financial statements on a modified retrospective basis, and currently expects that most of our operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon our adoption, which will increase the Company’s total assets and total liabilities that the Company reports relative to such amounts prior to adoption.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of this amendment is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The FASB issued subsequent amendments to improve and clarify the implementation guidance of Topic 606. This standard is effective for annual reporting periods beginning after December 15, 2017, which for the Company will be the first quarter of fiscal 2019.
During fiscal 2018, we made significant progress toward completing our evaluation of the potential impact that adopting the new standard will have on our consolidated financial statements. Based on our preliminary analysis, revenue from our staffing services contracts and substantially all of our other contracts with customers will continue to be recognized as the services are rendered. The Company does not anticipate that the new guidance will have a material impact on our revenue recognition policies, practices or systems. The primary impact is expected to be expanded disclosures around the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. As we finalize our review of current contracts with customers, accounting policies and business practices, we will continue to evaluate the impact of this guidance on our consolidated financial statements, disclosures and internal controls. Our preliminary assessments are subject to change. We expect to implement the standard with the modified retrospective approach effective October 29, 2018.
Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on the Company’s consolidated financial statements and related disclosures.
Recently Adopted Accounting Standards
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted ASU 2016-09 in the first quarter of fiscal 2018. Upon adoption, the excess tax benefits and deficiencies are recognized as income tax expense or benefit2020 resulting in the Consolidated Statement of Operations in the reporting period incurred. The ASU 2016-09 transition guidance requires that this election be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption, net of any valuation allowance requiredCompany recording ROU assets and lease liabilities on the deferred tax assets. Becauseconsolidated balance sheet. The adoption of this standard did not have a material impact on the Company has provided a full valuation allowance against its net deferred tax assets, this adoption had no impact to the opening balanceconsolidated financial statements of total stockholder’s equity. The Company has elected to present the changes for excess tax benefits in the statementoperations and consolidated statements of cash flows prospectively andflows. For the impact on the Company's consolidated financial statements, refer to account for forfeitures as they occur. There was no impact to the change in presentation in the statement of cash flows related to statutory tax withholding requirements since the Company has historically classified the cash paid for tax withholding as a financing activity.Note 2 - Leases.
All other ASUs that became effective for Volt infor fiscal 20182020 were not applicable to the Company at this time and therefore, did not have any impact during the period.
NOTE 2: SaleLeases
The Company adopted ASC 842, Leases on November 4, 2019 using the modified transition method without retrospective application to comparative periods. The Company elected the package of Quality Assurance and Information Technology Infrastructure Businesses
Quality Assurance Business
On October 27, 2017,three practical expedients allowed for under the transition guidance. Accordingly, the Company completeddid not reassess: (1) whether any expired or existing contracts are/or contain leases; (2) the lease classification for any expired or existing leases; or (3) initial direct costs for any existing leases. The Company has also elected not to recognize ROU assets and lease liabilities for short-term leases that have a term of 12 months or less.
The Company’s material operating leases consist of branch locations, as well as corporate office space. Our leases have remaining terms of 1 - 11 years. The lease term is the minimum of the non-cancelable period of the lease or the lease term inclusive of reasonably certain renewal option periods. Volt determines if an arrangement meets the criteria of a lease at inception, at which time it also performs an analysis to determine whether the lease qualifies as operating or financing. The Company does not currently have any finance leases.
Upon adoption, the Company recorded approximately $47.2 million of ROU assets and $52.0 million of lease liabilities related to operating leases in the Consolidated Balance Sheet. At transition, the ROU asset was measured at the initial amount of the lease liability adjusted for any deferred rent and cease-use liabilities. The Company also recognized a $22.2 million cumulative-effect adjustment to retained earnings related to the deferred gain on the sale and leaseback of its quality assurance business within the Technology Outsourcing Services and Solutions segmentreal estate. This gain was previously being amortized at approximately $0.5 million per quarter as an offset to Keywords International Limited and Keywords Studios plc for a purchase price of $66.4 million, subject to a customary working capital adjustment. The gain on sale of $48.0 million was recorded in continuing operationsrent expense in the Consolidated Statements of OperationsOperations. Since the Company has a full valuation allowance against its deferred tax assets, the impact is a reduction to our deferred tax assets and related valuation allowance, which resulted in no tax impact to the net change to equity.
Operating lease liabilities represent the present value of lease payments not yet paid. ROU assets represent Volt's right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepaid or accrued lease payments, initial direct costs, lease incentives and impairment of operating lease assets. As the year ended October 29, 2017. The divestiture didrate implicit in the lease is not meetreadily determinable, the criteriaCompany used its incremental borrowing rates based on the information available at the lease commencement date in determining the present value of lease payments. To determine the present value of lease payments not yet paid, the Company estimates incremental secured borrowing rates corresponding to be presented as discontinued operations in accordance with ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360). However, the disposition did represent an individually significant componentmaturities of the Company’s business. leases.
The pretax income ofCompany has elected the quality assurance business included inpractical expedient to not separate non-lease components from the Company’s Consolidated Statements of Operations priorlease components to the disposition was $4.5 million.
Concurrently with the sale, the Company entered intowhich they relate and instead account for each as a Transition Services and Asset Transfer Agreement, under which the Company continued to provide certain accounting and operational support services to the buyer, on a monthly fee-for-service basissingle lease component, for a period of up to six months post-closing.
all underlying asset classes. Some leasing
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
November 1, 2020
Information Technology Infrastructure Business
In March 2017, the Company completed the salearrangements require variable payments that are dependent on usage or may vary for other reasons, such as payments for insurance, tax payments and other miscellaneous costs. The variable portion of Maintech to Maintech Holdings, LLC, a newly-formed holding company and affiliate of Oak Lane Partners, LLC (“Buyer”). Under the terms of the Stock Purchase Agreement, the Company received proceeds of $18.3 million, subject to a $0.1 million holdback and certain adjustments including a customary working capital adjustment that was finalized within 60 days of the sale. Net proceeds from the transaction amounted to $13.1 million after certain transaction-related fees, expenses and repayment of an outstanding Bank of America, N.A. (“BofA”) loan balance. The Company recognized a gain on disposal of $3.9 million from the sale transactionlease payments is not included in the second quarterROU assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred and are included in lease expenses. Accordingly, all expenses associated with a lease contract are accounted for as lease expenses.
Operating leases are included in Right of fiscal 2017.
Concurrently with the sale, the Company entered into a Transition Servicesuse assets - operating leases and Asset Transfer Agreement, under which the Company continued to provide certain accountingOperating lease liabilities, current and operational support services to the Buyer, on a monthly fee-for-service basis for a period of up to six months post-closing. The Company and Maintech have also executed a three-year IT as a service agreement, whereby Maintech will continue to provide helpdesk and network monitoring services to the Company, similar to the services that were provided before the transaction.
NOTE 3: Discontinued Operations
On December 1, 2014, the Company completed the sale of its Computer Systems segment to NewNet Communication Technologies, LLC (“NewNet”), a Skyview Capital, LLC, portfolio company. The proceeds of the transaction were a $10.0 million note bearing interest at one half percent (0.5 percent) per year due in four years and convertible into a capital interest of up to 20% in NewNet. The note was valued at $8.4 million on the transaction date which approximated fair value. The unamortized discount for the note was $1.1 million through the settlement date.
On October 27, 2017, the Company and NewNet entered into a Settlement Agreement and Mutual General Release (the “Settlement Agreement”). Pursuant to the terms of the Settlement Agreement, NewNet agreed to early payment of the note for $7.5 million. The payment was offset by a $1.5 million deduction to settle the outstanding working capital adjustment and minor indemnity claims under the Membership Interest Purchase Agreement dated as of December 1, 2014 (the “Purchase Agreement”), and receivables under the transition services agreement related to the Purchase Agreement. As a result, the Company received $6.0 million on a net basis.
The early payment of the note resulted in a settlement charge of $1.4 million, which was recordedlong-term, in the Consolidated Statements of OperationsBalance Sheet. Lease expense for operating leases is recognized on a straight-line basis over the year ended October 29, 2017. The Company also incurred a working capital adjustment of $1.7 million, which was recorded as a loss on disposallease term and is included in Discontinued operationsSelling, administrative and other operating costs in the Consolidated StatementsStatement of OperationsOperations. During fiscal 2020, cash paid for the year ended October 29, 2017.
The following table reconciles the major line itemsamount that was included in the Company’s Consolidated Statementsmeasurement of Operationsoperating lease liabilities was $11.6 million and the ROU assets obtained in exchange for discontinued operationsoperating lease liabilities was $2.0 million.
| | | | | |
The components of lease expense were as follows (in thousands): | Year Ended November 1, 2020 |
|
Operating lease expense | $ | 10,990 | |
Sublease income | (1,577) | |
Variable lease expense | 760 | |
Total (1) (2) | $ | 10,173 | |
(1) Approximately $0.3 million of lease expense is included in restructuring.
(2) The Company has minimal short-term lease expense.
| | | | | |
Weighted average remaining lease terms and discount rates were as follows: | Year Ended November 1, 2020 |
|
Weighted average remaining lease term (years) | 7.97 |
Weighted average discount rate | 6.3 | % |
Maturities of operating lease liabilities as of November 1, 2020 were as follows (in thousands):
| | | | | |
Fiscal Year: | Amount |
2021 | $ | 9,638 | |
2022 | 8,073 | |
2023 | 6,936 | |
2024 | 5,610 | |
2025 | 5,255 | |
Thereafter | 22,895 | |
Total future lease payments | $ | 58,407 | |
Less: Imputed interest | 13,031 | |
Total operating lease liabilities | $ | 45,376 | |
Maturities of operating leases accounted for under ASC 840 as of fiscal year-end 2019 were as follows (in thousands):
| | | | | |
Fiscal Year: | Amount |
2020 | $ | 11,782 | |
2021 | 9,287 | |
2022 | 7,457 | |
2023 | 6,328 | |
2024 | 5,486 | |
Thereafter | 28,422 | |
Total future lease payments | $ | 68,762 | |
|
| | | |
| Year Ended |
| October 29, 2017 |
Loss from discontinued operations | |
Net revenue | $ | — |
|
Cost of services | — |
|
Selling, administrative and other operating costs | — |
|
Other (income) expense, net | — |
|
Loss from discontinued operations | — |
|
Loss on disposal of discontinued operations | (1,693 | ) |
Loss from discontinued operations before income taxes | (1,693 | ) |
Income tax provision | — |
|
Loss from discontinued operations that is presented in the Consolidated Statements of Operations | $ | (1,693 | ) |
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
November 1, 2020
NOTE 3: Revenue Recognition
Adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
As of October 29, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers, using the modified retrospective method applied to those contracts which were not completed as of October 29, 2018. Results for reporting periods beginning on October 29, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with historical accounting guidance.
The cumulative impact of adopting ASC 606 resulted in an increase of $0.4 million to opening retained earnings. The impact is primarily driven by an adjustment to deferred revenue due to a change in the required criteria for defining customer contracts under the new guidance. As of and for the period ended November 1, 2020 and November 3, 2019, the consolidated financial statements were not materially impacted by the implementation of ASC 606.
Revenue Recognition
All of the Company’s revenue and trade receivables are generated from contracts with customers. Revenue is recognized when control of the promised services is transferred to the Company’s customers at an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. The Company’s revenue is recorded net of any sales or other similar taxes collected from its customers.
A performance obligation is a promise in a contract to transfer a distinct service to the customer. The majority of the Company’s contracts contain single performance obligations. For performance obligations that the Company satisfies over time, revenue is recognized by consistently applying a method of measuring progress toward satisfaction of that performance obligation. The Company will generally utilize an input measure of time (e.g., hours, weeks, months) of service provided, which depicts the progress toward completion of each performance obligation.
Volt generally determines the standalone selling prices based on the prices included in the customer contracts. The price as specified in its customer contracts is typically considered the standalone selling price as it is an observable input that depicts the price as if sold to a similar customer. Certain customer contracts have variable consideration, including rebates, guarantees, credits, or other similar items that reduce the transaction price. The Company will generally estimate the variable consideration using the expected value method to predict the amount of consideration to which it will become entitled, based on the circumstances of each customer contract and historical evidence. Revenue is recognized net of variable consideration to the extent that it is probable that a significant future reversal will not occur. The Company’s estimated amounts of variable consideration are not material and it does not believe that there will be significant changes to its estimates.
In certain scenarios where a third-party vendor is involved in the Company’s revenue transactions with its customers, the Company will evaluate whether it is the principal or the agent in the transaction. When Volt acts as the principal, it controls the performance obligation prior to transfer of the service to the customer and reports the related consideration as gross revenues and the costs as cost of services. When Volt acts as an agent, it does not control the performance obligation prior to transfer of the service to the customer and it reports the related amounts as revenue on a net basis. The Company generally demonstrates control over the service when it is responsible for the fulfillment of services under the contract, responsible for the workers performing the service and when it has latitude in establishing pricing. Volt generally acts as an agent in its transactions within its MSP programs where the Company provides comprehensive management of its customer’s contingent workforce and receive fees based on the volume of services managed within each program. The Company is the agent in these transactions since it does not have the responsibility for the fulfillment of the services by the vendors or contractors (referred to as associate vendors). In these transactions, the Company does not control the third-party providers’ staffing services provided to the customers prior to those services being transferred to the customer.
Revenue Service Types
Staffing Services
Volt’s primary service is providing contingent (temporary) workers to its customers. These services are primarily provided through direct agreements with customers and Volt provides these services using its employees and, in some cases, by subcontracting with other vendors of contingent workers. Volt’s costs in providing these services consist of the wages and benefits provided to the contingent workers as well as the recruiting costs, payroll department costs and other administrative
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
costs. The Company recognizes revenue for its contingent staffing services over time as services are performed in an amount that reflects the consideration it expects to be entitled to in exchange for its services, which is generally calculated as hours worked multiplied by the agreed-upon hourly bill rate. The customer simultaneously receives and consumes the benefits of the services as they are provided. The Company applies the practical expedient to recognize revenue for these services over the term of the agreement commensurate to the amount it has the right to invoice the customer.
Direct Placement Services
Direct placement services include providing qualified candidates to the Company’s customers to hire on a permanent basis. These services are primarily recognized at a point in time when the qualified candidate is placed and begins permanent employment which is the point when control has transferred to the customer and the Company has the right to payment for the service. Each placement is a single performance obligation under the Company’s contracts and the related consideration is typically based upon a percentage of the candidates’ base salary. Direct placement revenue is recognized net of a reserve for permanent placement candidates that do not remain with the customer through the contingency period, which is typically 60 days or less. This contingency is estimated based on historical data and recorded as a refund liability.
Managed Service Programs (“MSP”)
The Company’s MSP programs provide comprehensive solutions for delivery of contingent labor for assignment to customers, including supplier and worker sourcing, selecting, qualifying, on/off-boarding, time and expense recordation, reporting and approved invoicing and payment processing procedures. Since the individual activities are not distinct, the Company accounts for these activities as a single performance obligation. The Company’s fee for these MSP services is a fixed percentage of the staffing services spend that is managed through the program. The Company recognizes revenue over time for each month of MSP services provided as the customer simultaneously receives and consumes the services the Company provides. The Company applies the practical expedient to recognize revenue for these services over the term of the agreement commensurate to the amount it has the right to invoice the customer.
Call Center Services
The customer care solutions business through June 2019 specialized in serving as an extension of its customers’ relationships and processes, from help desk inquiries to advanced technical support. The Company earned a fee based upon the type, volume and level of services provided as part of the call center operations. Since the individual activities are not distinct, the Company accounted for them as a single performance obligation. The Company recognized revenue over time as the customer simultaneously received and consumed the services the Company provided. The Company applied the practical expedient to recognize revenue for these services over the term of the agreement commensurate to the amount it had the right to invoice the customer.
Disaggregation of Revenues
The following table presents the Company's segment revenues disaggregated by service type (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended November 1, 2020 |
Segment | Total | North American Staffing | International Staffing | North American MSP | Corporate and Other | Eliminations |
Service Revenues: | | | | | | |
Staffing Services | $ | 791,163 | | $ | 683,635 | | $ | 83,308 | | $ | 24,483 | | $ | 674 | | $ | (937) | |
Direct Placement Services | 11,820 | | 5,460 | | 3,703 | | 2,657 | | 0 | | 0 | |
Managed Service Programs | 19,072 | | 0 | | 8,297 | | 10,775 | | 0 | | 0 | |
| $ | 822,055 | | $ | 689,095 | | $ | 95,308 | | $ | 37,915 | | $ | 674 | | $ | (937) | |
| | | | | | |
Geographical Markets: | | | | | | |
Domestic | $ | 722,985 | | $ | 686,252 | | $ | 0 | | $ | 37,582 | | $ | 0 | | $ | (849) | |
International | 99,070 | | 2,843 | | 95,308 | | 333 | | 674 | | (88) | |
| $ | 822,055 | | $ | 689,095 | | $ | 95,308 | | $ | 37,915 | | $ | 674 | | $ | (937) | |
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
| | | | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended November 3, 2019 |
Segment | Total | North American Staffing | International Staffing | North American MSP | Corporate and Other (1) | Eliminations |
Service Revenues: | | | | | | |
Staffing Services | $ | 950,595 | | $ | 822,550 | | $ | 105,815 | | $ | 22,987 | | $ | 728 | | $ | (1,485) | |
Direct Placement Services | 14,880 | | 8,397 | | 4,600 | | 2,962 | | 0 | | (1,079) | |
Managed Service Programs | 17,023 | | 0 | | 3,962 | | 13,061 | | 0 | | 0 | |
Call Center Services | 14,592 | | 0 | | 0 | | 0 | | 14,592 | | 0 | |
| $ | 997,090 | | $ | 830,947 | | $ | 114,377 | | $ | 39,010 | | $ | 15,320 | | $ | (2,564) | |
| | | | | | |
Geographical Markets: | | | | | | |
Domestic | $ | 878,095 | | $ | 827,641 | | $ | 0 | | $ | 38,337 | | $ | 14,592 | | $ | (2,475) | |
International | 118,995 | | 3,306 | | 114,377 | | 673 | | 728 | | (89) | |
| $ | 997,090 | | $ | 830,947 | | $ | 114,377 | | $ | 39,010 | | $ | 15,320 | | $ | (2,564) | |
(1) Includes the revenues from Volt's Customer Care Solutions business through the time of exit in June 2019.
Payment Terms
Customer payment terms vary by arrangement although payments are typically due within 15 - 45 days of invoicing. The timing between the satisfaction of the performance obligations and the payment is not significant and the Company currently does not have any significant financing components or significant payment terms.
Unsatisfied Performance Obligations
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which they will recognize revenue at the amount to which it has the right to invoice for services performed. Unsatisfied performance obligations for contracts not meeting the aforementioned criteria are immaterial.
Accounts Receivable, Contract Assets and Contract Liabilities
The Company records accounts receivable when its right to consideration becomes unconditional. The Company maintains a sales allowance for any potential billing errors and service-related adjustments to the customer. The amount of the sales allowance is determined based on a historical transaction analysis and additions to the sales allowance are recorded as a reduction to net revenue.
As required under Topic 606, the Company changed its presentation to show this allowance as a liability, whereas under Topic 605, these accounts receivables were recorded net of an allowance. As of November 3, 2019, the change in the reserve balance from adoption was $0.4 million. The change in the reserve balance during fiscal 2020 and as of November 1, 2020 was not material. Contract assets primarily relate to the Company’s rights to consideration for services provided that are conditional on satisfaction of future performance obligations. The Company records contract liabilities when payments are made or due prior to the related performance obligations being satisfied. The current portion of contract liabilities is included in Accrued insurance and other in the Consolidated Balance Sheets. The Company does 0t have any material contract assets or long-term contract liabilities as of November 1, 2020 and November 3, 2019.
The Company may incur fulfillment costs after obtaining a contract to generate a resource that will be used to provide the MSP services. These costs are related to the set up and implementation of customer specific MSP programs and are considered incremental and recoverable costs to fulfill the Company’s contract with the customer. These costs are deferred and amortized over the expected period of benefit of the MSP services provided to the customer, determined by taking into consideration its customer contracts and other relevant factors. Amortization expense is included in Selling, administrative and other operating
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
costs on the Consolidated Statements of Operations. Deferred fulfillment costs were immaterial as of November 1, 2020 and November 3, 2019.
Economic Factors
The Company's operations are subject to variations in the economic condition and regulatory environment in their jurisdictions of operations. Adverse economic conditions may severely reduce the demand for the Company’s services and directly impact the revenue. In addition, the Company faces risks in complying with various legal requirements and unpredictable changes in both U.S. and foreign regulations which may have a financial impact on the business and operations.
The global spread of COVID-19 has created significant volatility, uncertainty and global macroeconomic disruption. This was due to related government actions, non-governmental agency recommendations and public perceptions and disruption in global economic and labor market conditions. Our business, results of operations and financial condition have been and may continue to be adversely impacted by the coronavirus pandemic and future adverse impacts could be material and are difficult to predict.
NOTE 4: Restricted Cash and Short-Term Investments
Restricted cash primarily includes amounts related to requirements under certain contracts with managed service programMSP customers, for whom the Company manages the customers’ contingent staffing requirements, including processing of associate vendor billings into single, combined customer billings and distribution of payments to associate vendors on behalf of customers, as well as minimum cash deposits required to be maintained as collateral. Distribution of payments to associate vendors are generally made shortly after receipt of payment from customers, with undistributed amounts included in restricted cash and accounts payable between receipt and distribution of these amounts. Changes in restricted cash collateral are classified as an operating activity, as this cash is directly related to the operations of this business.amounts, where contractually required. At October 28, 2018November 1, 2020 and October 29, 2017November 3, 2019 restricted cash included $11.3$9.2 million and $15.1$9.3 million, respectively, restricted for payment to associate vendors and $0.5 million and $1.9$0.5 million, respectively, restricted for other collaterizedcollateral accounts.
At November 1, 2020, restricted cash also included $8.2 million restricted under the Company’s long-term accounts receivable securitization program (“DZ Financing Program”) with DZ Bank AG Deutsche Zentral-Genossenschaftsbank (“DZ Bank”). This cash was restricted as it supplemented collateral provided by accounts receivable towards the Company’s aggregate borrowing base usage of $84.5 million, inclusive of $60.0 million outstanding and $24.5 million in issued letters of credit as of November 1, 2020.
At October 28, 2018November 1, 2020 and October 29, 2017,November 3, 2019, short-term investments were $3.1$2.9 million and $3.5$3.0 million, respectively. These short-term investments consisted primarily of the fair value of deferred compensation investments corresponding to employees’ selections, primarily in mutual funds, based on quoted prices in active markets.
NOTE 5: Fair Value of Financial Instruments
The following table presents assets and liabilities measured at fair value (in thousands): | | | October 28, 2018 | | October 29, 2017 | | Fair Value Hierarchy | | November 1, 2020 | | November 3, 2019 | | Fair Value Hierarchy |
Short-term investments | $ | 3,063 |
| | $ | 3,524 |
| | Level 1 | Short-term investments | $ | 2,853 | | | $ | 3,022 | | | Level 1 |
Total financial assets | $ | 3,063 |
| | $ | 3,524 |
| | Total financial assets | $ | 2,853 | | | $ | 3,022 | | |
Deferred compensation plan liabilities | $ | 3,063 |
| | $ | 3,524 |
| | Level 1 | Deferred compensation plan liabilities | $ | 2,853 | | | $ | 3,022 | | | Level 1 |
Total financial liabilities | $ | 3,063 |
| | $ | 3,524 |
| | Total financial liabilities | $ | 2,853 | | | $ | 3,022 | | |
The fair value of the deferred compensation plan liabilities is based on the fair value of the investments corresponding to the employees’ investment selections, primarily in mutual funds, based on quoted prices in active markets for identical assets. The deferred compensation plan liability is recorded in Accrued compensation in the Consolidated Balance Sheets.
There have been no changes in the methodology used to fair value the financial instruments as well as no transfers between levels during the fiscal years ended October 28, 2018November 1, 2020 and October 29, 2017.November 3, 2019.
Trade accounts receivable includes both billed and unbilled amounts due from customers. Billed trade receivables generally do not bear interest and are recorded at the amount invoiced less amounts for which revenue has been deferred because customer arrangements are not finalized.interest. Unbilled receivables represent accrued revenue earned and recognized on contracts for which billings have not yet been presented to the customer. At October 28, 2018November 1, 2020 and October 29, 2017,November 3, 2019, trade accounts receivable included unbilled receivables of $7.9$3.2 million and $12.9$7.7 million, respectively.