Washington, D.C. 20549
VOLT INFORMATION SCIENCES, INC.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No x☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No x☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x☒ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,”filer”, “accelerated filer,”filer”, “non-accelerated filer”, “smaller reporting company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filero | ☐ | Accelerated filero | ☐ | Non-accelerated filerx | ☒ | Smaller reporting companyx | ☒ | Emerging growth companyo | ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐Nox☒
As of April 27, 2018,May 2, 2021, there were 21,035,50321,736,575 shares of common stock outstanding. The aggregate market value of the voting and non-voting common stock held by non-affiliates as of April 27, 2018May 2, 2021 was $43,665,518,$74,551,244, calculated by using the closing price of the common stock on such date on the NYSE AMERICAN market of $2.70.$3.97.
As of January 4, 2019,7, 2022, there were 21,191,03022,099,246 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement to be filed for its 20192022 Annual Meeting of Shareholders are incorporated by reference into Part III of this report to the extent stated herein.
VOLT INFORMATION SCIENCES, INC.
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED OCTOBER 28, 201831, 2021
TABLE OF CONTENTS
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this report are “forward-looking” statements within the meaning of that term in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements that reflect the current views of our senior management with respect to our financial performance and future events of our business and industry in general. The terms “expect,” “intend,” “plan,” “believe,” “project,” “forecast,” “estimate,” “may,” “should,” “anticipate” and similar statements of a future or forward-looking nature identify forward-looking statements. Forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements. We believe that these factors include, but are not limited to, the following:
competition within the staffing industry which has few significant barriers to entry;
weak economic and uncertain business conditions;
failure to comply with restrictive financial covenants;
inability to renew our Financing Program or obtain a suitable replacement financing arrangement;
inability to execute successfully on our business strategies or achieve the intended results;
•cyber-attacks or the improper disclosure of sensitive or confidential employee or customer data;
employment-related claims, indemnification•significant exposure to employment related claims and other claims from clientslosses;
•failure to maintain adequate levels of working capital;
•vulnerability of information technology systems to damage and/or interruption;
•global public health epidemics, including the strain of coronavirus known as COVID-19 (“COVID-19”);
•ability to fulfill customer requirements may be impeded by a scarcity of talent in the current labor markets as well as by potential impact of future vaccine mandates;
•rising labor costs may reduce our contribution margins and third parties;impact our operating results if we are not able to pass these costs on to our customers;
litigation costs;
•the loss of major customers;
inability to maintain effective internal controls over financial reporting;
new or increased government regulation, employment costs and taxes;
foreign currency fluctuations and other global business risks;
fluctuations in interest rates and •turmoil in the financial markets;markets or the inability to fully utilize our credit facility;
contracts with no minimum purchase requirements, or cancellable during the term or both;
•failure to keep pace with rapid changes in technology;
vulnerability of information technology systems to damage, interruption and cyber-attacks;
•failure or inability to attract and retain high quality personnel and members of management;comply with financial covenants;
•inability to retain acceptable insurance coverage limits at a commercially reasonable cost and terms;
•unexpected changes in workers'workers’ compensation and other insurance plans;
impairment charges relating to our goodwill and long-lived assets;•contracts with no minimum purchase requirements, or cancellable during the term or both;
•volatility of stock price and related ability of investors to resell their shares at or above the purchase price;
•significant percentage of common stock owned by a limited number ofcertain shareholders and their ability to exercise significant influence over the Company;
•potential proxy contest for the election of directors at our annual meeting; and
•New York State law and our Articles of Incorporation and By-laws contain provisions that could make a takeover of the Company more difficult.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report, including under the caption “Risk Factors” in Item 1A of this report. There can be no assurance that we have correctly identified and appropriately assessed all factors affecting our business. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may adversely impact us. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Readers should not place undue reliance on any forward-looking statements contained in this report, which speak only as of the date of this report. We undertake no obligation to update any forward-looking statements after the date of this report to conform such statements to actual results or to changes in our expectations.
PART I
ITEM 1. BUSINESS
Volt Information Sciences, Inc. (the “Company” or “Volt”) is 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. Our customer care solutions business specializes in serving as an extension of our 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.
The Company was incorporated in New York in 1957. Unless the context otherwise requires, throughout this report, the words “Volt,” “the Company,” “we,” “us” and “our” refer to Volt Information Sciences, Inc. and its consolidated subsidiaries.
Geographic Regions and Segments
Volt operates in approximately 8565 of its own locations with approximately 88%and hasan on-site presence in over 60 customer locations. Approximately 87% of our revenuesrevenue is generated in the United States where we have employees in nearly all 50 states. Our principal non-U.S. markets include Europe, CanadaAsia Pacific and several Asia PacificCanada locations. Our global footprint enables us to deliver consistent quality to our large strategic customers that require an established international presence.
We report our segment information in accordance with the provisions of the Financial Accounting Standards Board Accounting Standards Codification 280, Segment Reporting (“ASC 280”). See Note 19, “Segment Disclosures” for further information.
During the fourth quarter of fiscal 2018, in accordance with ASC 280, the Company determined that its North American Managed Service Program (“MSP”) business meets the criteria to be presented as a reportable segment. To provide period over period comparability, the Company has recast the prior period North American MSP segment data to conform 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 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 inunder the category Corporate and Other category.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 growth and segment operating income as the relevant financial measures. We believe segment operating income provides management and investors a measure to analyze operating performance of each business segment against historical and competitors’ data, although historical results, including operating income, may 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 relatedsupport-related costs to the operating segments except for costs not directly relating to our operating activities such as corporate-wide general and administrative costs. These costs are not allocated to individual operating segments because doing so would not enhance the understanding of segment operating performance and such costs are not used by management to measure segment performance.
We report our segment information in accordance with the provisions of the Financial Accounting Standards Board Accounting Standards Codification 280, Segment Reporting (“ASC 280”). See Note 18, “Segment Disclosures” for further information.
Description of the Reportable Segments and Corporate and Other Category
North American and International Staffing Segments
Our two staffing services segments provide workforce management expertise through locations in North America, Europe and several Asia Pacific locations. We deliver a broad spectrum of contingent staffing, direct placement, staffing management and other employment services. Our contingent workers are placed on assignment with our customers in a broad range of occupations including manufacturing, assembly, warehousing, industrial, information technology, engineering, pharmaceutical, administrative, call center, accounting and finance.
Our contingent staffing services are provided for varying periods of time to companies and other organizations (including government agencies) ranging from smaller retail accounts that may require ten or fewer contingent workers at a time to large strategic accounts that require as many as several thousand contingent workers at a time. Our large strategic accounts typically enter into longer term agreements with us resulting in lower direct margins compared to our retail accounts.
Within our staffing services segments, we refer to customers that require multi-location, coordinated account management and service delivery in multiple skill sets as strategic customers while our retailand to customers that are primarily in a single location with sales and delivery handled primarily from a geographically local team and with relatively few headcount on assignment in one or two skill sets.sets as retail customers. We provide traditional staffing services for which we are paid predominantly on a time and materials basis. The contingent staff that we provide often work under the supervision of our customers.
Volt’s contingent staffing services enable customers to easily scale their workforce to meet changing business conditions, complete a specific project, secure the services of a specialist on an as-needed basis, substitute for regular employees during
vacation or other temporary absences, staff high turnover positions, or meet seasonal peaks in workforce needs. When requested, we also provide Volt personnel at the customer’s location to coordinate and manage the administration of contingent workers. Many customers rely on Volt’s staffing services as a strategic element of their overall workforce, allowing them to more efficiently meet their fluctuating staffing requirements.
Contingent workers are recruited through proprietary internet recruiting sites, independent web-based job search companies and social networking talent communities through which we build and maintain proprietary databases of candidates from which we can fill current and future customer needs. The majority of contingent workers become Volt employees during the period of their assignment and we are responsible for the payment of wages, payroll taxes, workers’ compensation insurance, unemployment insurance and other benefits. Customers will sometimes hire Volt’s contingent workers as their own employees after a period of time, for which we usually receive a fee.
We also provide recruitment and direct placement services of specialists in the accounting, finance, administrative, call center, engineering, information technology, pharmaceutical, manufacturing, assembly and industrial support disciplines. These services are primarily provided on a contingency basis with fees earned only if our customers ultimately hire the candidates.
North American MSP Segment
Our North American MSP segment consists of managing the procurement and on-boarding of contingent workers and a broad range of specialized solutions that includes managing suppliers and providing sourcing and recruiting support, statement of work management, supplier performance measurement, optimization and analysis, benchmarking of spend demographics and market rate analysis, consolidated customer billing and supplier payment management. The workforce placed on assignment through our MSPs is usually provided by third-party staffing providers (“associate vendors”) or through our own staffing services. In most cases, we are only required to pay associate vendors after we receive payment from our customer. Our staffing services businesses also act as a subcontractor or associate vendor to other national providers in their MSPs. Our MSPs are typically administered through the use of vendor management system software (“VMS”) licensed from various VMS providers.
In addition, our North American MSP segment provides payroll service solutions as well as recruitment process outsourcing (RPO) for our customers. With our payroll service solution (also known as referred services), the customer refers an individual to us, we employ the individual and the individual works on an assignment for the customer at the customer’s worksite. We manage and administer the individual’s payroll, payroll taxes, workers’ compensation and benefits.
Corporate and Other Category
Our Corporate and Other category consists of our customer care solutions, corporate services and remote hire services business in India, as well as our quality assurance services and information technology infrastructure services business in prior years. We sold our information technology infrastructure business during the second quarter of fiscal 2017 and the quality assurance business during the fourth quarter of fiscal 2017.
Our customer care solutions business specializes in serving as an extension of our customers' relationships and processes including collaborating with customers, from help desk inquiries to advanced technical support.India.
Our corporate services provide entity-wide general and administrative functions that support all of our segments.
Our remote hire services business in India provideprovides skilled resources, technical infrastructure and management for various areas including back-office accounting and administration, as well as software development, engineering, web design, technical support, call center operations, sales and marketing, customer service research, and back-office accounting and administration.research.
Through the date of sale of Maintech in March 2017, our information technology infrastructure business provided IT hardware maintenance services on major brands of server, storage, network and desktop products to Fortune 1000 companies. Other
services provided include remote monitoring for corporate data centers and networks, and planning, migration and support services for clients seeking to migrate to a cloud environment. We delivered our services across the United States and in major business centers globally and sold these services directly to corporate customers and through value-added resellers, partners and other resellers. Our target markets included financial services, telecommunications and aerospace.
Through the date of sale in October 2017, our quality assurance services assisted in ensuring our customers’ products perform as designed. These services extended to game, hardware, software, consumer product and mobile product and service offerings. We also provided business intelligence and analytics services by assisting our customers in making informed business decisions through implementing quality assurance methodologies, which when combined with visibility of our customers’ data allowed us to reduce inefficiencies and optimize our customers’ business.
Business Strategy
Strengthen the Foundation
Fiscal 2017 and 2016 were years focused on strengthening our foundation by simplifying our corporate structure, streamlining operational focus, strengthening our balance sheet and improving financial flexibility.
We successfully monetized non-strategic company-owned real estate in fiscal 2016 and we sold our quality assurance and our information technology infrastructure businesses in fiscal 2017. These divestitures enabled us to strengthen our liquidity position, simplify our corporate structure and streamline operational focus on opportunities within our core staffing services business.
In fiscal 2017, we deployed a new information technology system which encompasses our front and back-office financial suite that is critical to our success and offer more functionality at a lower cost to the Company. These upgrades will continue to improve our time to market and competitiveness in sales delivery, which will support and enhance our future growth.
In addition, during fiscal 2017, we significantly reduced our outstanding debt by $47.1 million, or 48%, as compared to debt outstanding at the end of fiscal 2016. On January 25, 2018, we entered into a two-year $115.0 million accounts receivable securitization program with DZ Bank AG Deutsche Zentral-Genossenschafsbank (“DZ Bank”) which improved our debt maturity profile, providing additional runway to execute our strategic plan.
Current Strategic Priorities
In fiscal 2018, we hiredWe have built a leadership team of prominent staffing industry veterans to strengthen our global sales leadership team with a focus on our new sales strategy to enhance financial performance and build a foundation for sustainable growth. This strategy includes the following priorities:
•Organizational Design - To strengthen the focus on sales and delivery performance across a spectrum of service offerings for maximum competitive advantage, we formed the Specialty Solutions Group, Strategic Solutions Group and Global Solutions Group. This design will allowallows Volt to steer its “go-to-market” strategy and performance based on a specialized job segment view as well as transform its delivery models to achieve dedicated focus, enhanced agility for customers’ needs and low-cost delivery benefits.
Business Optimization - Drive further efficiencies, productivity and cost savings by optimizing technology to drive performance through increased integration of available digital tools, reporting and processes and migrating from manual, customized processes to automated, standard processes. We expect these enhancements to yield meaningful cost savings, a portion of which can then be re-invested into important recruiting and candidate acquisition resources.
•Delivery Excellence - Improve talent acquisition and delivery with a more focused, customized, agile delivery approach by integrating recruiting tools to increase our speed to match candidates and to mobilize data analytics to drive strategy around job postings and return on investments. This initiative will continue to evolve based on the needs of our clients and as we continue to improve in attractingthe expectations of candidates in the market.
•Business Optimization - Drive further efficiencies, productivity and cost savings by optimizing technology to drive performance through increased integration of available digital tools, reporting and processes and migrating from manual, customized processes to automated, standard processes. These enhancements have yielded meaningful cost savings, a portion of which has been re-invested into important recruiting and candidate acquisition resources.
•Growth and Expansion - Achieve revenue and margin growth with new and existing client relationships, through realigned sales and delivery efforts. We are re-establishinghave re-established our sales culture by realigning the sales teams based upon client buying patterns with an emphasis on building client relationships. To further incentivize growth within the sales teams, we overhauled our bonus plans to align with a ‘pay for performance’ structure and we have introduced a higher level of visibility and accountability into the sales culture.
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 capital allocation priorities 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, we estimate this 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 our information technology systems, which will support our front-end recruitment and placement capabilities as well as increase efficiencies in our back-office financial suite; and
Deleveraging our balance sheet. By lowering our debt level, we will strengthen our balance sheet, reduce interest costs and reduce risk going forward.
Customers
The Company serves multinational, national and local customers, providing staffing services (traditional time and materials-based as well as project-based), and managed service programs and customer care solutions (as well as quality assurance services and information technology infrastructure services in fiscal 2017 and 2016).programs. The Company had no single customer that accounted for more than 10% of consolidated net revenue in fiscal 2018, 20172021 or 2016.2020. Our top 10 customers, which generally are not the same in each year, represented approximately 36%, 30%39% and 27%41% of revenue in fiscal 2018, 20172021 and 2016,2020, respectively. The loss of one or more of these customers, unless the business is replaced, could have an adverse effect on our results of operations or cash flows.
In fiscal 2018,2021, the International Staffing segment'ssegment’s revenue included three customers which accounted for approximately 13%21%, 12%13% and 11% of the total revenue of that segment. The North American MSP segment'ssegment’s revenue included one customerthree customers which accounted for approximately 24%, 12% of the total revenue of that segment.
In fiscal 2017, the North American MSP segment's revenue included one customer which accounted for approximately 34% of the total revenue of that segment.
In fiscal 2016, the International Staffing segment's revenue included one customer which accounted for approximatelyand 11% of the total revenue of that segment.
In fiscal 2016,2020, the North American MSP segment'sInternational Staffing segment’s revenue included two customers which accounted for approximately 31%24% and 15%12% of the total revenue of that segment. The North American MSP segment’s revenue included four customers which accounted for approximately 22%, 14%, 12% and 10% of the total revenue of that segment.
ForIn fiscal 2018, 20172021 and 2016, 88%,2020, 87% and 86%88% of our total revenue, respectively, was from customers in the United States.
Competition
The markets for Volt’s staffing services are highly competitive with few barriers to entry. The industry is large and fragmented, comprised of thousands of firms employing millions of people and generating billions of dollars in annual revenue. In most areas, no single company has a dominant share of the employment services market. The largest companies in the industry collectively represent less than half of all staffing services revenues and there are many smaller companies competing in varying degrees at local levels or in particular market sectors. Dominant leaders in the industry include Adecco, Allegis, Adecco,Kelly Services, Inc., Manpower Group Randstad and Kelly Services, Inc.Randstad.
In addition, there are numerous smaller local companies in the various geographic markets in which we operate. Companies in our industries primarily compete on price, service quality, new capabilities and technologies, marketing methods and speed of fulfilling assignments.
Intellectual Property
VOLT is the principal registered trademark for our brand in the United States. ARCTERN, PARTNER WITH US. COMPETE WITH ANYBODY, REMOTEHIRE and VOLTSOURCE are other registered trademarks in the United States. The Company also owns and uses common law trademarks and service marks.
We also own copyrights and license technology from many providers. We rely on a combination of intellectual property rights in the United States and abroad to protect our brand and proprietary information.
Seasonality
Our staffing services revenue and operating income are typically lowest in our first fiscal quarter due to the holiday season and are affected by customer facility closures during the holidays (in some cases for up to two weeks), and closures caused by severe weather conditions. The demand for our staffing services typically increases during our third and fourth fiscal quarters when customers increase the use of our administrative and industrial labor during the summer vacation period. The first couple offew months of the calendar year typically have the lowest margins as employer payroll tax contributions restart each year in January.
Margins typically increase in subsequent fiscal quarters as annual payroll tax contribution maximums are met, particularly for higher salaried employees.
Employees
Environmental, Social and Governance (“ESG”) Matters
The Company recognizes the importance of ESG matters, with a specific focus on Human Capital Management, as integral to creating a sustainable foundation for our long-term business strategy. While the Nominating and Corporate Governance Committee of the Board of Directors holds primary responsibility for ESG oversight and guidance, our entire Board of Directors, composed of independent directors, is fully engaged in these efforts.
Human Capital Management
Volt operates on the fundamental philosophy that people are our most valuable asset as every person who works for us has the potential to impact our success as well as the success of our clients. As a staffing company, identifying quality talent is at the core of everything we do and our success is dependent upon our ability to attract, develop and retain highly qualified employees, both in-house and for our clients. The Company’s core values of integrity, customer centric, ownership, innovation, empowerment, collaborative change and teamwork establish the foundation on which the culture is built and represent the key expectations we have of our employees. We believe our culture and commitment to our employees attract and retain our qualified talent, while simultaneously providing significant value to our Company and its shareholders.
Demographics
As of October 28, 2018,31, 2021, Volt employed approximately 20,10015,400 people, including approximately 18,60014,300 who were on contingent staffing assignments with our clients and the remainder as full-time in-house employees. Approximately 70% of the full-time in-house employees are full-time employees.located in North America and the remaining are within Asia Pacific and Europe. The workers on contingent staffing assignments are on our payroll for the length of their assignment.assignment with the client.
Diversity and Inclusion
Volt values building diverse teams, embracing different perspectives and fostering an inclusive, empowering work environment for our employees and clients. We have a long-standing commitment to equal employment opportunity as evidenced by the Company’s EEO policy. Of our North American in-house employee population, approximately 70% are focusedwomen and approximately 46% have self-identified as Hispanic or Latino, Native American, Pacific Islander, Asian, Black or African American, or of two or more races. As part of Volt’s commitment to continued enhancements in this area, we launched our Expert Momentum Diversity and Inclusion Program. This program involved the creation of a task force made up of a group of employees from across the organization. The program has established initiatives to strengthen the promotion of workplace diversity for our employees and clients, to create a collaborative environment that promotes authenticity and a culture that celebrates our differences, and embraces a collaborative environment with unique experiences and diverse perspectives. The program’s task force will enhance company-wide engagement on developingdiversity and inclusion, provide education opportunities for our employees, help identify areas for improvement and monitor progress against these initiatives.
Compensation and Benefits
Critical to our success is identifying, recruiting, retaining, and incentivizing our existing and future employees. We strive to attract and retain the most talented employees in the staffing industry by offering competitive compensation and benefits. Our pay-for-performance compensation philosophy is based on rewarding each employee’s individual contributions and striving to achieve equal pay for equal work regardless of gender, race or ethnicity. We use a teamcombination of fixed and variable pay including base salary, bonus, commissions and merit increases which vary across the business. In addition, as part of our long-term incentive plan for executives and certain employees, we provide share-based compensation to foster our pay-for-performance culture and to attract, retain and motivate our key leaders.
As the success of our business is fundamentally connected to the well-being of our people, we offer benefits that has both strongsupport their physical, financial and deep experienceemotional well-being. We provide our employees with access to flexible and convenient medical programs intended to meet their needs and the leadership skills thatneeds of their families. In addition to standard medical coverage, we offer eligible employees dental and vision coverage, health savings and flexible spending accounts, paid time off, employee assistance programs, voluntary short-term and long-term disability insurance and term life insurance. Additionally, we offer a 401(k) Savings Plan and Deferred Compensation Plan to certain employees. Our benefits vary by location and are requireddesigned to support our growth. Our strategy ismeet or exceed local laws and to be a leadercompetitive in the marketsmarketplace.
In response to the COVID-19 pandemic, government legislation and key authorities, we serve,implemented changes that we determined were in the best interest of our employees, as well as the communities in which we will achieve by developing newoperate. This included having the majority of our employees work from home for several months, while implementing additional safety measures for employees continuing critical on-site work. We continue to embrace a flexible working arrangement for a majority of our in-house employees, as well as a portion of our contingent workforce capabilitieswhere we continue to provide key services to customers remotely.
Professional Development and a committed, diverse world-class management team.Training
We believe a key factor in employee retention is training and professional development for our talent. We have training programs across all levels of the Company to meet the needs of various roles, specialized skill sets and departments across the Company. All field associates receive Volt’s General Safety Orientation prior to assignment and site-specific job task training from our clients. Volt offers the Federal Ten Hour and other specialty safety programs to key employees and clients as a value-add feature of our services. Volt is committed to the security and confidentiality of our employees’ personal information and employs software tools and periodic employee training programs to promote security and information protection at all levels. Additionally, in the second quarter of fiscal 2021, we invested in an online educational platform to upskill our field associates across North America. This platform provides significant benefit and support to our employees in furthering their education and achieving their personal and professional goals, while at the same time cultivating a better-skilled pool of talent for our clients.
We utilize certain employee turnover rates and productivity metrics in assessing our employee programs to ensure that they are structured to instill high levels of in-house employee tenure, low levels of voluntary turnover and the optimization of productivity and performance across our relationsentire workforce. Additionally, we have implemented a new performance evaluation program which adopts a modern approach to valuing and strengthening individual performance through on-going interactive progress assessments related to established goals and objectives.
Communication and Engagement
We strongly believe that Volt’s success depends on employees understanding how their work contributes to the Company’s overall strategy. To this end, we communicate with our workforce through a variety of channels and encourage open and direct communication, including: (i) quarterly company-wide CEO update calls; (ii) regular company-wide calls with executives; (iii) frequent email corporate communications; and (iv) employee engagement surveys.
Commitment to Values and Ethics through Governance
Along with our core values, we act in accordance with our Code of Business Conduct and Ethics (“Code of Conduct”), which sets forth expectations and guidance for employees to make appropriate decisions. Our Code of Conduct covers topics such as anti-corruption, discrimination, harassment, privacy, appropriate use of company assets, protecting confidential information, and reporting Code of Conduct violations. The Code of Conduct reflects our commitment to operating in a fair, honest, responsible and ethical manner and also provides direction for reporting complaints in the event of alleged violations of our policies (including through an anonymous hotline). Our executive officers and supervisors maintain “open door” policies and any form of retaliation is strictly prohibited. We take all reports of suspected violations and unethical behavior seriously and take appropriate actions to correct the situation.
Environmental
As a global provider of staffing services, Volt does not produce or manufacture any products or materials and therefore our environmental impact has been relatively small. Nevertheless, we understand that certain areas of our business and operations have an impact on the environment and we are satisfactory. While claimsdedicated to promoting internal sustainability initiatives and legalkeeping our ecological footprint to a minimum. In addition to certain on-going internal initiatives, including office waste reduction practices such as printing less and recycling furniture and electronics, we were able to take advantage of more impactful opportunities using actions relatedimplemented during the COVID-19 pandemic. During fiscal 2020, we were able to staffing matters arise onquickly shift to a routine basis,fully remote in-house workforce and in fiscal 2021, we believe they are inherentcontinued to have the majority of our in-house employees remote thereby reducing the environmental impact of commuting and office energy consumption. This work model has allowed us to further decrease our carbon footprint by exiting and consolidating certain offices. We have also been able to reduce certain business travel by using virtual and collaborative tools whenever possible, further limiting our ecological impact. Volt is committed to enhancing its environmental protection measures and continuing to promote an eco-friendly culture both internally and in maintaining a large contingent workforce.the communities it serves.
Regulation
Some states in the United States and certain foreign countries license and regulate contingent staffing service firms and employment agencies. Compliance with applicable present federal, state and local environmental laws and regulations has not had, and we believe that compliance with those laws and regulations in the future will not have, a material effect on our competitive position, financial condition, results of operations or cash flows.
Access to Our Information
We electronically file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports with the SEC. These and other SEC reports filed by us are available to the public free of charge at the SEC’s website at www.sec.gov and in the Investors section on our website at www.volt.com, as soon as reasonably practicable after filing with the SEC. You may read and copy any materials we file with the SEC at the SEC'sSEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549.
Copies of our Code of Conduct and Ethics and other significant corporate documents (our Corporate Governance Guidelines, Nominating/Corporate Governance Committee Charter, Audit Committee Charter, Human Resources and Compensation Committee Charter, Financial Code of Ethics, Whistleblower Policy, Foreign Corrupt Practices Act Policy, Equal Employment Opportunity Employer,Policy, Privacy Policy and Insider Trading Policy) are also available in the Corporate Governance section at our website. Copies are also available without charge upon request to Volt Information Sciences, Inc., 50 Charles Lindbergh Boulevard, Uniondale, NY 11553,2401 N. Glassell Street, Orange, CA 92865, Attention: Shareholder Relations, or by calling us at (424) 238-6249.714-921-8800.
ITEM 1A. RISK FACTORS
Risk Factors
We maintain a risk management program which incorporates assessments by our officers, senior management and board of directors, as periodically updated. The following risks have been identified. You should carefully consider these risks along with the other information contained in this report. The following risks could materially and adversely affect our business and, as a result, our financial condition, results of operations and the market price of our common stock. Other risks and uncertainties not known to us or that we currently do not recognize as material could also materially adversely affect our business and, as a result, our financial condition, results of operations cash flows, and the market price of our common stock.
The contingent staffing industry is very competitive with few significant barriers
Risks Related to entrythe Company’s Industry and Business Environment
Our business, results of operations and financial condition has been and may continue to be adversely impacted by global public health epidemics, including the strain of coronavirus known as COVID-19, and future adverse impacts could be material and difficult to predict
The marketsglobal spread of COVID-19, which was declared a global pandemic by the World Health Organization on March 11, 2020, has created significant volatility, uncertainty and global macroeconomic disruption due to related government actions, non-governmental agency recommendations and public perceptions and disruption in global economic and labor market conditions. These effects have had, and could in the future have, an adverse impact on our business, including reduced demand for Volt’s staffingour services, are highly competitive with few barriersworker absences, client shutdowns and reduced operations. Additionally, adverse changes in economic or operating conditions impacting our estimates and assumptions can result in the impairment of our goodwill or long-lived assets, including our lease right-of-use assets. In fiscal 2020, impairment charges were recorded on certain of our lease assets as a result of COVID-19 related actions. In fiscal 2021, we continued to entry. Our industry is large and fragmented, comprised of thousands of firms employing millions of people and generating billions of dollars in annual revenue. In most areas, no single company has a dominant shareexperience the negative impacts of the employment services market. SomeCOVID-19 crisis, particularly related to the impact of our competitors are larger than us,labor shortages and wage inflation, due in part to a certain portion of the workforce not returning to the labor market in many industries, as well as market concerns about the COVID-19 variants. In addition, the global pandemic has resulted in a significant number of new rules and regulations, the cost of compliance and monitoring of which may have substantial marketing and financial resources and may be better positioned in certain markets than we are. These companies may be better able than we are to attract and retain qualified personnel, to offer more favorable pricing and terms, or otherwise attract and retain the business that we seek. Any inability to compete effectively could adversely affecta continued impact on our business and financial results. Clientsexisting resources.
The future impact of the pandemic on global and local economies will continue to depend on future developments such as the emergence of future variant strains of COVID-19, the availability and distribution of effective medical treatments and vaccines, vaccination rates, as well as government-imposed restrictions or mandates. Further, any new or tightened government-imposed restrictions or mandates on the conduct of business, including vaccination mandates, could adversely impact our business, liquidity and results of operations.
Our results of operations and liquidity could be adversely impacted by economic conditions affecting our clients
Our business depends on the overall demand for labor and on the economic health of current and prospective clients. The spread of COVID-19 and resulting restrictions and labor shortages across the United States are having, and may also take advantagecontinue to have, a negative impact on the operating results of low-cost alternativesthe Company. As our clients respond to the effects of efforts to address the consequences of the pandemic, including usingthe measures taken at various levels of government to contain the virus’ spread, we expect that our ability to add new customers, as well as to grow revenues from existing customers, will be adversely affected due to economic slowdown, business closures, labor shortages and reductions in hours worked.
Any significant weakening of the economy including the worsening of the ongoing labor shortage and rise in inflation, as well as the ongoing uncertainty related to the pandemic, may adversely impact our business. These conditions may impact our ability to meet the increasing demand for our services across certain markets. Additionally, in response to the pandemic and further heightened by the current labor shortages, many businesses are looking at how to accelerate deployment of new technologies in their own in-house resources rather than engaging a third party.operations to minimize costs, improve productivity and reduce dependency on human capital, which may reduce demand for our services and impact our operations. Across many industries we serve, labor costs have risen dramatically in recent months, which could result in compression on our operating margins in situations in which we are not able to pass those costs on to our customers.
Our working capital is primarily in the form of trade receivables which generally increase as sales increase. Our working capital requirements are primarily generated from employee payroll which is paid weekly and customer accounts receivable which is generally outstanding for longer periods. Since receipts from customers lag payroll payments to temporary employees, working capital requirements increase and operating cash flows decrease substantially in periods of growth. During periods of economic decline or uncertainty, our clients may slow the rate at which they pay their vendors, or they may become unable to pay their obligations. In addition, some clients have begun to impose more challenging billing terms, which increases the length of time
before we receive payment for services provided. If our staffing services customers, generally larger companies, are mandatedclients become unable to pay amounts owed to us or otherwise motivated to utilizepay us more slowly, our cash flow, liquidity, and profitability may be impacted. Conversely, when economic activity slows, working capital requirements may substantially decrease and operating cash flows increase. Such increases dissipate over time if the services of small or minority-owned companies rather than large corporations. There can be no assurance that we will be able to continue to compete effectively in our business segments.economic downturn continues for an extended period.
Our business is adversely affected by weak economicdepends on uninterrupted service to clients
Our operations depend on our ability to protect our facilities, computer and telecommunication equipment, and software systems against damage or interruption from fire, power loss, natural disasters, weather conditions, telecommunications interruption and other business conditions
During periodssimilar events. Additionally, the occurrence of elevated unemployment levels, demand for contingentany such events may cause our employees to miss work and permanent personnel decreases, which adversely impactsinterrupt delivery of our staffing services. During slower economic activity, many companies tend to reduce their useservice, potentially resulting in a loss of contingent workersrevenue. While we have enhanced controls and reduce their recruitmentrecovery plans in place, we have a high concentration of new employees. Decreased demand and higher unemployment levels resultoperations in lower levels of pay rate increases and increased pressurehigh-risk geographies, such events could have a materially adverse effect on our markupbusiness, financial condition and results of staffing service rates, direct marginsoperations, if recovery plans are unsuccessful.
Risks Related to the Company’s Capital Structure and higher unemployment insurance costs.Finances
Our credit facility contains financial covenants that may limit our ability to take certain actions
We remain dependent upon our financing agreement which includes certain financial covenants. These covenants could constrain the execution of our business strategy and growth plans. Our ability to continue to meet these financial covenants is not assured. If we default under any of these requirements, our lenders could restrict our ability to access funds in our customer collections account, declare all outstanding borrowings, accrued interest and fees due and payable, or significantly increase the cost of the facility. Under such circumstances, there could be no assurance that we would have sufficient liquidity to repay or refinance the indebtedness at favorable rates or at all. If we are forced to refinance these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected by increased costs and rates. As of October 28, 2018,31, 2021, we were in compliance with all covenant requirements.
The inabilityTurmoil in the financial markets could limit our ability to renew ourfully utilize available credit, facilitywhich could negatively affect our operations and limit our liquidity
We rely on financing for future working capital, capital expenditures and other corporate purposes. The structure of our financing requires us to renew our arrangements periodically. There can be no assurance that refinancing will be available to us or that we will be able to negotiate replacement financing at reasonable costs or on reasonable terms. The volatilityTurmoil in credit and capitalfinancial markets may create additional risks to our business in the future. Turmoilfuture which may limit our ability to fully utilize available credit provided by our financing program. Volatility in the credit markets or a contraction in the availability of credit or higher borrowing costs due to increasing interest rates may make it more difficult for us to meet our working capital requirements and could have a material adverse effect on our business, results of operations and financial position.
We may not be able to execute successfully on our business strategies or achieve the intended results
Our business strategy focuses on growing revenues and driving growth in higher margin services. We have made targeted investments, adjusted our operating models and increased the resources necessary for driving sustainable growth within our targeted higher-margin service offerings. If we are unsuccessful in executing on our business strategies, we may not achieve either our stated goal of revenue growth or the intended productivity improvements, which could negatively impact profitability and liquidity and require us to alter our strategy.
We could incur liabilities or our reputation could be damaged from a cyber-attack or improper disclosure or loss of sensitive or confidential company, employee, associate, candidate or client data, including personal data.
Our business involves the use, storage and transfer of certain information about our full-time and contingent employees, customers and other individuals. We rely upon multiple information technology systems and networks, some of which are web-based or managed by third parties, to process, transmit and store electronic information and to manage or support a variety of critical business processes and activities. This information contains sensitive or confidential employee and customer data, including personally identifiable information. The secure and consistent operation of these systems, networks and processes is critical to our business operations. Our systems and networks have been, and will continue to be, the target of cyber-attacks, computer viruses, worms, phishing attacks, malicious software programs, and other cyber-security incidents that could result in the unauthorized release, gathering, monitoring, use, loss or destruction of our customers’ or employees’ sensitive and personal data. Successful cyber-attacks or other data breaches, as well as risks associated with compliance with applicable data privacy laws, could harm our reputation, divert management attention and resources, increase our operating expenses due to the employment of consultants and third party experts and the purchase of additional infrastructure, and/or subject us to legal liability, resulting in increased costs and loss of revenue.
While we proactively safeguard our data and have enhanced security software and controls, it is possible that our security controls over sensitive or confidential data and other practices we and our third-party service providers follow may not prevent improper access to, or disclosure of, such information. Any such disclosure or security breach could subject us to significant monetary damages or losses, litigation, regulatory enforcement actions or fines. In addition, our liability insurance might not be sufficient in scope or amount to cover us against claims related to security breaches, social engineering, cyber-attacks and other related data disclosure, loss or breach.
As cyber-attacks increase in frequency and sophistication, our cyber-security and business continuity plans may not be effective in anticipating, preventing and effectively responding to all potential cyber-risk exposures. Further, data privacy is subject to frequently changing rules and regulations, which are not uniform and may possibly conflict in jurisdictions and countries where we provide services. Our failure to adhere to or successfully implement processes in response to changing regulatory requirements in this area could result in legal liability or impairment to our reputation in the marketplace.
Additionally, our employees and certain of our third-party service providers may have access or exposure to sensitive customer data and systems. The misuse or unauthorized disclosure of information could result in contractual and legal liability for us due to the actions or inactions of our employees or vendors.
We are subject to employment–related claims, commercial indemnification claims and other claims and losses that could have a material adverse effect on our business
Our staffing services business employs or engages individuals on a contingent basis and places them in a customer’s workplace. Our ability to control the customer’s workplace is limited, and we risk incurring liability to our employees for injury (which can result in increased workers’ compensation costs) or other harm that they suffer in the scope of employment at the customer’s workplace or while under the customer’s control.
Additionally, we risk liability to our customers for the actions or inactions of our employees, including those individuals employed on a contingent basis that may cause harm to our customers or other employees. Such actions may be the result of errors and omissions in the application of laws, rules, policies and procedures, discrimination, retaliation, negligence or misconduct on the part of our employees, damage to customer facilities or property due to negligence, criminal activity and other similar claims. In some cases, we must indemnify our customers for certain acts of our employees, and certain customers have negotiated broad indemnification provisions. We may also incur fines, penalties and losses that are not covered by insurance or negative publicity with respect to these matters. There can be no assurance that the policies and procedures we have in place will be effective or that we will not experience losses due to such risks. In addition, we may face claims related to violations of wage and hour regulations, Fair Credit Reporting Act violations, discrimination, harassment, negligence or misconduct by our employees, and claims relating to the misclassification of independent contractors, among other types of claims.
Costs related to litigation, legal proceedings and investigations could adversely impact our financial condition
We may be involved in pending and threatened legal proceedings brought by third parties and investigations by government and regulatory agencies from time to time, the outcomes of which are inherently uncertain and difficult to predict. It is uncertain at what point any such matters may materially affect us, and there can be no assurance that our financial resources or insurance policies are sufficient to cover the cost of any or all of such claims. Therefore, there can be no assurance that such matters would not have an adverse effect on our financial condition, results of operations or cash flows.
The loss of major customers could adversely impact our business
We experience revenue concentration with large customers within certain operating segments. Although we have no customer that represents over 10% of our consolidated revenue, there are customers that exceed 10% of revenues within both the International Staffing and North American MSP segments. The deterioration of the financial condition or significant change to the business or staffing model of these customers or multiple customers in a similar industry, or similar customers that are interdependent could have a material adverse effect on our business, financial condition and results of operations.
Additionally, any reductions, delays or cancellation of contracts with any of our key customers, or the loss of one or more key customers, could materially reduce our revenue and operating income. There can be no assurance that our current customers will continue to do business with us or that contracts with existing customers will continue at current or historical levels.
Failure to maintain adequate financial and management processes and internal controls could lead to errors in our financial reporting
The accuracy of our financial reporting is dependent on the effectiveness of our internal controls. We are required to provide a report from management to our shareholders on our internal control over financial reporting that includes an assessment of the effectiveness of these controls. Internal control over financial reporting has inherent limitations, including human error, the possibility that controls could be circumvented or become inadequate because of changed conditions, and fraud. Because of these inherent limitations, internal control over financial reporting might not prevent or detect all misstatements or fraud. If we cannot maintain and execute adequate internal control over financial reporting or implement required new or improved controls that provide reasonable assurance of the reliability of the financial reporting and preparation of our financial statements for external use, we could suffer harm to our reputation, fail to meet our public reporting requirements in a timely fashion, be unable to properly report on our business and our results of operations, or be required to restate our financial statements. These circumstances could lead to a significant decrease in the trading price of our shares, or the delisting of our shares from the NYSE AMERICAN, which would harm our shareholders.
New or increased government regulation, employment costs or taxes could have a material adverse effect on our business, especially for our contingent staffing business
Certain of our businesses are subject to licensing and regulation in some states and most foreign jurisdictions. There can be no assurance that we will be able to continue to comply with these requirements, or that the cost of compliance will not become material. Additionally, the jurisdictions in which we do or intend to do business may:
create new or additional regulations that mandate additional requirements or prohibit or restrict the types of services that we currently provide;
change regulations in ways that cause short-term disruption or impose costs to comply;
impose new or additional employment costs that we may not be able to pass on to customers or that could cause customers to reduce their use of our services;
require us to obtain additional licenses; or
increase taxes (especially payroll and other employment-related taxes) or enact new or different taxes payable by the providers or users of services such as those offered by us, thereby increasing our costs, some of which we may not be able to pass on to customers or that could cause customers to reduce their use of our services especially in our staffing services, which could adversely impact our results of operations or cash flows.
In some of our foreign markets, new and proposed regulatory activity may impose additional requirements and costs, which could have an adverse effect on our contingent staffing business.
Our operational results could be negatively impacted by currency fluctuations and other global business risks
Our global operations subject us to risks relating to our international business activities, including global economic conditions, fluctuations in currency exchange rates and numerous legal and regulatory requirements placed upon the Company’s international clients.
Variation in the economic condition or unemployment levels in any of the foreign countries in which the Company does business may severely reduce the demand for the Company’s services.
Our business is exposed to fluctuation in exchange rates. Our operations outside the United States are reported in the applicable local currencies and then translated into U.S. dollars at the applicable currency exchange rates for inclusion in our Consolidated Financial Statements. Exchange rates for currencies of these countries may fluctuate in relation to the U.S. dollar and these fluctuations may have an adverse or favorable effect on our operating results when translating foreign currencies into U.S. dollars.
In addition, the Company faces risks in complying with various foreign laws and technical standards and unpredictable changes in foreign regulations, including U.S. legal requirements governing U.S. companies operating in foreign countries, legal and cultural differences in the conduct of business, potential adverse tax consequences, difficulty in staffing and managing international operations.
The United Kingdom’s (“U.K.”) referendum to exit from the European Union (“E.U.”) will continue to have uncertain effects and could adversely impact our business, results of operations and financial condition
On June 23, 2016, the U.K. voted to exit from the E.U. (commonly referred to as “Brexit”). The terms of Brexit and the resulting U.K./E.U. relationship are uncertain for companies doing business both in the U.K. and the overall global economy. The U.K. vote has impacted global markets, including various currencies, and resulted in a sharp decline in the value of the British Pound as compared to the U.S. dollar and other major currencies. The fluctuation of currency exchange rates may expose us to gains and losses on non-U.S. currency transactions. Volatility in the securities markets and in currency exchange rates may continue as the U.K. negotiates its exit from the E.U. While we have not experienced any material financial impact from Brexit on our business to date, we cannot predict its future implications. Any impact from Brexit on our business and operations over the long term will depend, in part, on the outcome of tariff, tax treaties, trade, regulatory, and other negotiations the U.K. conducts.
Fluctuations in interest rates and turmoil in the financial markets could increase our cost of borrowing and impede access to or increase the cost of financing our operations
While we have access to global credit markets, credit markets may experience significant disruption or deterioration, which could make future financing difficult or more expensive to secure. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board, which recently increased rates and may continue to do so. Increases in interest rates would increase our borrowing costs over time and could negatively impact our results of operations.
If a financial institution that is party to our credit facility were to declare bankruptcy or become insolvent, they may be unable to perform under their agreement with us. This could leave us with reduced borrowing capacity, which could have an adverse impact on our business, financial condition and results of operations.
Many of our contracts provide no minimum purchase requirements, are cancellable during the term, or both
In our staffing services business, most of our contracts, even those with multi-year terms, provide no assurance of any minimum amount of revenue, and under many of these contracts we still must compete for each individual placement or project. In addition, many of our contracts contain cancellation provisions under which the customer can cancel the contract at any time or on relatively short notice, even if we are not in default under the contract. Therefore, these contracts do not provide the assurances that typical long-term contracts often provide and are inherently uncertain with respect to the amount of revenue and earnings we may recognize.
Our results of operations and ability to grow may be negatively affected if we are not able to keep pace with rapid changes in technology
The Company’s success depends on our ability to keep pace with rapid technological changes in the development and implementation of our services and solutions. We must innovate and evolve our services and products to satisfy customer requirements, attract talent and remain competitive. There can be no assurance that in the future we will be able to foresee changes needed to identify, develop and commercialize innovative and competitive services and products in a timely and cost-effective manner to achieve customer acceptance in markets characterized by rapidly changing technology and frequent new product and service introductions.
We rely extensively on our information technology systems which are vulnerable to damage and interruption
We rely on information technology networks and systems, including the Internet and cloud services, to process, transmit and store electronic and financial information, manage a variety of business processes and activities, and comply with regulatory, legal and tax requirements. We depend on our information technology infrastructure for digital marketing activities, collection and retention of customer data, employee information and for electronic communications among our locations, personnel, customers and suppliers around the world. While we take various precautions and have enhanced controls around our systems, our information technology systems may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors or catastrophic events. Our sales, financial condition and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial
results, if our information technology systems suffer severe damage, disruption or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner.
We are dependent upon the quality of our personnel
Our operations are dependent upon our ability to attract and retain skilled personnel, for temporary assignments and projects, as well as internally, including in the areas of maintenance and protection of our systems. The availability of such skilled personnel is dependent upon a number of economic and demographic conditions. We may, in the future, find it difficult or costlier to hire such personnel in the face of competition from our competitors.
In addition, variations in the unemployment rate and higher wages sought by contingent workers in certain technical fields that continue to experience labor shortages could affect our ability to meet our customers’ demands in these fields and adversely affect our results of operations.
Our operations are also dependent on the continued efforts of our senior management and the performance and productivity of our managers and in-house field personnel. Our ability to attract and retain business is significantly affected by the quality of services rendered. The loss of high quality personnel and members of management with significant experience in our industry without replacement by personnel with similar quality and experience may cause a significant disruption to our business. Moreover, the loss of key managers and field personnel could jeopardize existing customer relationships which may be based upon long-standing relationships with those managers and field personnel.
Our ability to retain acceptable insurance coverage limits at commercially reasonable cost and terms may adversely impact our financial results
We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future, that adequate replacement policies will be available on acceptable terms, if at all, and at commercially reasonable cost, or that the companies from which we have obtained insurance will be able to pay claims we make under such policies. Our coverage under certain insurance policies is limited and the losses that we may face may not be covered, may be subject to high deductibles or may exceed the limits purchased.
Some customers require extensive insurance coverage and request insurance endorsements that are not available under standard monoline policies. There can be no assurance that we will be able to negotiate acceptable compromises with customers or negotiate appropriate changes in our insurance contracts. This may adversely affect our ability to take on new customers or accepted changes in insurance terms with existing customers.
Risks Related to the Company’s Operations
The loss of major customers could adversely impact our business
We experience revenue concentration with large customers within certain operating segments, as well as concentrations of interrelated customers. Although we have no customer that represents over 10% of our consolidated revenues, there are customers that exceed 10% of revenues within both the International Staffing and North American MSP segments. The deterioration of the financial condition or significant change to the business or staffing model of these customers or multiple customers in a similar industry, or similar customers that are interdependent could have a material adverse effect on our business, financial condition and results of operations.
Our results of operations and ability to grow may be negatively affected if we are not able to keep pace with rapid changes in technology
The Company’s success depends on our ability to keep pace with rapid technological changes in the development, implementation and operation of our services and solutions. The increased use of mobile technology is attracting additional technology-oriented companies and resources to our industry. Our clients and candidates increasingly demand technological innovation to improve the entire cycle of our services so we must continue to invest in new technology in order to meet these needs and remain competitive in the industry. Acquiring and implementing new technology for our business may require us to incur significant expenses and capital costs and if we do not sufficiently invest in and implement new technology, or evolve our business at sufficient speed and scale, our business results may decline materially.
Unexpected changes in workers'workers’ compensation and other insurance plans may negatively impact our financial condition
We purchase workers’ compensation insurance through mandated participation in certain state funds and the experience-rated premiums in these state plans relieve the Company 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. We are financially responsible for losses below the specified deductible limits.
The Company is self-insured for a portion of its medical benefit programs. The liability for the self-insured medical benefits is limited on a per-claimant basis through the purchase of stop-loss insurance. The Company’s retained liability for the self-insured medical benefits is determined by utilizing actuarial estimates of expected claims based on statistical analysis of historical data.
Unexpected changes related to our workers’ compensation, medical and disability benefit plans may negatively impact our financial condition. Changes in the severity and frequency of claims, state laws regarding benefit levels and allowable claims, actuarial estimates, or medical cost inflation could result in costs that are significantly higher. If future claims-related liabilities increase beyond our expectations, or if we must make unfavorable adjustments to accruals for prior accident years, our costs could increase significantly. There can be no assurance that we will be able to increase the fees charged to our customers in a timely manner and in a sufficient amount to cover the increased costs that result from any changes in claims-related liabilities.
DeclineMany of our contracts provide no minimum purchase requirements, are cancellable during the term, or both
In our staffing services business, most of our contracts, even those with multi-year terms, provide no assurance of any minimum amount of revenue and under many of these contracts we still must compete for each individual placement or project. In addition, many of our contracts contain cancellation provisions under which the customer can cancel the contract at any time or on relatively short notice, even if we are not in default under the contract. Therefore, these contracts do not provide the assurances that typical long-term contracts often provide and are inherently uncertain with respect to the amount of revenues and earnings we may realize.
Risks Related to the Company’s Information Technology, Cybersecurity and Data Protection
We could incur liabilities, or our operating resultsreputation could leadbe damaged, from a cyber-attack or improper disclosure or loss of sensitive or confidential company, employee, associate, candidate or client data, including personal data
Our business involves the use, storage and transfer of certain information about our full-time and contingent employees, customers and other individuals. We rely upon multiple information technology systems and networks, some of which are web-based or managed by third parties, to impairment charges relatingprocess, transmit and store electronic information and to manage or support a variety of critical business processes and activities. This information contains sensitive or confidential employee and customer data, including personally identifiable information. The secure and consistent operation of these systems, networks and processes is critical to our goodwillbusiness operations. Our systems and long-lived assets
We regularly monitor our International Staffing goodwill as well as company-wide long-lived assets for impairment indicators. Changes in economic or operating conditions impacting our estimatesnetworks have been, and assumptionswill continue to be, the target of cyber-attacks, computer viruses, worms, phishing attacks, ransomware, malicious software programs and other cyber-security incidents that could result in the impairmentunauthorized release, gathering, monitoring, use, loss or destruction of our goodwillcustomers’ or long-lived assets. Inemployees’ sensitive and personal data. Successful cyber-attacks or other data breaches, as well as risks associated with compliance with applicable data privacy laws, could harm our reputation, divert management attention and resources, increase our operating expenses due to the event thatemployment of consultants and third-party experts and the purchase of additional infrastructure and/or subject us to legal liability, resulting in increased costs and loss of revenues.
While we determineproactively safeguard our data and have enhanced security software and controls, it is possible that our goodwillsecurity controls over sensitive or long-lived assetsconfidential data and other practices we and our third-party service providers follow may not prevent improper access to, or disclosure of, such information. Any such disclosure or security breach could subject us to significant monetary damages or losses, litigation, regulatory enforcement actions or fines. In addition, our liability insurance might not be sufficient in scope or amount to cover us against claims related to security breaches, social engineering, cyber-attacks and other related data disclosure, loss or breach.
As cyber-attacks increase in frequency and sophistication, our cyber-security and business continuity plans may not be effective in anticipating, preventing and effectively responding to all potential cyber-risk exposures. Further, data privacy is subject to frequently changing rules and regulations, which are impaired,not uniform and may possibly conflict in jurisdictions and countries where we provide services. Our failure to adhere to or successfully implement processes in response to changing regulatory requirements in this area could result in legal liability or impairment to our reputation in the marketplace.
Additionally, our employees and certain of our third-party service providers may have access or exposure to sensitive customer data and systems. The misuse or unauthorized disclosure of information could result in contractual and legal liability for us due to the actions or inactions of our employees or vendors.
We rely extensively on our information technology systems which are vulnerable to damage and interruption
We rely on information technology networks and systems, including the Internet and cloud services, to process, transmit and store electronic and financial information, manage a variety of business processes and activities and comply with regulatory, legal and tax requirements. We depend on our information technology infrastructure for digital marketing activities, collection and retention of customer data, employee information and for electronic communications among our locations, personnel, customers and suppliers around the world. While we take various precautions and have enhanced controls around our systems, our information technology systems may be requiredsusceptible to record a significant non-cash chargedamage, disruptions or shutdowns due to earnings that could adversely affect ourfailures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors or catastrophic events. Our sales, financial condition and results of operations.operations may be materially and adversely affected and we could experience delays in reporting our financial results, if our information technology systems suffer severe damage, disruption or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner.
Risks Related to Our Common Stock
Our stock price could be volatilehas experienced volatility and, as a result, investors may not be able to resell their shares at or above the price they paid for them
Our stock price has in the past, and could in the future,may fluctuate as a result of a variety of factors, including:
•our failure to meet the expectations of the investment community or our estimates of our future results of operations;
•industry trends and the business success of our customers;
•loss of one or more key customers;
•strategic moves by our competitors, such as product or service announcements or acquisitions;
•regulatory developments;
litigation;•rising labor costs that affect our operating margins;
•litigation;
•general economic conditions;
•other domestic and international macroeconomic factors unrelated to our performance; and
•any of the other previously noted risk factors.
The stock market has experienced and is likely to experience in the future, experience, volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations, as well as our relatively low daily trading volume, may also adversely affect the market price of our common stock.
Certain shareholders, whose interests may differ from those of other shareholders, own a significant percentage of our common stock and aremay be able to exercise significant influence over Volt
Ownership of a significant amount of our outstanding common stock is concentrated among certain substantial shareholders, including related family members and certain funds. Although there can be no assurance as to how these shareholders will vote, if they were to vote in the same manner, certain combinations of these shareholderssuch persons might be able to control or materially influence the
outcome of advisory votes or matters requiring shareholder approval and could have significant influence over our affairs.approval. The interests or motivations of our substantialsuch individual shareholders may not align with those of our other shareholders.
Furthermore, the provisions of the New York Business Corporation Law, to which we are subject, require the affirmative vote of the holders of two-thirds of all of our outstanding shares entitled to vote to adopt a plan of merger or consolidation between us and another entity and to approve any sale, lease, exchange or other disposition of all or substantially all of our assets not made in our usual and regular course of business. Accordingly, our substantial shareholders acting together, could prevent the approval of such transactions even if such transactions are in the best interests of our other shareholders.
generally.
Our business could be negatively affected as a result of a potential proxy contest for the election of directors at our annual meeting or other shareholder activism
A proxy contest would require us to incur significant legal fees and proxy solicitation expenses and require significant time and attention by management and the Board of Directors. The potential of a proxy contest or other shareholder activism could interfere with our ability to execute our strategic plan, give rise to perceived uncertainties as to our future direction, adversely affect our relationships with key business partners, result in the loss of potential business opportunities or make it more difficult to attract and retain qualified personnel, any of which could materially and adversely affect our business and operating results.
The market price of our common stock could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties related to stockholder activism.
New York State law, and our Articles of Incorporation and By-laws contain provisions that could make corporate ownership changes at Volt more difficult
Certain provisions of New York State law and our articles of incorporation and by-laws could have the effect of delaying or preventing a third party from acquiring Volt, even if a change in control would be beneficial to our shareholders.
The provisions of the New York Business Corporation Law, to which we are subject, require the affirmative vote of the holders of two-thirds of all of our outstanding shares entitled to vote to adopt a plan of merger or consolidation between us and another entity or to approve any sale, lease, exchange or other disposition of all or substantially all of our assets not made in the ordinary course of business. Accordingly, our substantial shareholders, if they were to act together, could prevent approval of such transactions even if such transactions are in the best interest of our other shareholders.
In addition, provisions of our articles of incorporation and by-laws include:provide:
requiring•an advance notice requirement for shareholder proposals and director nominees;
permitting•that removal of directors shall only be for cause; and
providing •that vacancies on the Board of Directors will be filled for the unexpired term by a majority vote of the remaining directors then in office.
The contingent staffing industry is very competitive with few significant barriers to entry
The markets for Volt’s staffing services are highly competitive with few barriers to entry. Our industry is large and fragmented, comprised of thousands of firms employing millions of people and generating billions of dollars in annual revenue. In most areas, no single company has a dominant share of the employment services market. Some of our competitors are larger than us, have substantial marketing and financial resources and may be better positioned in certain markets than we are. These companies may be better able than we are to attract and retain qualified personnel, to offer more favorable pricing and terms, or otherwise attract and retain the business that we seek. Any inability to compete effectively could adversely affect our business and financial results. Clients may also take advantage of low-cost alternatives including using their own in-house resources rather than engaging a third party. In addition, some of our staffing services customers, generally larger companies, are mandated or otherwise motivated to utilize the services of small or minority-owned companies rather than large corporations. There can be no assurance that we will be able to continue to compete effectively in our business segments.
We are dependent upon the quality of our human capital
Our operations are dependent upon our ability to attract and retain personnel, for temporary assignments and projects, as well as internally, including in the areas of maintenance and protection of our systems. The availability of such personnel is dependent upon a number of economic and demographic conditions. Our ability to fulfill customer requirements may be impeded by a scarcity of talent in the current labor markets and rising labor costs as well as by the potential impact of future vaccine mandates. As a result, we may find it difficult or costlier to hire such personnel in the face of competition from our competitors, which could directly impact our gross margins and overall results of operations.
We are subject to employment–related claims and losses, including class action lawsuits, which could have a material adverse effect on our business
Our staffing services business employs or engages individuals on a contingent basis and places them in a customer’s workplace. Our ability to control the customer’s workplace is limited and we risk incurring liability to our employees for injury (which can result in increased workers’ compensation costs) or other harm that they suffer in the scope of employment at the customer’s workplace or while under the customer’s control.
Additionally, we risk liability to our customers for the actions or inactions of our employees, including those individuals employed on a contingent basis that may cause harm to our customers or other employees. Such actions may be the result of errors and omissions in the application of laws, rules, policies and procedures, discrimination, retaliation, negligence or misconduct on the part of our employees, damage to customer facilities or property due to negligence, criminal activity and other similar claims. In addition, we may face claims related to violations of wage and hour regulations, Fair Credit Reporting Act violations and claims relating to the misclassification of independent contractors, among other types of claims. In some cases, we must indemnify our customers for certain acts of our employees and certain customers have negotiated broad indemnification provisions. We may also incur fines, penalties and losses that are not covered by insurance or negative publicity with respect to these matters. We have increased potential exposure to employment-related claims and litigation based on our concentration of business in higher regulation geographies. We maintain policies, procedures and guidelines to promote compliance with laws, rules, regulations and best practices applicable to our business, but there can be no assurances that these policies, procedures and guidelines will be effective or that we will not experience losses due to such risks.
Our operational results could be negatively impacted by currency fluctuations and other global business risks and regulations
Our global operations subject us to risks relating to our international business activities, including global economic conditions, fluctuations in currency exchange rates and numerous legal and regulatory requirements placed upon the Company’s international clients.
Variation in the economic condition or unemployment levels in any of the foreign countries in which the Company does business may severely reduce the demand for the Company’s services.
Our business is exposed to fluctuations in exchange rates. Our operations outside the United States are reported in the applicable local currencies and then translated into U.S. dollars at the applicable currency exchange rates for inclusion in our Consolidated Financial Statements. Exchange rates for currencies of these countries may fluctuate in relation to the U.S. dollar and these fluctuations may have an adverse or favorable effect on our operating results when translating foreign currencies into U.S. dollars.
In addition, the Company faces risks in complying with various foreign laws and technical standards and unpredictable changes in foreign regulations, including U.S. legal requirements governing U.S. companies operating in foreign countries, legal and cultural differences in the conduct of business, potential adverse tax consequences, difficulty in staffing and managing international operations.
We are additionally subject to numerous legal and regulatory requirements that prohibit bribery and corrupt acts. These include the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010, as well as similar legislation in many of the countries and territories in which we operate. While we have training programs and appropriate internal controls in place, there can be no assurances that these will be effective to prevent and detect all potential business practices that are prohibited by our policies and these laws and regulations.
The United Kingdom’s (“U.K.”) referendum to exit from the European Union (“E.U.”) may continue to have uncertain effects and could adversely impact our business, results of operations and financial condition
As a result of a referendum in June 2016, the U.K. withdrew from the E.U. (“Brexit”) on January 31, 2020. It began a transition period in which to negotiate a new trading relationship for goods and services that ended on December 31, 2020. During the time since the June 2016 referendum, there have been periods of significant volatility in the global stock markets and currency exchange rates, as well as challenging market conditions in the U.K. On December 24, 2020, the U.K. and E.U. announced they had entered into a post-Brexit deal on certain aspects of trade and other strategic and political issues. Although we have not experienced any material disruptions in our business as a result of Brexit to date, the ultimate effects are still difficult to predict and adverse consequences concerning Brexit or the E.U. could include a decline in global economic conditions, instability in
global financial markets, political uncertainty and volatility in currency exchange rates, among others, any of which could have an adverse impact on our business operations and financial results.
New or increased government regulation, employment costs or taxes could have a material adverse effect on our business, especially for our contingent staffing business
Certain of our businesses are subject to licensing and regulation in some states and most foreign jurisdictions. There can be no assurance that we will be able to continue to comply with these requirements, or that the cost of compliance will not become material. Additionally, the jurisdictions in which we do or intend to do business may:
•create new or additional regulations that mandate additional requirements or prohibit or restrict the types of services that we currently provide;
•change regulations in ways that cause short-term disruption or impose costs to comply;
•impose new or additional employment costs that we may not be able to pass on to customers or that could cause customers to reduce their use of our services;
•require us to obtain additional licenses; or
•increase taxes (especially payroll and other employment-related taxes) or enact new or different taxes payable by the providers or users of services such as those offered by us, thereby increasing our costs, some of which we may not be able to pass on to customers or that could cause customers to reduce their use of our services especially in our staffing services, which could adversely impact our results of operations or cash flows.
From time to time, the staffing industry has come under criticism from unions, works councils, regulatory agencies and other constituents that maintain that labor and employment protections, such as wage and benefits regulations, are subverted when customers use contingent staffing services. Our business is dependent on the continued acceptance of contingent staffing arrangements as a source of flexible labor for our customers. If attitudes or business practices in some locations change due to pressure from organized labor, political groups or regulatory agencies, it could have a material adverse effect on our business, results of operations and financial condition. In some of our foreign markets, new and proposed regulatory activity may impose additional requirements and costs, which could have an adverse effect on our contingent staffing business.
Failure to maintain adequate financial and management processes and internal controls could lead to errors in our financial reporting
The accuracy of our financial reporting is dependent on the effectiveness of our internal controls. We are required to provide a report from management to our shareholders on our internal control over financial reporting that includes an assessment of the effectiveness of these controls. Internal control over financial reporting has inherent limitations, including human error, the possibility that controls could be circumvented or become inadequate because of changed conditions, resource challenges and fraud. Due to these inherent limitations, internal control over financial reporting might not prevent or detect all misstatements or fraud. If we cannot maintain and execute adequate internal control over financial reporting or implement required new or improved controls that provide reasonable assurance of the reliability of the financial reporting and preparation of our financial statements for external use, we could suffer harm to our reputation, fail to meet our public reporting requirements in a timely fashion, be unable to properly report on our business and our results of operations, or be required to restate our financial statements. These circumstances could lead to a significant decrease in the trading price of our shares, or the delisting of our shares from the NYSE AMERICAN, which would harm our shareholders.
| |
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters is located in approximately 11,000200,000 square feet located at 50 Charles Lindbergh Boulevard, Uniondale, New York 11553. A summary2401 N. Glassell Street, Orange, California 92865. We currently operate out of approximately 50,000 square feet of that space after our principal ownedreal estate rationalization initiatives. Operations from this location are primarily corporate functions, as well as our North American Staffing and leased properties (those exceeding 20,000 square feet) that are currentlyNorth American MSP segments. The lease on this facility expires in use is set forth below:
|
| | | | | | | | |
| Location | | Business Segment/Category | | Own/Lease | | Lease Expiration | | Approximate Square Feet |
| Orange County, California | | North American Staffing North American MSP Corporate & Other | | Lease | | 2031 | | 200,000 |
| San Antonio, Texas | | Corporate & Other | | Lease | | 2019 | | 71,000 |
We lease space in approximately 8565 other facilities, excluding month-to-month leases, each of which consists of less than 20,000 square feet. The Company'sCompany’s leases expire at various times from 20192022 until 2031.
At times, we leasehave leased space to others in the buildings that we occupy if we do notno longer require the space for our own business.business and sublease to others when favorable business terms can be achieved based on the specific attributes of each lease. We believe that our facilities are adequate for our presently anticipated uses and we are not dependent upon any individual leased premises. During the third quarter of fiscal 2018, the Company entered into a sub-lease agreement for its former corporate headquarters, located at 1133 Avenue of the Americas, New York, NY, in its entirety over the remaining lease term.
For additional information pertaining to lease commitments, see our Note 17(a) on Commitments and Contingencies2 Leases in our Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is subject to claims in legal proceedings arising in the ordinary course of its business, including payroll-related and various employment-related matters. All litigation currently pending against the Company relates to matters that have arisen in the ordinary course of business and the Company believes that such matters will not have a material adverse effect on its consolidated financial condition, results of operations or cash flows.
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ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
| |
ITEM 5.
| MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Common Stock
As the Company is a “smaller reporting company,” for the annual period ending October 28, 2018,31, 2021, it is not required to provide the performance graph under Item 201(e) of Regulation S-K.
Our common stock is traded on the NYSE AMERICAN under the symbol “VISI”“VOLT”. The following table sets forth, for the periods indicated, the high and low sales prices or the high and low bid quotations for our common stock for the fiscal years ended October 28, 201831, 2021 and October 29, 2017.November 1, 2020. The over-the-counter market bid quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
|
| | | | | | | | | | | | | | | | | |
| Fiscal Period | | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| 2018 | High | | $ | 4.70 |
| | $ | 4.45 |
| | $ | 4.00 |
| | $ | 3.85 |
|
| | Low | | $ | 3.60 |
| | $ | 2.60 |
| | $ | 2.65 |
| | $ | 2.70 |
|
| 2017 | High | | $ | 8.45 |
| | $ | 8.65 |
| | $ | 6.35 |
| | $ | 4.10 |
|
| | Low | | $ | 5.70 |
| | $ | 5.75 |
| | $ | 3.65 |
| | $ | 2.20 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Period | | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| 2021 | High | | $ | 3.28 | | | $ | 4.50 | | | $ | 5.37 | | | $ | 5.46 | |
| Low | | $ | 1.30 | | | $ | 2.67 | | | $ | 3.60 | | | $ | 3.28 | |
| 2020 | High | | $ | 3.10 | | | $ | 2.51 | | | $ | 1.71 | | | $ | 1.74 | |
| Low | | $ | 2.28 | | | $ | 0.68 | | | $ | 0.70 | | | $ | 1.12 | |
On January 4, 2019,7, 2022, there were 241218 holders of record of our common stock, exclusive of shareholders whose shares were held by brokerage firms, depositories and other institutional firms in “street name” for their customers.
Dividends
Cash dividends have not been declared or paid for the two years ended October 28, 201831, 2021 and through the date of this report.
Issuer Purchases of Equity Securities
There were no shares purchased in the fourth quarter of fiscal 2018.2021.
18
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ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA | SELECTED FINANCIAL DATA |
The following selected financial data reflects the results of operations and balance sheet data for the fiscal years ended October 28, 2018, October 29, 201731, 2021, November 1, 2020 and October 30, 2016.November 3, 2019. 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
Selected Financial Data
| | | | | | | | | | | | | | | | | |
For the year ended, (in thousands, except per share data) | October 31, 2021 | | November 1, 2020 | | November 3, 2019 |
| 52 weeks | | 52 weeks | | 53 weeks |
| STATEMENT OF OPERATIONS DATA | | | | | |
| Net revenue | $ | 885,393 | | | $ | 822,055 | | | $ | 997,090 | |
| Operating income (loss) | $ | 4,832 | | | $ | (29,369) | | | $ | (9,833) | |
| Net income (loss) | $ | 1,374 | | | $ | (33,587) | | | $ | (15,186) | |
| PER SHARE DATA: | | | | | |
| Basic: | | | | | |
| Net income (loss) | $ | 0.06 | | | $ | (1.56) | | | $ | (0.72) | |
| Weighted average number of shares | 21,884 | | | 21,507 | | | 21,119 | |
| Diluted: | | | | | |
| Net income (loss) | $ | 0.06 | | | $ | (1.56) | | | $ | (0.72) | |
| Weighted average number of shares | 22,609 | | | 21,507 | | | 21,119 | |
| | | | | |
(in thousands) | October 31, 2021 | | November 1, 2020 | | November 3, 2019 |
| | | | | |
| BALANCE SHEET DATA | | | | | |
| Cash and cash equivalents | $ | 71,373 | | | $ | 38,550 | | | $ | 28,672 | |
| Working capital | $ | 99,228 | | | $ | 101,756 | | | $ | 89,352 | |
| Total assets | $ | 260,104 | | | $ | 241,845 | | | $ | 218,004 | |
| Long-term debt, excluding current portion | $ | 60,000 | | | $ | 60,000 | | | $ | 55,000 | |
| Total stockholders’ equity | $ | 31,093 | | | $ | 27,874 | | | $ | 36,189 | |
| Note - Cash dividends were not declared or paid during the above periods. |
|
| | | | | | | | | | | |
For the year ended, (in thousands, except per share data) | October 28,
2018 | | October 29,
2017 | | October 30,
2016 |
| | 52 weeks | | 52 weeks | | 52 weeks |
| STATEMENT OF OPERATIONS DATA | | | | | |
| Net revenue | $ | 1,039,170 |
| | $ | 1,194,436 |
| | $ | 1,334,747 |
|
| Operating income (loss) | $ | (28,407 | ) | | $ | 39,163 |
| | $ | (5,889 | ) |
| Income (loss) from continuing operations, net of income taxes | $ | (32,685 | ) | | $ | 28,825 |
| | $ | (14,570 | ) |
| Loss from discontinued operations, net of income taxes | $ | — |
| | $ | (1,693 | ) | | $ | — |
|
| Net income (loss) | $ | (32,685 | ) | | $ | 27,132 |
| | $ | (14,570 | ) |
| PER SHARE DATA: | | | | | |
| Basic: | | | | | |
| Income (loss) from continuing operations | $ | (1.55 | ) | | $ | 1.38 |
| | $ | (0.70 | ) |
| Loss from discontinued operations | — |
| | (0.08 | ) | | — |
|
| Net income (loss) | $ | (1.55 | ) | | $ | 1.30 |
| | $ | (0.70 | ) |
| Weighted average number of shares | 21,051 |
| | 20,942 |
| | 20,831 |
|
| Diluted: | | | | | |
| Income (loss) from continuing operations | $ | (1.55 | ) | | $ | 1.37 |
| | $ | (0.70 | ) |
| Loss from discontinued operations | — |
| | (0.08 | ) | | — |
|
| Net income (loss) | $ | (1.55 | ) | | $ | 1.29 |
| | $ | (0.70 | ) |
| Weighted average number of shares | 21,051 |
| | 21,017 |
| | 20,831 |
|
| | | | | | |
(in thousands) | October 28,
2018 | | October 29,
2017 | | October 30,
2016 |
| | | | | | |
| BALANCE SHEET DATA | | | | | |
| Cash and cash equivalents | $ | 24,763 |
| | $ | 37,077 |
| | $ | 6,386 |
|
| Working capital | $ | 104,171 |
| | $ | 81,881 |
| | $ | 134,086 |
|
| Total assets | $ | 236,696 |
| | $ | 284,809 |
| | $ | 316,465 |
|
| Short-term borrowings, including current portion of long-term debt | $ | — |
| | $ | 50,000 |
| | $ | 2,050 |
|
| Long-term debt, excluding current portion | $ | 50,000 |
| | $ | — |
| | $ | 95,000 |
|
| Total stockholders’ equity | $ | 50,499 |
| | $ | 83,994 |
| | $ | 48,965 |
|
| Note - Cash dividends were not declared or paid during the above periods. |
| |
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, the Company determined that its North American Managed Service Program (“MSP”) business meets the criteria to be presented as a reportable segment. To provide period over period comparability, the Company has recast the prior period North American MSP segment data to conform 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 Staffing and (iii) North American MSP. The non-reportable businesses are 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. Our customer care solutions specialize in serving as an extension of our 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, 2018,31, 2021, we employed approximately 20,10015,400 people, including 18,60014,300 contingent workers. Contingent workers are on our payroll for the length of their assignment. We operate from 85 locations within approximately 88%65 of our revenuesown locations and have an on-site presence in over 60 customer locations. Approximately 87% of our revenue 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, 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. Beginning in the second half of fiscal 2020 however, revenue increased sequentially 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, a number of countries and U.S. federal, state and local governments issued varying levels of 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 or requiring reduced operations and capacity to comply with social distancing. 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 continue to operate on a hybrid-model with certain locations fully staffed and others opening on a limited voluntary basis. Our COVID-19 Incident Response Team, comprised of key senior leaders in the organization, continues to monitor the most up-to-date developments and safety standard from the Centers for Disease Control and Prevention, WHO, Occupational Safety and Health Administration and other key authorities to determine an appropriate response for our employees and clients. While this team is currently monitoring COVID-19 developments globally, we also remain focused on the regulations and vaccine requirements in the U.S. to ensure we are complying with all relevant regulations. We are also monitoring developments related to vaccine mandates from certain customers.
We expect the global business environment will continue to operate in various stages of economic turbulence. We are encouraged by the increase in order activity and demand throughout the Company, however the pace of such increase may be impacted if a resurgence in COVID-19 infections leads to additional disruptions, government mandates or increased lack of available talent to match our customers’ demands.
Recent Developments
On November 7, 2018, Linda Perneau, interim President and Chief Executive Officer of the Company, was appointed President and Chief Executive Officer of the Company. Ms. Perneau was also appointed by the Company’s Board of Directors to serve as a director of the Company.None
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 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 year 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.
Consolidated Results of Continuing Operations and Financial Highlights (Fiscal 20182021 vs. Fiscal 2017)2020)
Results of Continuing Operations by Segment (Fiscal 20182021 vs. Fiscal 2017)2020)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended October 31, 2021 |
| (in thousands) | Total | | North American Staffing | | International Staffing | | North American
MSP | | Corporate and Other | | Eliminations |
| Net revenue | $ | 885,393 | | | $ | 738,767 | | | $ | 106,963 | | | $ | 39,312 | | | $ | 456 | | | $ | (105) | |
| Cost of services | 741,871 | | | 623,346 | | | 86,716 | | | 31,655 | | | 259 | | | (105) | |
| Gross margin | 143,522 | | | 115,421 | | | 20,247 | | | 7,657 | | | 197 | | | — | |
| | | | | | | | | | | |
| Selling, administrative and other operating costs | 135,427 | | | 82,449 | | | 15,956 | | | 5,409 | | | 31,613 | | | — | |
| Restructuring and severance costs | 2,839 | | | (57) | | | 213 | | | 130 | | | 2,553 | | | — | |
| Impairment charges | 424 | | | — | | | — | | | — | | | 424 | | | — | |
| Operating income (loss) | 4,832 | | | 33,029 | | | 4,078 | | | 2,118 | | | (34,393) | | | — | |
| Other income (expense), net | (2,055) | | | | | | | | | | | |
| Income tax provision | 1,403 | | | | | | | | | | | |
| Net income | $ | 1,374 | | | | | | | | | | | |
| | | | Year Ended October 28, 2018 | | Year Ended November 1, 2020 |
| (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 | | Eliminations |
| Net revenue | $ | 1,039,170 |
| | $ | 860,544 |
| | $ | 117,351 |
| | $ | 29,986 |
| | $ | 35,228 |
| | $ | (3,939 | ) | Net revenue | $ | 822,055 | | | $ | 689,095 | | | $ | 95,308 | | | $ | 37,915 | | | $ | 674 | | | $ | (937) | |
| Cost of services | 885,492 |
| | 735,050 |
| | 98,640 |
| | 22,637 |
| | 33,104 |
| | (3,939 | ) | Cost of services | 694,204 | | | 586,255 | | | 79,087 | | | 29,471 | | | 328 | | | (937) | |
| Gross margin | 153,678 |
| | 125,494 |
| | 18,711 |
| | 7,349 |
| | 2,124 |
| | — |
| Gross margin | 127,851 | | | 102,840 | | | 16,221 | | | 8,444 | | | 346 | | | — | |
| | | | | | | | | | | | | |
| Selling, administrative and other operating costs | 173,337 |
| | 112,459 |
| | 15,986 |
| | 5,571 |
| | 39,321 |
| | — |
| Selling, administrative and other operating costs | 137,666 | | | 85,776 | | | 14,484 | | | 5,370 | | | 32,036 | | | — | |
| Restructuring and severance costs | 8,242 |
| | 932 |
| | 328 |
| | 145 |
| | 6,837 |
| | — |
| Restructuring and severance costs | 2,641 | | | 883 | | | 338 | | | — | | | 1,420 | | | — | |
| Settlement and impairment charges | 506 |
| | — |
| | — |
| | — |
| | 506 |
| | — |
| |
| | Impairment charges | | Impairment charges | 16,913 | | | 1,859 | | | — | | | — | | | 15,054 | | | — | |
| Operating income (loss) | (28,407 | ) | | 12,103 |
| | 2,397 |
| | 1,633 |
| | (44,540 | ) | | — |
| Operating income (loss) | (29,369) | | | 14,322 | | | 1,399 | | | 3,074 | | | (48,164) | | | — | |
| Other income (expense), net | (3,320 | ) | | | | | | | | | | | Other income (expense), net | (3,173) | | |
| Income tax provision | 958 |
| | | | | | | | | | | Income tax provision | 1,045 | | |
| | Net loss | $ | (32,685 | ) | | | | | | | | | | | Net loss | $ | (33,587) | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended October 29, 2017 |
| (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 | ) |
| Cost of services | 1,007,041 |
| | 782,405 |
| | 101,064 |
| | 29,309 |
| | 100,721 |
| | (6,458 | ) |
| Gross margin | 187,395 |
| | 136,855 |
| | 18,698 |
| | 7,474 |
| | 24,368 |
| | — |
|
| | | | | | | | | | | | |
| Selling, administrative and other operating costs | 197,130 |
| | 119,320 |
| | 15,836 |
| | 4,861 |
| | 57,113 |
| | — |
|
| Restructuring and severance costs | 1,379 |
| | 382 |
| | 14 |
| | — |
| | 983 |
| | — |
|
| 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 |
| | — |
|
| Other income (expense), net | (6,950 | ) | | | | | | | | | | |
| Income tax provision | 3,388 |
| | | | | | | | | | |
| Net income from continuing operations | 28,825 |
| | | | | | | | | | |
| Loss from discontinued operations, net of income taxes | (1,693 | ) | | | | | | | | | | |
| Net income | $ | 27,132 |
| | | | | | | | | | |
(1) Revenues are primarily derived from Volt Customer Care Solutions. In addition, fiscal 2017 included our previously owned quality assurance business as well as our information technology infrastructure services through the date of sale of Maintech in March 2017.
(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 20182021 vs. Fiscal 2017)2020)
Net revenue in fiscal 2018 decreased $155.22021 increased $63.3 million, or 13.0%7.7%, to $1,039.2$885.4 million from $1,194.4$822.1 million in fiscal 2017.2020. The revenue declineincrease 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 increases in our North American Staffing segment of $58.8$49.7 million, our International Staffing segment of $11.7 million and our North American MSP segment of $1.4 million. Excluding the impact on net revenue of the positive foreign currency fluctuations of $6.5 million.$6.6 million and $2.0 million related to MSP transitions, net revenue increased $58.7 million, or 7.1%.
Operating resultsincome in fiscal 2018 decreased $67.62021 increased $34.2 million, or 116.5%, to an operating$4.8 million from a loss of $28.4 million from operating income of $39.2$29.4 million in fiscal 2017. Excluding the gain on the sale of non-core businesses2020 primarily due to a $16.5 million decrease in fiscal 2017 of $52.0 millionimpairment charges and $9.3 million in operating income reported by the businesses sold or exited, as well as thean increase in revenue at improved margins. Excluding restructuring and severance costs of $6.8 million and the decrease in settlement and impairment charges, of $1.2 million, operating lossincome in fiscal 20182021 increased $0.6 million.$17.9 million, or 182.5%. This increase in operating lossincome of $17.9 million was primarily the result of a declinedue to improved results in our North American Staffing segment of $15.9 million and our International Staffing segment of $2.6 million, partially offset by a decrease in our North American
MSP operating income offset by reductions in corporate support costs and improved operating results from our Volt Customer Care Solution business.segment of $0.8 million.
Results of Continuing Operations by Segments (Fiscal 20182021 vs. Fiscal 2017)2020)
Net Revenue
The North American Staffing segment revenue decrease of $58.8increased $49.7 million, or 6.4%7.2%, was primarily driven by lower demand from our customers in our professional and 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%to $738.8 million in fiscal 2017 compared2021 from $689.1 million in fiscal 2020. Excluding the impact of $2.0 million in revenue from MSP transitions, revenue increased $51.7 million, or 7.5%, in fiscal 2021. The increase is attributable to new business wins in a combination of retail and mid-market clients, combined with the expansion of business within existing clients. In addition, revenue was negatively impacted by the COVID-19 pandemic in fiscal 2016.2020.
The International Staffing segment revenue decreased $2.4increased $11.7 million, or 2.0%.12.2%, to $107.0 million in fiscal 2021 from $95.3 million in fiscal 2020. Excluding the positive impact of foreign currency fluctuations of $6.5$6.7 million, partially offset by $2.5 million of revenue from businesses exited, International Staffing revenue declined $6.4increased by $5.0 million, or 5.2%4.9%, primarily due to lower demandincreased staffing business in France and Singapore. In addition, revenue in the United Kingdom increased slightly as a result of higher payroll service business demand and direct hire revenue partially offset by increases in Belgium and Singapore.lower contract revenue.
The North American MSP segment revenue decrease of $6.8increased $1.4 million, or 18.5%3.7%, wasto $39.3 million in fiscal 2021 from $37.9 million in fiscal 2020. The increase is primarily driven by lowerattributable to increased demand in its payroll service revenue as a result of the winding down of certain customer programsbusiness partially offset by several new programs which begana decline in fiscal 2018.
The Corporate and Other category revenue decrease of $89.9 million was primarily attributable to a $59.0 million and $23.3 million decline as a result of the sale 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.managed service business.
Cost of Services and Gross Margin
Cost of services in fiscal 2018 decreased $121.52021 increased $47.7 million, or 12.1%6.9%, to $885.5$741.9 million from $1,007.0$694.2 million in fiscal 2017. This decrease was2020. The increase in our North American Staffing segment related to the 7.2% increase in revenue and a lower workers’ compensation adjustment in the current fiscal year partially offset by a $3.8 million benefit from government wage subsidies. In addition, our International Staffing segment increased $7.6 million primarily theas a result of fewer staff on assignment, consistent with the related decrease12.2% increase in revenues in all segments, as well as a decrease in Corporate and Other due to the sale of Maintech in March 2017 and the quality assurance business in October 2017. revenue.
Gross margin as a percent of revenue in fiscal 2018 decreased2021 increased to 14.8%16.2% from 15.7%15.6% in fiscal 2017. The decrease in gross margin as a percent of revenue was due in part to the sale of non-core businesses and businesses exited. Excluding these businesses, gross margin would have been 15.0% in fiscal 2017.2020. Our North American Staffing segment margins declined slightlygross margin as a percentage of revenue increased primarily due to lower employee-related costs and a higher mix of larger price-competitive customers and competitive pricing pressure, partially offset by a reduction in California unemployment tax rates.higher margin business. Our Corporate and Other margins declinedInternational Staffing segment gross margin as a resultpercentage of revenue primarily increased due to improved contract margins and 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 indirect hire revenue. Our North American MSP segment gross margin as a percentage of revenue decreased primarily due to a higher mixan increase in lower-margin payroll service business. Government wage subsidies accounted for 40 basis points of managed service revenue.the increase in fiscal 2021.
Selling, Administrative and Other Operating Costs
Selling, administrative and other operating costs in fiscal 20182021 decreased $23.8$2.3 million, or 12.1%1.6%, to $173.3$135.4 million from $197.1$137.7 million in fiscal 2017. This2020. The decrease was primarily due to on-going cost reductions in all areas of the business including $13.8$4.7 million in laborlower facility related costs due to lower headcountconsolidating our real estate footprint and $11.4$1.2 million in costs attributed to the previously-owned quality assurancelower software and Maintech businesses as well as business exited in Taiwan. These decreases weretravel expenses. This decrease was partially offset by a $2.1 million increase in labor and related costs as a result of an increase of $2.0 million in legalincentives on the higher sales volume and consulting fees related to corporatehigher medical claims experience partially offset by government wage subsidies and cost-efficiency initiatives.changes in headcount in the current fiscal year. In addition, professional fees were $1.7 million higher in fiscal 2017 included the release of a reserve related to the dissolution of the Employee Welfare Benefit Trust of $1.4 million.2021. As a percentpercentage of revenue, these costs were 16.7% and 16.5% in fiscal 2018 and 2017, 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%.were 15.3% and 16.7% in fiscal 2021 and 2020, respectively.
Restructuring and Severance Costs
On October 16, 2018, the Company approved a restructuring plan (the “2018 Plan”) based on an organizationalRestructuring and process redesign intendedseverance costs in fiscal 2021 increased $0.2 million to optimize our strategic growth initiatives and overall business performance. In connection with the 2018 Plan, we incurred a restructuring charge of $4.3 million in 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, 2018 and we incurred related restructuring costs of $2.6 million in fiscal 2020. Restructuring and severance costs in fiscal 2021 were primarily due to $1.8 million of ongoing costs of facilities exited in the third quartersecond half of fiscal 2018.
During2020 and $1.0 million in severance costs. The costs in fiscal 2018, there2020 were other restructuring actions taken as part ofprimarily due to our continued efforts to reduce costs and achieve operational efficiency. We recorded severance coststo offset COVID-19 related revenue losses. This included our plan to leverage the global capabilities of $1.3 million, primarily resulting from the eliminationour staffing operations based in Bangalore, India and offshore a significant number of certain positions.strategically identified roles to this location.
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 resulting2021 decreased $16.5 million to $0.4 million from $16.9 million in fiscal 2020. Impairment charges incurred in the current fiscal year primarily from a reduction 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 segmentrelated 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
capitalized software. In fiscal 2018, the Company made the decision2020, impairment charges primarily related to forgo future use of a previously purchased software, which resulted in an impairment charge of $0.5 million.
In October 2017,consolidating and exiting certain leased office locations throughout North America based on where we entered into a settlement agreement with NewNet Communication Technologies, LLC. The settlement agreement relates tocould be fully operational and successfully support 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 recordedclients and disclosed in the second quarter of fiscal 2017.business operations remotely.
Other Income (Expense), net
Other expense in fiscal 20182021 decreased $3.7$1.1 million, or 52.2%35.2%, to $3.3$2.1 million from $7.0$3.2 million in fiscal 2017, primarily related2020 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 $1.4 million and $1.0 million compared to $3.4 million in fiscal 2017. The provision in fiscal 20182021 and 2020, 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.States.
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.
Liquidity and Capital Resources
Overview
Our primary sources of liquidity are cash flows generated from operations and proceeds from our financing arrangementsagreement (“DZ Financing Program”) with DZ Bank AG Deutsche Zentral-GenossenschafsbankZentral-Genossenschaftsbank (“DZ Bank”). Both operating cash flows and with PNC Bank, National Association (“PNC Bank”) until the termination of the PNC Financing Program in January 2018. Borrowingborrowing capacity under these arrangements isour financing arrangement are directly impacted byrelated to the levellevels of accounts receivable generated by our business. Our primary capital requirements include funding working capital, operating lease obligations and software-related expenditures.
We define our working capital as cash plus trade accounts receivable minus current liabilities. Our working capital requirements consist primarily of payroll, employee-related benefits and employment-related tax payments for our contingent staff and in-house employees and trade payables, offset by collections of customer receivables. Our operations are such that our most significant current asset is trade accounts receivable, which fluctuates duringare generally on 15 - 45 day credit terms, and our most significant current liabilities are payroll related costs, which are generally paid weekly. Consequently, as the year duedemand for our services increases, we generally see an increase in our working capital requirements, as we continue to seasonalitypay our contingent employees on a weekly basis while the related accounts receivable is outstanding for much longer, which may result in a decline in operating cash flows. Conversely, as the demand for our services declines, we generally see a decrease in our working capital needs, as the existing accounts receivable are collected and other factors. not replaced at the same level. This may result in an increase in our operating cash flows; however, any such increase would not be expected to be sustained in the event that an economic downturn continued for an extended period.
Our business is subject to seasonality with our first fiscal first quarter billings typically the lowest due to the holiday season and generally increasing in the fiscal third and fourth fiscal quarters when our customers increase the use of contingent labor. Generally,Accordingly, the first and fourth quarters of our fiscal year are generally 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. WeAs mentioned, we fund payroll, taxes and other working capital requirements using cash generated by operating activities supplemented, as needed, from our borrowings. Our weekly payroll payments inclusive of employment-related taxes and payments to vendors are approximately $20.0$16.0 - $17.0 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 liquidityas well as our borrowing availability under our financing program, will be sufficient to meet our cash needs for the next twelve months.months based on current business plans.
Capital Allocation
We have prioritized ourOur capital allocation strategy is focused 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 outlinedfinancial flexibility, as well as continue to invest in our plan. We also see this as an opportunitygrowth and profitability initiatives. This strategy includes effectively managing working capital to maximize operational efficiency, re-investing in our core growth initiatives, in both technology enhancements and sales and recruiting talent. These priorities demonstrate our ongoing commitment to Volt shareholders as we continue to execute on our overall strategic plan and return to sustainable profitability. Our capital allocation strategy includes
Fiscal Year Ended October 31, 2021 compared to the following elements:Fiscal Year Ended November 1, 2020
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, we estimate this 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 our information technology systems which will support our front-end recruitment and placement capabilities as well as increase efficiencies in our back-office financial suite; and
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 January 25, 2018, we entered into a two-year $115.0 million 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 overall borrowing costs. In addition to better pricing, the new facility has fewer restrictions on use of proceeds, which will improve available liquidity and allow us to continue to advance ouravailable capital allocation plan. Overall, the DZ Financing Program enhances our financial flexibilityresources are impacted by four key components: cash, including cash equivalents and debt maturity profile, while providing us with additional resources to execute our business strategy.
In October 2017, we completed the sale of the quality assurance business within the Technology Outsourcing Servicesrestricted cash, operating activities, investing activities and Solutions segment and received net proceeds of $66.8 million after certain transaction related fees and expenses that were used to reduce outstanding debt by $50.0 million.
In March 2017, we completed the sale of Maintech and received gross proceeds of $18.3 million. The net proceeds from the transaction amounted to $13.1 million after certain transaction related fees and expenses and repayment of loan balances. Due
financing activities, as shown below compared to the sale of Maintech, our minimum liquidity requirement under our PNC Financing Program increased from $20.0 million to $25.0 million until the PNC Financing Program was subsequently amended in August 2017.prior fiscal year.
In February 2017, the IRS approved the federal portion 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, we have significant tax benefits including federal net operating loss carryforwards of $187.5 million, U.S. state NOL carryforwards of $224.1 million and federal tax credits of $51.3 million, which are fully reserved with a valuation allowance which we will be able to utilize against future profits. We also have capital loss carryforwards of $12.9 million, which we will be able to utilize against future capital gains that may arise in the near future.
As previously discussed, we continue to add functionality to our underlying information technology systems and to improve our competitiveness in the marketplace. Through our strategy of improving efficiency in all aspects of our operations, we believe we can realize organic growth opportunities, reduce costs and increase profitability. During 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 as additional headcount reduction and lease termination initiatives taken under our 2018 Plan. Consistent with our ongoing strategic efforts, cost savings will be used to strengthen our operations.
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. Both operating cash flows and borrowing capacity under our financing arrangements are 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”) increases or decreases in tandem with any increases or decreases in accounts receivable based on revenue fluctuations.
At October 28, 2018, the Company had outstanding borrowings under the DZ Financing Program of $50.0 million, borrowing availability, as defined, under the DZ Financing Program of $38.3 million and global liquidity of $56.0 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, we were in compliance with all debt covenants. We believe, based on our 2019 plan, we will continue to be able to meet our financial covenants under the amended DZ Financing Program.
The following table sets forth31, 2021, our cash, cash equivalents and global liquidity levels at the endrestricted cash totaled $76.6 million compared to $56.4 million as of our last fiscal five quarters:November 1, 2020.
|
| | | | | | | | | | | | | | | |
| 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. |
| |
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. |
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) | 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 Compared to the Fiscal Year Ended October 29, 2017 | | | | | | | | | | | |
| | For the Year Ended |
| (in thousands) | October 31, 2021 | | November 1, 2020 |
| Net cash provided by operating activities | $ | 23,867 | | | $ | 18,154 | |
| Net cash used in investing activities | (3,060) | | | (4,629) | |
| Net cash provided by (used in) financing activities | (580) | | | 4,580 | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (51) | | | (116) | |
| Net increase in cash, cash equivalents and restricted cash | $ | 20,176 | | | $ | 17,989 | |
Cash Flows – Operating Activities
The net cash used inprovided by operating activities in fiscal 20182021 was $5.5$23.9 million, a decreasean increase of $10.1$5.7 million from fiscal 2017.2020. This decreaseincrease resulted primarily from the receipt$18.5 million improvement in operating results, net of the IRS refund of $13.8 millionimpairment charges in fiscal 20172021 and the net settlementan increase from accounts payable and accrued expenses of the NewNet note and working capital adjustment of $5.0$5.4 million, in fiscal 2017, as well as the net loss in fiscal 2018 partially offset by an increase in cash provided by operating assets and liabilities, primarilya decrease from accounts receivable of $19.2 million.
In the second half of March 2020, we experienced a decline in the demand for our services due to the impact of the COVID-19 pandemic. As a result, our operating cash flow increased, and accrued expenses.accounts receivable balances decreased as customer collections outpaced sales. However, as client demand for our services improved in the latter part of fiscal 2020 and continued to grow in fiscal 2021, our operating cash flows increased. This pattern could repeat itself and would not be sustainable in the event the pandemic continues at resurgence levels or an economic downturn continues for an extended period.
During fiscal 2020 and the first two months of fiscal 2021, cash generated from operations was supplemented by the enactment of laws providing COVID-19 relief, most notably the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which allowed for the deferral of payments of the Company's U.S. social security taxes. As a result, $26.2 million of employer payroll tax payments were deferred with $13.1 million paid on January 3, 2022 and the remaining payable with the December 31, 2022 tax payment in January 2023. In addition, certain state governments have delayed payment of various state payroll taxes for a shorter period of time. State payroll taxes of approximately $4.7 million deferred from the third quarter of fiscal 2021 were paid beginning in the fourth quarter of fiscal 2021. The Company’s payment of approximately $4.4 million of state payroll taxes will be deferred from the fourth quarter of fiscal 2021 with payments scheduled to begin in the first quarter of fiscal 2022.
Additionally, during fiscal 2021 we determined that we were eligible for the employee retention tax credit (“ERTC”), under the CARES Act, as our operations were fully or partially suspended due to government orders enacted in response to the COVID-19 pandemic. These credits reduced our payroll tax payments by $11.1 million and were treated as government subsidies.
Cash Flows – Investing Activities
The net cash used in investing activities in fiscal 20182021 was $3.2$3.1 million, principally from the purchases of property, equipment and software of $3.6 million primarily relating to our investment in updating our business processes, back-office financial suite and information technology tools. The net cash provided byused in investing activities in fiscal 20172020 was $72.7$4.6 million, principally from the net proceeds from the sale of the quality assurance business of $65.9 million through October 29, 2017 and the sale of Maintech of $15.2 million, partially offset by the purchases of property, equipment and software of $9.3$5.3 million primarily relating topartially offset by $0.4 million of proceeds from the sale of property, equipment and software.
See Note 18, “Segment Disclosures,” within our investment in updating our business processes, back-officeconsolidated financial suitestatements for the detail of purchases of property, equipment and information technology tools.
software by segment.
Cash Flows – Financing Activities
The net cash used in financing activities in fiscal 20182021 was $1.7$0.6 million principally from withholding tax payment on vesting of restricted stock awards of $0.5 million. The net cash provided by financing activities in fiscal 2020 was $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 in financing activities in fiscal 2017 was $48.3 million principally from the net repayment of borrowings of $47.1 million.
Financing Program
On January 25, 2018, we entered into the DZ Financing Program, a two-year $115.0 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 of the DZ Financing Program may be increased with the approval of DZ Bank.
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, weIn July 2019, the Company amended ourand restated its long-term 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 originators in the calculation of eligible receivables,United Kingdom, which added an additional $5.0 - $7.0 million in borrowing availability. In June 2020, the Maximum Facility Amount, as defined. This amendment permits usdefined in the DZ Financing Program, was reduced from $115.0 million to exclude$100.0 million.
In December 2020, the receivables of a single large, high-quality customer from its threshold limitation, resulting in additional borrowing capacity of approximately $10.0 million.
On January 4, 2019, weCompany amended 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, 2023 to January 25, 2021;2024, (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, 2023 to $40.0 million in fiscal 2020;July 25, 2024; (3) revise an existing covenant to maintain positive net income in any fiscal year ending after 2019;2020 to any fiscal year ending after 2021; (4) 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 (4) increase$25.0 million in each quarter thereafter; and (5) revise 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 forincreased our overall availability under the Company.Program by $1.0 - $3.0 million. All other material terms and conditions remainremained 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, 2018,31, 2021, the letter of credit participation was $25.4$22.1 million inclusive of $23.5$20.9 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, 2018,31, 2021, the Company was in compliance with all debt covenants, as amended.
At October 31, 2021, the Company had outstanding borrowings under the DZ Financing Program of $60.0 million, borrowing availability, as defined in the DZ Financing Program, of $6.0 million and global liquidity of $59.0 million.
Our DZ Financing Program is subject to termination under certain events of default such as breach of covenants, including financial covenants. At October 31, 2021, we were in compliance with all debt covenants.covenants, as defined in the DZ Financing Program. We believe, based on our 2022 Plan, we will continue to be able to meet our financial covenants under the amended DZ Financing Program.
We used funds made available by
The following table sets forth our cash and global liquidity levels at the end of our last five fiscal quarters:
| | | | | | | | | | | | | | | | | |
| Global Liquidity | | | | | |
| (in thousands) | November 1, 2020 | January 31, 2021 | May 2, 2021 | August 1, 2021 | October 31, 2021 |
Cash and cash equivalents (a) | $ | 38,550 | | $ | 40,062 | | $ | 47,231 | | $ | 49,595 | | $ | 71,373 | |
| | | | | |
| Total outstanding debt | $ | 60,000 | | $ | 60,000 | | $ | 60,000 | | $ | 60,000 | | $ | 60,000 | |
| | | | | |
Cash in banks (b) (c) | $ | 36,218 | | $ | 36,962 | | $ | 39,288 | | $ | 43,076 | | $ | 52,938 | |
| DZ Financing Program | 2,828 | | 2,225 | | 2,868 | | 3,990 | | 6,046 | |
| Global liquidity | 39,046 | | 39,187 | | 42,156 | | 47,066 | | 58,984 | |
| Minimum liquidity threshold | 15,000 | | 15,000 | | 15,000 | | 15,000 | | 15,000 | |
| Available liquidity | $ | 24,046 | | $ | 24,187 | | $ | 27,156 | | $ | 32,066 | | $ | 43,984 | |
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a.Per financial statements.
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 October 31, 2021, the balance in the USB collections account included in the DZ Financing Program availability was $6.9 million.
Liquidity Outlook
As previously noted, our primary sources of liquidity are cash flows from operations and proceeds from our financing arrangement. Both operating cash flows and borrowing capacity under our financing arrangement are directly related to repay all amounts outstandingthe levels of accounts receivable generated by our businesses. Our level of borrowing capacity under the PNC Financing Program, which terminated in accordance with its terms, and expect to use remaining availability from the DZ Financing Program from timeincreases or decreases in tandem with any increases or decreases in accounts receivable based on revenue fluctuations, among other factors.
While we believe our cash provided by operating activities and borrowing availability under our DZ Financing Program, will be sufficient to time formeet our operating working capital and other general corporate purposes.
Untilcapital expenditure requirements at a minimum for the termination date,next twelve months, the PNC Financing Program was secured by receivables from certain staffing services businessesextent to which any on-going or resurgence of COVID-19 related impacts could affect our business, financial condition, results of operations and cash flows in the United Statesshort- and Europe that are sold to a wholly-owned, consolidated, bankruptcy-remote subsidiary. The bankruptcy-remote subsidiary’s solemedium-term cannot be predicted with certainty. We may also face unexpected costs or an adverse impact on our business consistedoperations, in connection with government mandated COVID-19 vaccine-related policies and procedures. Any of the purchaseabove could have a material adverse effect on our business, financial condition, results of operations and cash flows and require us to seek additional sources of liquidity and capital resources.
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. As noted above, we determined that we qualify for the payroll tax deferral which allows us to delay payment of the receivablesemployer portion of payroll taxes and subsequent grantingfor certain employment tax credits. We are evaluating whether we qualify for additional employment tax credits. If we qualify for such credits, the credits will be treated as government subsidies, which will offset related expenses. We continue to actively monitor these relief packages to take advantage of a security interest to
PNC Bank under the program, and its assets were available first to satisfy obligations to PNC Bank and were notall of those which are available to pay creditorsus.
As of October 31 2021, we have significant tax benefits including federal net operating loss (“NOL”) carryforwards of $210.0 million, U.S. state NOL carryforwards of $226.3 million, international NOL carryforwards of $8.3 million and federal tax credits of $53.3 million, which are fully reserved with a valuation allowance which we may be able to utilize against future profits. As of October 31, 2021, the Company’s other legal entities. Borrowing capacity underU.S. federal NOL carryforwards will expire at various dates between 2031and 2038 (with some indefinite), the PNC Financing Program was directly impacted byU.S. state NOL carryforwards expire at various dates beginning in 2022 (with some indefinite), the level of accounts receivable.
international NOL carryforwards expire at various dates beginning in 2022 (with some indefinite) and federal tax credits expire between 2022 and 2040.
In addition to customary representations, warrantiesour discussion and affirmativeanalysis surrounding our liquidity and negative covenants,capital resources, our significant contractual obligations and commitments as of October 31, 2021, include:
•Debt Obligations and Interest Payments - As of October 31, 2021, our outstanding debt balance was $60.0 million. See Note 12, “Debt” within our consolidated financial statements for further detail of our debt and the PNC Financing Programtiming of expected future principal and interest payments.
•Operating Leases – As of October 31, 2021, our remaining contractual commitment for operating leases was subject$51.1 million. See Note 2, “Leases,” within our consolidated financial statements for further detail of our obligations and the timing of expected future payments, including a five-year maturity schedule.
•Software-Related Expenditures – As of October 31, 2021, we had contractual commitments for software-related expenditures of $2.3 million. We anticipate capital expenditures in fiscal 2022 of approximately $4.0 - $5.0 million as we continue to termination under standard eventssupport our strategic initiatives through improved technology, as necessary. While the majority of default including changeour software-related contractual obligations does not currently extend beyond fiscal 2022, we anticipate annual payments 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 levelsapproximately $5.5 million for the on-going use of our core technology.
•Casualty Insurance - As of October 31, 2021, we had accrued casualty claims of $13.9 million under our Casualty Insurance Program. While we cannot accurately predict future insurance claim liability, we estimate our related expenditures in fiscal quarter ended October 29, 2017. All other material terms and conditions remained substantially unchanged, including interest rates.2022 to be in the range of $8.0 - $11.0 million, based on historical data.
Off-Balance Sheet Arrangements
As of October 28, 2018,31, 2021, we issued letters of credit against our DZ Financing Program totaling $25.4$22.1 million including of $23.5$20.9 million for the Company'sCompany’s casualty insurance program $1.1and $1.2 million for the security deposit required under certain lease agreements and $0.8 million for the Company’s corporate credit card program.agreements.
As of October 29, 2017,November 1, 2020, we issued letters of credit against our PNCDZ Financing Program totaling $28.3$24.5 million inclusive of $26.9including $23.3 million for the Company'sCompany’s casualty insurance program and $1.4$1.2 million for the security deposit required under the Orange facilitycertain lease agreement. Other than an additional letteragreements.
As of credit with Bank of America totaling $0.4 million, there wereOctober 31, 2021, we had 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 theThe Company’s goodwill is within its International Staffing segment. Our fiscal 20182021 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%13.0%. 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, itIt was determined that the fair value of the reporting unit exceeded its carrying value, therefore no adjustment to the carrying value of goodwill of $5.7$5.8 million was required as our Step 1 analysis resulted in the fair value of the reporting unit exceeding its carrying value.required. There were no triggering events since the annual goodwill impairment assessmentin any subsequent quarter of fiscal 2021 that causedrequired 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.
In fiscal 2021, the Company’s analyses resulted in impairment charges of $0.4 million of capitalized costs related to a change in the expected use of certain software assets in the Corporate and Other category. There were no additional triggering events in fiscal 2021 that would indicate that the carrying amounts of any other of the Company’s long-lived assets may not be recoverable as of the end of the period. As a result, the Company did not perform any additional steps under ASC 360 which required significant judgement or assumptions.
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$20.9 million as of October 28, 2018.31, 2021.
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.
At October 31, 2021 and November 1, 2020, the casualty insurance liability was $13.9 million and $15.2 million, respectively.
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.
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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, 2018,31, 2021, we had cash and cash equivalents on which interest income is earned at variable rates. At October 28, 2018,31, 2021, 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$0.2 million or a hypothetical 1-percentage-point decrease in interest rates would have decreased net interest expense by $0.1a $0.2 million in fiscal 2018.2021.
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, Canadian Dollar,Indian Rupee, Singapore Dollar and Indian Rupee.Canadian Dollar. 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 strengthenedweakened relative to many foreign currencies as of October 28, 201831, 2021 compared to October 29, 2017.November 1, 2020. Consequently, stockholders’ equity decreasedincreased by $1.8$0.2 million as a result of the foreign currency translation as of October 28, 2018.31, 2021.
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, 201831, 2021 would result in an approximate $2.4$1.8 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, 201831, 2021 would result in an approximately $2.4$1.8 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, 201831, 2021 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, 201831, 2021 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, 2018.31, 2021.
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, 2018,31, 2021, 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 20192022 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:
|
| | | | | | | |
| Exhibits | | Description |
2.13.1 | | |
| | |
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 | | |
| | |
3.1 | | |
| | |
| 3.2 | | |
| |
| 10.1* | | |
| | |
| 10.2* | | |
| | |
10.3* | | |
| | |
10.4*10.3* | | |
| | |
10.5* | | |
| | |
10.6* | | |
| | |
10.7* | | |
| | |
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) |
| | |
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) |
| | |
10.10 | | |
| | |
10.11*10.5* | | |
| |
10.12* | | |
| | |
10.13* | | |
| |
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) |
| |
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 | | |
| |
10.18* | | |
| | |
10.19 | | |
| | |
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)001-09232) |
| | |
10.2110.6 | | 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) |
| | |
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) |
| | |
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) |
| | |
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 | | |
| | |
10.26 | | |
| | |
10.27 | | |
| | |
10.28 | | |
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10.29*10.7* | | |
| | |
10.30*10.8* | | |
| | |
10.31*10.9* | | |
| | |
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* | | |
| | |
10.34 | | |
| | |
10.35* | | |
| | |
10.3610.10* | | 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)001-09232) |
| | |
10.3710.11* | | 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. 001-09232) |
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| 10.12* | | |
| | |
10.3810.13* | | |
| | |
| 10.14* | | 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)001-09232) |
| | |
10.3910.15 | | 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) |
| | |
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)001-09232) |
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10.4210.16 | | 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)001-09232) |
| | |
10.4310.17 | | |
| 10.18 | | 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)001-09232) |
| 10.19* | | |
10.44* | | |
| | |
| 10.20* | | |
| | |
| 10.21* | | |
| | |
| 10.22* | | |
| | |
| 10.23* | | |
| | |
10.4510.24* | | |
| | |
| 10.25* | | |
| | |
| 10.26 | | 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. 001-09232) |
| | |
| 10.27 | | 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'sCompany’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 29, 2018 filed September 7, 2018;March 13, 2020; File No. 001-09232)001-09232) |
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10.46*10.28 | | |
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10.47* | | |
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10.48* | | |
| | |
10.49* | | |
| | |
10.50* | | |
| | |
10.51 | | Amendment No. 2,3 dated January 4, 2019,June 11, 2020 to the Amended and Restated Receivables Loan and Security Agreement dated as of January 25, 2018,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 conduit lender,letter of credit issuers (incorporated by reference to Exhibit 10.1 to the otherCompany’s Quarterly Report on Form 10-Q filed June 17, 2020; File No. 001-09232) |
| | |
| 10.29 | | 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 Current Report on Form 8-K filed October 7, 2020; File No. 001-09232) |
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2110.30 | | Amendment No. 5 dated December 17, 2020 to the Amended and Restated Receivables Loan and Security Agreement, dated as of 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 December18, 2020; File No. 001-09232) |
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| 10.31* | | |
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| 10.32* | | |
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| 10.33* | | |
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| 21 | | |
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| 23 | | |
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| 31.1 | | |
| |
| 31.2 | | |
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| 32.1 | | |
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| 101.INS | | XBRL Instance Document. |
| |
| 101.SCH | | XBRL Taxonomy Extension Schema Document. |
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| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
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| 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 12, 2022 | By: | | | /s/ Linda Perneau |
| | | | Linda Perneau |
| | | | President and Chief Executive Officer
(Principal Executive Officer) |
| | | |
| Date: January 12, 2022 | 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, 201912, 2022 | 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
and Treasurer
(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 12, 2022 | By: | | | /s/ William J. Grubbs |
| | | | William J. Grubbs |
| | | | Chairman of the Board |
| | | | |
Date: January 9, 201912, 2022 | 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, 201912, 2022 | By: | | | /s/ Dana MessinaCelia R. Brown |
| | | | Dana MessinaCelia R. Brown |
| | | | Director |
| | | |
Date: January 9, 201912, 2022 | By: | | | /s/ Nick S. Cyprus |
| | | | Nick S. Cyprus |
| | | | Director |
| | | |
| Date: January 12, 2022 | By: | | | /s/ Bruce G. Goodman |
| | | | Bruce G. Goodman |
| | | | Director |
| | | | |
Date: January 9, 201912, 2022 | 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, 201831, 2021 and October 29, 2017,November 1, 2020, the related consolidated statements ofoperations, comprehensive income (loss), stockholders'stockholders’ equity and cash flows for the years thenthen ended, and the related notes (collectively(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, 201831, 2021 and October 29, 2017,November 1, 2020, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosure to which it relates.
| | | | | |
| Casualty Insurance Program Accrual |
Description of the Matter | As of October 31, 2021, the Company’s liability for casualty insurance was $13.9 million. As discussed in Note 10 to the consolidated financial statements, the casualty insurance program accrual includes the estimated cost of workers’ compensation, general and automobile insurance claims for which the Company is liable. These accruals include estimates for known claims as well as claims incurred but not yet reported. The Company estimates the liability 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.
Auditing the casualty insurance program accrual was complex, and involved specialized skill and knowledge, due to the significant valuation uncertainty associated with the estimate, management’s application of complex judgments, and the use of actuarial methods.
|
| How We Addressed the Matter in Our Audit | Our audit procedures to test the accuracy of the casualty insurance accrual and related expense included, among others, testing the completeness and accuracy of the underlying data used in the Company’s calculations, confirming the losses incurred to date with the claims processor and comparing the amounts paid to the insurance company to supporting invoices.
In addition, we involved our actuarial specialists to assist in our evaluation of the methodologies and assumptions applied by management, including the impact of COVID-19. With the assistance of our specialists, we developed an independent range of estimated losses including the estimated future cost of claims incurred, based on the Company’s historical data and industry factors. We evaluated the classification of the balance sheet amounts as current and non-current liabilities. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1968.
New York, New York
January 9, 201912, 2022
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 | | October 31,
2021 | | November 1,
2020 |
| NET REVENUE | $ | 1,039,170 |
| | $ | 1,194,436 |
| NET REVENUE | $ | 885,393 | | | $ | 822,055 | |
| Cost of services | 885,492 |
| | 1,007,041 |
| Cost of services | 741,871 | | | 694,204 | |
| GROSS MARGIN | 153,678 |
| | 187,395 |
| GROSS MARGIN | 143,522 | | | 127,851 | |
| | | | | |
| Selling, administrative and other operating costs | 173,337 |
| | 197,130 |
| Selling, administrative and other operating costs | 135,427 | | | 137,666 | |
| Restructuring and severance costs | 8,242 |
| | 1,379 |
| Restructuring and severance costs | 2,839 | | | 2,641 | |
| Gain from divestitures | — |
| | (51,971 | ) | |
| Settlement and impairment charges | 506 |
| | 1,694 |
| |
| | Impairment charges | | Impairment charges | 424 | | | 16,913 | |
| OPERATING INCOME (LOSS) | (28,407 | ) | | 39,163 |
| OPERATING INCOME (LOSS) | 4,832 | | | (29,369) | |
| | | | | |
| OTHER INCOME (EXPENSE), NET | | | | OTHER INCOME (EXPENSE), NET | |
| Interest income | 173 |
| | 39 |
| Interest income | 37 | | | 78 | |
| Interest expense | (2,765 | ) | | (3,790 | ) | Interest expense | (1,805) | | | (2,297) | |
| Foreign exchange gain (loss), net | 403 |
| | (1,637 | ) | Foreign exchange gain (loss), net | 318 | | | (85) | |
| Other income (expense), net | (1,131 | ) | | (1,562 | ) | Other income (expense), net | (605) | | | (869) | |
| TOTAL OTHER INCOME (EXPENSE), NET | (3,320 | ) | | (6,950 | ) | TOTAL OTHER INCOME (EXPENSE), NET | (2,055) | | | (3,173) | |
| | | | | | | | |
| INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (31,727 | ) | | 32,213 |
| |
| INCOME (LOSS) BEFORE INCOME TAXES | | INCOME (LOSS) BEFORE INCOME TAXES | 2,777 | | | (32,542) | |
| Income tax provision | 958 |
| | 3,388 |
| Income tax provision | 1,403 | | | 1,045 | |
| 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 INCOME (LOSS) | $ | 1,374 | | | $ | (33,587) | |
| | | | | | | | |
| 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 income (loss) | $ | 0.06 | | | $ | (1.56) | |
| Weighted average number of shares | 21,051 |
| | 20,942 |
| Weighted average number of shares | 21,884 | | | 21,507 | |
| 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 income (loss) | $ | 0.06 | | | $ | (1.56) | |
| Weighted average number of shares | 21,051 |
| | 21,017 |
| Weighted average number of shares | 22,609 | | | 21,507 | |
The accompanying notes are an integral part of these consolidated financial statements.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
| | | | | | | | | | | |
| | Year Ended |
| | October 31,
2021 | | November 1,
2020 |
| NET INCOME (LOSS) | $ | 1,374 | | | $ | (33,587) | |
| Other comprehensive income (loss): | | | |
| Foreign currency translation adjustments, net of taxes | 209 | | | 343 | |
| | | |
| COMPREHENSIVE INCOME (LOSS) | $ | 1,583 | | | $ | (33,244) | |
|
| | | | | | | |
| | 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 |
|
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share amounts)
| | | | October 28, 2018 | | October 29, 2017 | | October 31, 2021 | | November 1, 2020 |
| ASSETS | | | | ASSETS | | | |
| CURRENT ASSETS: | | | | CURRENT ASSETS: | |
| Cash and cash equivalents | $ | 24,763 |
| | $ | 37,077 |
| Cash and cash equivalents | $ | 71,373 | | | $ | 38,550 | |
| Restricted cash | 11,781 |
| | 17,020 |
| Restricted cash | 5,236 | | | 17,883 | |
| Short-term investments | 3,063 |
| | 3,524 |
| Short-term investments | 3,493 | | | 2,853 | |
| 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 $137 and $219, respectively | | Trade accounts receivable, net of allowances of $137 and $219, respectively | 127,211 | | | 121,916 | |
| Other current assets | 7,348 |
| | 11,755 |
| Other current assets | 6,229 | | | 7,058 | |
| TOTAL CURRENT ASSETS | 204,496 |
| | 244,837 |
| TOTAL CURRENT ASSETS | 213,542 | | | 188,260 | |
| Property, equipment and software, net | | Property, equipment and software, net | 17,482 | | | 22,167 | |
| Right-of-use assets - operating leases, net | | Right-of-use assets - operating leases, net | 22,496 | | | 25,107 | |
| Other assets, excluding current portion | 7,808 |
| | 10,851 |
| Other assets, excluding current portion | 6,584 | | | 6,311 | |
| Property, equipment and software, net | 24,392 |
| | 29,121 |
| |
| TOTAL ASSETS | $ | 236,696 |
| | $ | 284,809 |
| TOTAL ASSETS | $ | 260,104 | | | $ | 241,845 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| CURRENT LIABILITIES: |
| | | CURRENT LIABILITIES: | |
| Accrued compensation | $ | 27,120 |
| | $ | 24,504 |
| Accrued compensation | $ | 22,629 | | | $ | 18,357 | |
| Accounts payable | 33,498 |
| | 36,895 |
| Accounts payable | 36,544 | | | 31,221 | |
| Accrued taxes other than income taxes | 15,275 |
| | 20,467 |
| Accrued taxes other than income taxes | 31,112 | | | 12,983 | |
| Accrued insurance and other | 23,335 |
| | 30,282 |
| Accrued insurance and other | 16,298 | | | 15,908 | |
| Short-term borrowings, including current portion of long-term debt | — |
| | 50,000 |
| |
| Operating lease liabilities | | Operating lease liabilities | 6,775 | | | 7,144 | |
| Income taxes payable | 1,097 |
| | 808 |
| Income taxes payable | 956 | | | 891 | |
| TOTAL CURRENT LIABILITIES | 100,325 |
| | 162,956 |
| TOTAL CURRENT LIABILITIES | 114,314 | | | 86,504 | |
| Accrued insurance and other, excluding current portion | 13,478 |
| | 10,828 |
| |
| Deferred gain on sale of real estate, excluding current portion | 22,216 |
| | 24,162 |
| |
| Income taxes payable, excluding current portion | 600 |
| | 1,663 |
| |
| Deferred income taxes | 510 |
| | 1,206 |
| |
| Long-term debt, excluding current portion, net | 49,068 |
| | — |
| |
| Accrued payroll taxes and other, excluding current portion | | Accrued payroll taxes and other, excluding current portion | 21,832 | | | 30,081 | |
| Operating lease liabilities - excluding current portion | | Operating lease liabilities - excluding current portion | 33,558 | | | 38,232 | |
| | Long-term debt, net | | Long-term debt, net | 59,307 | | | 59,154 | |
| TOTAL LIABILITIES | 186,197 |
| | 200,815 |
| TOTAL LIABILITIES | 229,011 | | | 213,971 | |
| 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 | — | | | — | |
| Common stock, par value $0.10; Authorized - 120,000,000.00 shares; Issued - 23,738,003; Outstanding - 22,099,246 and 21,729,400, respectively | | Common stock, par value $0.10; Authorized - 120,000,000.00 shares; Issued - 23,738,003; Outstanding - 22,099,246 and 21,729,400, respectively | 2,374 | | | 2,374 | |
| Paid-in capital | 79,057 |
| | 78,645 |
| Paid-in capital | 80,062 | | | 79,937 | |
| Retained earnings | 9,738 |
| | 45,843 |
| |
| Retained deficit | | Retained deficit | (32,208) | | | (29,793) | |
| Accumulated other comprehensive loss | (7,070 | ) | | (5,261 | ) | Accumulated other comprehensive loss | (6,249) | | | (6,458) | |
| Treasury stock, at cost; 2,558,935 and 2,711,750 shares, respectively | (33,600 | ) | | (37,607 | ) | |
| Treasury stock, at cost; 1,638,757 and 2,008,603 shares, respectively | | Treasury stock, at cost; 1,638,757 and 2,008,603 shares, respectively | (12,886) | | | (18,186) | |
| TOTAL STOCKHOLDERS’ EQUITY | 50,499 |
| | 83,994 |
| TOTAL STOCKHOLDERS’ EQUITY | 31,093 | | | 27,874 | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 236,696 |
| | $ | 284,809 |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 260,104 | | | $ | 241,845 | |
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 | | Accumulated
Other
Comprehensive
Income (Loss) | | Treasury
Stock | | Total
Stockholders’
Equity |
| | Shares | | Amount | | | | | |
| 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 | |
| Net income | — | | | — | | | — | | | 1,374 | | | — | | | — | | | 1,374 | |
| Share-based compensation | — | | | — | | | 2,101 | | | — | | | — | | | — | | | 2,101 | |
| Issuance of common stock | — | | | — | | | (1,976) | | | (3,789) | | | — | | | 5,300 | | | (465) | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 209 | | | — | | | 209 | |
| BALANCE AT OCTOBER 31, 2021 | 23,738,003 | | | $ | 2,374 | | | $ | 80,062 | | | $ | (32,208) | | | $ | (6,249) | | | $ | (12,886) | | | $ | 31,093 | |
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 | | October 31, 2021 | | November 1, 2020 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
| Net income (loss) | $ | (32,685 | ) | | $ | 27,132 |
| Net income (loss) | $ | 1,374 | | | $ | (33,587) | |
| Loss from discontinued operations, net of income taxes | — |
| | (1,693 | ) | |
| Income (loss) from continuing operations | (32,685 | ) | | 28,825 |
| |
| | | | | | |
| Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: | | | | Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: | |
| Depreciation and amortization | 7,209 |
| | 8,025 |
| Depreciation and amortization | 7,560 | | | 7,981 | |
| Provisions (release) of doubtful accounts and sales allowances | (198 | ) | | 1,039 |
| |
| Unrealized foreign currency exchange loss | 27 |
| | 1,262 |
| |
| Settlement and impairment charges | 506 |
| | 1,694 |
| |
| Amortization of gain on sale leaseback of property | (1,944 | ) | | (1,946 | ) | |
| Gain (loss) from divestitures | 266 |
| | (51,959 | ) | |
| Deferred income tax provision | 24 |
| | 719 |
| |
| Non-cash operating lease expense | | Non-cash operating lease expense | 8,889 | | | 7,611 | |
| Release of doubtful accounts and sales allowances | | Release of doubtful accounts and sales allowances | (114) | | | (13) | |
| Unrealized foreign currency exchange (gain) loss | | Unrealized foreign currency exchange (gain) loss | (4) | | | 621 | |
| Impairment charges | | Impairment charges | 424 | | | 16,913 | |
| Loss (gain) on dispositions of property, equipment and software | | Loss (gain) on dispositions of property, equipment and software | 14 | | | (287) | |
| Deferred income tax provision (benefit) | | Deferred income tax provision (benefit) | 79 | | | (11) | |
| Share-based compensation expense | 1,270 |
| | 2,755 |
| Share-based compensation expense | 2,101 | | | 1,736 | |
| Change in operating assets and liabilities: | | | | Change in operating assets and liabilities: | |
| Trade accounts receivable | 16,735 |
| | 5,928 |
| Trade accounts receivable | (5,155) | | | 14,057 | |
| Restricted cash | 5,239 |
| | (6,673 | ) | |
| | Other assets | 5,111 |
| | 6,760 |
| Other assets | 641 | | | 1,209 | |
| Accounts payable | (3,723 | ) | | 4,475 |
| Accounts payable | 5,278 | | | (5,166) | |
| Accrued expenses and other liabilities | (4,107 | ) | | (11,072 | ) | Accrued expenses and other liabilities | 2,817 | | | 7,897 | |
| Income taxes | 774 |
| | 14,737 |
| Income taxes | (37) | | | (807) | |
| Net cash provided by (used in) operating activities | (5,496 | ) | | 4,569 |
| |
| Net cash provided by operating activities | | Net cash provided by operating activities | 23,867 | | | 18,154 | |
| | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |
| Sales of investments | 755 |
| | 884 |
| Sales of investments | 532 | | | 822 | |
| Purchases of investments | (443 | ) | | (380 | ) | Purchases of investments | (500) | | | (582) | |
| Net proceeds from divestitures | — |
| | 81,102 |
| |
| | Proceeds from sales of property, equipment and software | 19 |
| | 372 |
| Proceeds from sales of property, equipment and software | 20 | | | 399 | |
| 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 | (3,112) | | | (5,268) | |
| Net cash used in investing activities | | Net cash used in investing activities | (3,060) | | | (4,629) | |
| | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | |
| Repayment of borrowings | (124,696 | ) | | (77,050 | ) | Repayment of borrowings | — | | | (15,000) | |
| Draw-down on borrowings | 124,696 |
| | 30,000 |
| Draw-down on borrowings | — | | | 20,000 | |
| Debt issuance costs | (1,469 | ) | | (1,190 | ) | Debt issuance costs | (166) | | | (343) | |
| Proceeds from exercise of stock options | — |
| | 2 |
| |
| Withholding tax payment on vesting of restricted stock awards | (271 | ) | | (52 | ) | |
| Net cash used in financing activities | (1,740 | ) | | (48,290 | ) | |
| Other | | Other | (414) | | | (77) | |
| Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | (580) | | | 4,580 | |
| | | | | | | | |
| 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 | (51) | | | (116) | |
| | | | | |
| 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 | 20,176 | | | 17,989 | |
| | | | | |
| 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 | 56,433 | | | 38,444 | |
| Cash, cash equivalents and restricted cash, end of year | | Cash, cash equivalents and restricted cash, end of year | $ | 76,609 | | | $ | 56,433 | |
| | | | | | | | |
| Cash paid during the year: | | | | Cash paid during the year: | |
| Interest | $ | 2,765 |
| | $ | 3,840 |
| Interest | $ | 1,806 | | | $ | 2,297 | |
| Income taxes | $ | 3,341 |
| | $ | 3,521 |
| Income taxes | $ | 587 | | | $ | 1,979 | |
| | 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 | $ | 71,373 | | | $ | 38,550 | |
| Restricted cash | | Restricted cash | 5,236 | | | 17,883 | |
| Cash, cash equivalents and restricted cash, end of the period | | Cash, cash equivalents and restricted cash, end of the period | $ | 76,609 | | | $ | 56,433 | |
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
31, 2021
NOTE 1: Summary of Business and Significant Accounting Policies
We areVolt Information Sciences, Inc. (the “Company” or “Volt”) is 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. Our customer care solutions business specializes in serving as an extension of our 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 is traded on the NYSE AMERICAN under the symbol “VISI”“VOLT”.
(a)Fiscal Year
The Company’s fiscal year ends on the Sunday nearest October 31st. The fiscal years 20182021 and 20172020 consisted of 52 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 Recognition
All of the Company’s revenue and trade receivables are generated from contracts with customers. 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 scopecontrol 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.
Services are sometimes provided despite a customer arrangement not yet being finalized. In these cases, revenuepromised services 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 stafftransferred to the Company’s customers at an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Volt generally determines the standalone selling prices based on the prices included in the customer contracts. The Company’s revenue is recorded net of any sales or providing other servicessimilar taxes collected from its customers.
The majority of customer contracts have single 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 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.
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
31, 2021
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.
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(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).
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(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
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(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.
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(i) | Property, Equipment and Software, Net |
(i)Long-Lived Assets
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, equipmentii.Leases
The Company adopted Accounting Standards Codification (“ASC”) 842, Leases in the first quarter of fiscal 2020 and softwarerecognized assets and liabilities for leases with lease terms greater than twelve months in the statement of financial position. Volt determines if an arrangement meets the criteria of a lease at inception, at which time it also performs an analysis to
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 31, 2021
determine whether the lease qualifies as operating or financing.
Operating lease liabilities represent the present value of lease payments not yet paid. Right-of-use (“ROU”) assets represent Volt’s right to use an underlying asset and are reviewedbased 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 rate implicit in the lease is not readily determinable, the Company 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 the maturities of the leases.
iii.Impairment
The Company reviews its long-lived assets for impairment under ASC 360 Property, Plant and Equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or itrecoverable. When an impairment loss is no longer probable that software development will be completed. If circumstances require a long-livedrecognized, the carrying amount of the 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 groupis reduced to its carrying value. If the carryingestimated fair value of the long-lived asset or asset group is not recoverablebased on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds the fair value.analysis.
(j)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 assessesImpairment. This guidance allows for an initial qualitative test at the qualitative factors for reporting units that carry goodwill.unit level to determine if a quantitative analysis is needed. 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
The Company performs its annual impairment review of goodwill in its second fiscal quarter and when a qualitative assessment is not used, or iftriggering event occurs between annual impairment tests.In fiscal 2021, the Company decided to bypass the qualitative assessment is not conclusivetesting and it is necessary to calculate fair value of a reporting unit, thenperform the impairment analysis for goodwill is performed at the reporting unit level using a one-step approach.quantitative analysis. 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.(k)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 |
(l)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 StatementStatements of Operations. The Company has elected to
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 31, 2021
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.
(m)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.
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(n) | Fair Value Measurement |
In(n)Fair Value Measurement
Assets and liabilities recorded at fair value are measured and classified 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 transferusing a liability in an orderly transaction between market participants at the measurement date. When considering market participant assumptions in fair value measurements, the followingthree-tier 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 for goodwill and 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, 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 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.
The Company recognizes transfers between levelsobservability of the inputs available in the market to measure fair value hierarchy on the date of the event or change in circumstances that caused the transfer.value. Please refer to Note 5 for further detail.
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(o) | Legal and Other Contingencies |
(o)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 |
(p)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.
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(q) | Restructuring and Severance Charges |
(q)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 |
(r)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“in the money"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.
(s)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
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 31, 2021
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.
(t)Reclassifications
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
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(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.
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(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 statementsConsolidated Balance Sheet in order to conform to the current year’s presentation. Currently, the reclassifications are related to segment reporting changes.
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(w) | New Accounting Pronouncements |
(u)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 November 2021, the FASB issued ASU 2018-152021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This update requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This standard is effective for annual periods beginning after December 15, 2021. Early adoption is permitted. The amendments should be applied either (1) prospectively to all transactions within the scope of the amendments that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application or (2) retrospectively to those transactions. The Company is required to adopt the guidance in the first quarter of fiscal 2023. The Company is currently evaluating the impact of these amendments on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (ASC Topic 326), Intangibles - Goodwillas clarified in ASU 2019-04, ASU 2019-05, ASU 2019-11 and Other - Internal-Use Software (Subtopic 350-40): Customer's AccountingASU 2018-19, amending how entities will measure credit losses for Implementation Costs Incurred inmost financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a Cloud Computing Arrangement thatcurrent expected credit loss model, which is a Service Contract (“ASU 2018-15”), which alignnew 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 requirementscurrent methodology of delaying recognition of credit losses until it is probable a loss has been incurred. The amendments 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 isSmaller Reporting Companies are effective for fiscal years beginning after December 15, 20192022, which for the Company will be the first quarter of fiscal 2024. The Company expects to early adopt this ASU in the first quarter of fiscal 2023. 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 interim periods within those fiscal years. Early adoptionits 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 March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the amendments is permitted including adoption in any interim period.Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and 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. ASU 2018-15 should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. ASU 2018-15 is2020-04 was effective for the Company in the first quarter of fiscal 2021. The Company is currently evaluatingCompany’s securitization program references the LIBOR rate but only as a secondary rate to be used under specific circumstances. The adoption of this guidance had no significant impact that ASU 2018-15 has upon adoption on itsthe Company’s consolidated financial statements.
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 iswas effective for the Company in the first quarter of fiscal 2021. The Company does not anticipate a significant impact upon adoption.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 expands theadoption of this 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 are effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, which for the Company will be the first quarter of fiscal 2020. The Company does not anticipate a significant 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 ahad no significant impact on itsthe Company’s consolidated financial statements based on the instruments currently held and its historical trend of bad debt expense relating to trade accounts receivable.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). 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 are 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.statements.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
31, 2021
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 benefit 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 required on the deferred tax assets. Because the Company has provided a full valuation allowance against its net deferred tax assets, this adoption had no impact to the opening balance of total stockholder’s equity. The Company has elected to present the changes for excess tax benefits in the statement of cash flows prospectively and 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.
All other ASUs that became effective for Volt infor fiscal 20182021 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 salelease 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 its quality assurance business within12 months or less.
Upon adoption, the Technology Outsourcing ServicesCompany recorded approximately $47.2 million of ROU assets and Solutions segment$52.0 million of lease liabilities related 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 operationsoperating leases in the Consolidated StatementsBalance Sheets. 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 Operations forreal estate.
The Company’s material leases are classified as operating and consist of branch locations, as well as corporate office space. Our leases have remaining terms of 1 - 9 years. The lease term is the year ended October 29, 2017. The divestiture did not meet the criteria 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 componentminimum of the Company’s business. The pretax incomenon-cancelable period of the quality assurance businesslease or the lease term inclusive of reasonably certain renewal option periods.
The Company has elected the practical expedient to not separate non-lease components from the lease components to which they relate and instead account for each as a single lease component, for all underlying asset classes. Some leasing arrangements 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 lease payments is not included in the Company’sROU 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-use assets - operating leases and Operating lease liabilities, current and long-term, in the Consolidated Statements of Operations prior to the disposition was $4.5 million.
Concurrently with the sale, the Company entered into a Transition Services and Asset Transfer Agreement, under which the Company continued to provide certain accounting and operational support services to the buyer,Balance Sheet. Lease expense for operating leases is recognized on a monthly fee-for-servicestraight-line basis for a periodover the lease term and is included in Selling, administrative and other operating costs in the Consolidated Statement of up to six months post-closing. Operations. The Company’s finance lease arrangements are immaterial.
| | | | | | | | | | | |
| Year Ended |
| Components of Lease Expense (in thousands) | October 31, 2021 | | November 1, 2020 |
| Operating lease expense | $ | 8,785 | | | $ | 10,990 | |
| Sublease income | (1,799) | | | (1,577) | |
| Variable lease expense | 1,550 | | | 760 | |
Total (1) (2) | $ | 8,536 | | | $ | 10,173 | |
(1) The Company's short-term lease expense is immaterial.
(2) Lease expense included in restructuring is approximately $2.1 million and $0.3 million in fiscal 2021 and 2020, respectively.
| | | | | | | | | | | |
| Year Ended |
| Supplemental Cash Flows Information (in thousands) | October 31, 2021 | | November 1, 2020 |
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 10,829 | | | $ | 8,784 | |
| Operating ROU assets obtained in exchange for operating lease liabilities | $ | 3,122 | | | $ | 1,784 | |
| | | | | | | | | | | |
| Year Ended |
| Weighted Average Remaining Lease Term and Discount Rate | October 31, 2021 | | November 1, 2020 |
| Weighted average remaining lease term (years) | 7.4 | | 7.9 |
| Weighted average discount rate | 6.3 | % | | 6.3 | % |
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
31, 2021
| | | | | |
| Maturities of Lease Liabilities (in thousands) | As of October 31, 2021 |
| Fiscal Year | Amount |
| 2022 | $ | 9,022 | |
| 2023 | 7,622 | |
| 2024 | 6,028 | |
| 2025 | 5,418 | |
| 2026 | 4,283 | |
| Thereafter | 18,704 | |
| Total future lease payments | $ | 51,077 | |
| Less: Imputed interest | 10,626 | |
| Total lease liabilities | $ | 40,451 | |
Information Technology Infrastructure Business
In March 2017, the Company completed the sale 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 transaction in the second quarter of fiscal 2017.
Concurrently with the sale, the Company entered into 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 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 OperationsRevenue Recognition
On December 1, 2014,
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 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 completedhas the sale of its Computer Systems segmentright to NewNet Communication Technologies, LLC (“NewNet”),payment for the service. Each placement is a Skyview Capital, LLC, portfolio company. The proceedssingle performance obligation under the Company’s contracts and the related consideration is typically based upon a percentage of the transaction werecandidates’ base salary. Direct placement revenue is recognized net of 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 onreserve for permanent placement candidates that do not remain with the transaction date which approximated fair value. The unamortized discount for the note was $1.1 millioncustomer through the settlement date.
On October 27, 2017, the Companycontingency period, which is typically 60 days or less. This contingency is estimated based on historical data 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 recorded in the Consolidated Statements of Operations for 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 disposal in Discontinued operations in the Consolidated Statements of Operations for the year ended October 29, 2017.refund liability.
Managed Service Programs (“MSP”)
The following table reconcilesCompany’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 major line itemsindividual activities are not distinct, the Company accounts for these activities as a single performance obligation. Volt generally acts as an agent in its transactions within its MSP programs. The Company’s fee for these MSP services is a fixed percentage of the Company’s Consolidated Statementsstaffing services spend that is managed through the program. The Company recognizes revenue over time for each month of OperationsMSP services provided as the customer simultaneously receives and consumes the services the Company provides. The Company applies the practical expedient to recognize revenue for discontinued operations (in thousands):these services over the term of the agreement commensurate to the amount it has the right to invoice the customer.
|
| | | |
| | 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
31, 2021
Disaggregation of Revenues
The following table presents the Company's segment revenues disaggregated by service type (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| Fiscal Year Ended October 31, 2021 |
| Segment | Total | North American Staffing | International Staffing | North American
MSP | Corporate and Other | Eliminations |
| Service Revenues: | | | | | | |
| Staffing Services | $ | 845,135 | | $ | 729,830 | | $ | 87,574 | | $ | 27,380 | | $ | 456 | | $ | (105) | |
| Direct Placement Services | 16,357 | | 8,937 | | 5,389 | | 2,031 | | — | | — | |
| Managed Service Programs | 23,901 | | — | | 14,000 | | 9,901 | | — | | — | |
| $ | 885,393 | | $ | 738,767 | | $ | 106,963 | | $ | 39,312 | | $ | 456 | | $ | (105) | |
| | | | | | |
| Geographical Markets: | | | | | | |
| Domestic | $ | 774,093 | | $ | 735,209 | | $ | — | | $ | 38,959 | | $ | — | | $ | (75) | |
| International | 111,300 | | 3,558 | | 106,963 | | 353 | | 456 | | (30) | |
| $ | 885,393 | | $ | 738,767 | | $ | 106,963 | | $ | 39,312 | | $ | 456 | | $ | (105) | |
| | | | | | | | | | | | | | | | | | | | |
| 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 | | — | | — | |
| Managed Service Programs | 19,072 | | — | | 8,297 | | 10,775 | | — | | — | |
| $ | 822,055 | | $ | 689,095 | | $ | 95,308 | | $ | 37,915 | | $ | 674 | | $ | (937) | |
| | | | | | |
| Geographical Markets: | | | | | | |
| Domestic | $ | 722,985 | | $ | 686,252 | | $ | — | | $ | 37,582 | | $ | — | | $ | (849) | |
| International | 99,070 | | 2,843 | | 95,308 | | 333 | | 674 | | (88) | |
| $ | 822,055 | | $ | 689,095 | | $ | 95,308 | | $ | 37,915 | | $ | 674 | | $ | (937) | |
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.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 31, 2021
Accounts Receivable, Contract Assets and Contract Liabilities
The Company records accounts receivable when its right to consideration becomes unconditional and records a sales allowance as a liability. 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 any additions to the sales allowance are recorded as a reduction to net revenue.
As of October 31, 2021 and November 1, 2020, the change in the reserve balance was a decrease of $0.1 million and $0.1 million, respectively. 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 not have any material contract assets or long-term contract liabilities as of October 31, 2021 and November 1, 2020.
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. Deferred fulfillment costs were immaterial as of October 31, 2021 and November 1, 2020.
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 created significant volatility, uncertainty and global macroeconomic disruption. 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, 201831, 2021 and October 29, 2017November 1, 2020 restricted cash included $11.3$3.8 million and $15.1$9.2 million, respectively, restricted for payment to associate vendors and $0.5 million in both periods, restricted for other collateral accounts.
At October 31, 2021 and $1.9November 1, 2020, restricted cash also included $0.9 million and $8.2 million, respectively, restricted for other collaterized accounts.under the Company’s long-term accounts receivable securitization program (“DZ Financing Program”) with DZ Bank AG Deutsche Zentral-Genossenschaftsbank (“DZ Bank”). At October 31, 2021, this cash was restricted as it supplemented collateral provided by accounts receivable towards the Company’s aggregate borrowing base usage of $82.1 million, inclusive of $60.0 million outstanding and $22.1 million in issued letters of credit. At November 1, 2020, 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.
At October 28, 201831, 2021 and October 29, 2017,November 1, 2020, short-term investments were $3.1$3.5 million and $3.5$2.9 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.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 31, 2021
NOTE 5: Fair Value of Financial Instruments
The following table presents In accordance with ASC 820, Fair Value Measurements, assets and liabilities measuredrecorded at fair value (in thousands): |
| | | | | | | | | |
| | October 28, 2018 | | October 29,
2017 | | Fair Value Hierarchy |
| Short-term investments | $ | 3,063 |
| | $ | 3,524 |
| | Level 1 |
| Total financial assets | $ | 3,063 |
| | $ | 3,524 |
| | |
| Deferred compensation plan liabilities | $ | 3,063 |
| | $ | 3,524 |
| | Level 1 |
| Total financial liabilities | $ | 3,063 |
| | $ | 3,524 |
| | |
Theare measured and classified using a three-tier fair value of the deferred compensation plan liabilities ishierarchy based on the observability of the inputs available in the market to measure fair value, as described below:
a.Level 1 measurements consist of the investments corresponding to the employees’ investment selections, primarily in mutual funds, based onunadjusted quoted prices in active markets for identical assets. assets or liabilities.
b.Level 2 measurements include quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.
c.Level 3 measurements include significant unobservable inputs.
The carrying amounts of the Company’s financial instruments, which include cash, cash equivalents, restricted cash, accounts
receivable and accounts payable, approximated their fair values due to the short-term nature of these instruments.
The Company holds mutual funds to satisfy its obligations under its employee deferred compensation plan, liabilitywhich is carried at fair value based on quoted market prices in active markets for identical assets (Level 1). These short-term investments were $3.5 million and $2.9 million at October 31, 2021 and November 1, 2020, respectively. The carrying amounts of long-term debt recorded in Accrued compensation in the Company’s Condensed Consolidated Balance Sheets.Sheets was $59.3 million and $59.2 million at October 31, 2021 and November 1, 2020, respectively. This amount was net of deferred financing fees and approximated its fair value, which is determinable based on the interest rates the Company believes it could obtain for borrowings with similar terms (Level 2).
Certain assets, such as goodwill, are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Upon a triggering event or evidence of impairment, the Company determines the fair value of these assets using Level 3 inputs, typically within a discounted cash flow model.
There have been no changes in the methodology used to measure fair value of the financial instruments as well as no transfers between levelsany transfer of Level 3 assets or liabilities during the fiscal years ended October 28, 2018 and October 29, 2017.year 2021.
NOTE 6: Trade Accounts Receivable
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, 201831, 2021 and October 29, 2017,November 1, 2020, trade accounts receivable included unbilled receivables of $7.9$2.7 million and $12.9$3.2 million, respectively.
The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions, customers’ financial condition and current receivable aging and payment patterns. Additions to the allowance for doubtful accounts are recorded to Selling, administrative and other operating costs.costs in the Consolidated Statement of Operations. The Company also maintains a sales allowance for specific customers related to volume discounts and billing disputes. The amount of the sales allowance is determined based on discount estimates and historical credits issued and additions to the sales allowance are recorded as a reduction to net revenue. Account balances are written off against the allowances when the Company believes it is probable the amount will not be received.
For the years ended October 31, 2021 and November 1, 2020, the activity in the allowance accounts were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| November 3, 2019 | | Activity | | November 1, 2020 | | Activity | | October 31, 2021 |
| Allowance for doubtful accounts included in Trade accounts receivable | $ | 117 | | | $ | 102 | | | $ | 219 | | | $ | (82) | | | $ | 137 | |
| | | | | | | | | |
| Accrued sales reserve included in Accrued insurance and other | $ | 310 | | | $ | (148) | | | $ | 162 | | | $ | (72) | | | $ | 90 | |
| | | | | | | | | |
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
31, 2021
For the years ended October 28, 2018 and October 29, 2017, the activity in the allowance accounts were as follows (in thousands): |
| | | | | | | | | | | | | | | |
| | Balance at beginning of year | | Provision / (Release) | | Deductions | | Balance at end of year |
| Year Ended October 28, 2018: | | | | | | | |
| Sales allowance | $ | 895 |
| | $ | (190 | ) | | $ | — |
| | $ | 705 |
|
| Allowance for doubtful accounts | 354 |
| | (8 | ) | | (292 | ) | | 54 |
|
| Total | $ | 1,249 |
| | $ | (198 | ) | | $ | (292 | ) | | $ | 759 |
|
| | | | | | | | |
| | Balance at beginning of year | | Provision / (Release) | | Deductions | | Balance at end of year |
| Year Ended October 29, 2017: | | | | | | | |
| Sales allowance | $ | 213 |
| | $ | 682 |
| | $ | — |
| | $ | 895 |
|
| Allowance for doubtful accounts | 588 |
| | 357 |
| | (591 | ) | | 354 |
|
| Total | $ | 801 |
| | $ | 1,039 |
| | $ | (591 | ) | | $ | 1,249 |
|
NOTE 7: Property, Equipment and Software
Property, equipment and software consisted of (in thousands): | | | | | | | | October 31,
2021 | | November 1,
2020 |
| | October 28, 2018 | | October 29,
2017 | |
| Land and buildings | $ | 363 |
| | $ | 406 |
| |
| Machinery and equipment | 31,856 |
| | 32,250 |
| Machinery and equipment | $ | 30,537 | | | $ | 29,832 | |
| Leasehold improvements | 4,322 |
| | 4,775 |
| Leasehold improvements | 2,633 | | | 2,543 | |
| Less: Accumulated depreciation and amortization | (31,751 | ) | | (32,264 | ) | Less: Accumulated depreciation and amortization | (28,531) | | | (27,417) | |
| Property and equipment | 4,790 |
| | 5,167 |
| Property and equipment | 4,639 | | | 4,958 | |
| Software | 94,527 |
| | 94,032 |
| Software | 105,882 | | | 104,002 | |
| Less: Accumulated amortization | (74,925 | ) | | (70,078 | ) | Less: Accumulated amortization | (93,039) | | | (86,793) | |
| Property, equipment, and software, net | $ | 24,392 |
| | $ | 29,121 |
| |
| Property, equipment and software, net | | Property, equipment and software, net | $ | 17,482 | | | $ | 22,167 | |
Depreciation and amortization expense totaled $7.2$7.6 million and $8.0 million for the fiscal years ended 20182021 and 2017,2020, respectively. Depreciation and amortization is included in Cost of services and Selling, administrative and other operating costs in the Consolidated Statements of Operations.
NOTE 8: Impairment Charges
ImpairmentLong-lived Assets
Long-lived assets primarily consist of right-of-use assets, capitalized software costs, leasehold improvements and office equipment. The Company reviews these assets for impairment under ASC 360Property, EquipmentPlant and Software
As a resultEquipment whenever events or changes in circumstances indicate that the carrying amount of a system-wide upgradean asset may not be recoverable. When an impairment loss is recognized, the carrying amount of the asset is reduced to its operational and financial systems,estimated fair value based on discounted cash flow analysis or other valuation techniques.
In fiscal 2021, the Company identified previously purchased software that will no longer be used and incurredrecorded impairment charges of $0.5$0.4 million of capitalized software costs related to a change in the expected use of certain assets in the Corporate and Other category. There were no additional triggering events in fiscal 2021 that would indicate that the carrying amounts of any other of the Company’s long-lived assets may not be recoverable as of the end of the fiscal period.
In fiscal 2020, due to the economic impact of the COVID-19 pandemic, real estate rationalization decisions were made resulting in impairment charges of $16.1 million to reduce the carrying value of certain right-of-use assets to their estimated fair value. Significant assumptions used to estimate fair value were the current economic environment, real estate market conditions and general market participant assumptions. The Company also recorded impairment charges of $0.8 million primarily related to the leasehold improvements and office equipment associated with these closed facilities. Impairment charges of $1.9 million and $0.3$15.0 million in fiscal 2018were for the North American Staffing segment and fiscal 2017,the Corporate and Other category, respectively.
Impairment of Goodwill
The Company performs its annual impairment test for goodwill during the second quarter of the fiscal year and when a triggering event occurs between annual impairment tests. For the
Our fiscal 20182021 annual 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%13.0%. 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. DuringIt was determined that the fair value of the reporting unit exceeded its carrying value, therefore no adjustment to the carrying value of goodwill of $5.8 million was required as of the end of the second quarter of fiscal 2021.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
31, 2021
2018, it was determined that no adjustment to the carrying value of goodwill of $5.7 million was required as our Step 1 analysis resulted in the fair value of the reporting unit exceeding its carrying value.
During fiscal 2018 and 2017, no adjustment to the carrying value of goodwill was required.
The following represents the change in the carrying amount of goodwill, which is included in non-current Other assets in the Consolidated Balance Sheets, during each fiscal year (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | International Staffing |
| | November 3, 2019 | | Foreign Currency Translation Adjustment | | November 1, 2020 | | Foreign Currency Translation Adjustment | | October 31, 2021 |
| Aggregate goodwill acquired | $ | 10,483 | | | $ | — | | | $ | 10,483 | | | $ | — | | | $ | 10,483 | |
| Accumulated impairment losses | (3,733) | | | — | | | (3,733) | | | — | | | (3,733) | |
| Foreign currency translation adjustment | (1,353) | | | 5 | | | (1,348) | | | 309 | | | (1,039) | |
| Goodwill, net of impairment losses | $ | 5,397 | | | $ | 5 | | | $ | 5,402 | | | $ | 309 | | | $ | 5,711 | |
|
| | | | | | | |
| | International Staffing |
| | October 28, 2018 | | October 29, 2017 |
| Aggregate goodwill acquired | $ | 10,483 |
| | $ | 10,483 |
|
| Accumulated impairment losses | (3,733 | ) | | (3,733 | ) |
| Foreign currency translation adjustment | (1,399 | ) | | (1,274 | ) |
| Goodwill, net of impairment losses | $ | 5,351 |
| | $ | 5,476 |
|
NOTE 9: Restructuring and Severance Charges
The Company incurred total restructuring and severance costs of $8.2$2.8 million and $1.4$2.6 million for fiscal 20182021 and 2017,2020, respectively.
20182020 Restructuring Plan
On October 16, 2018,In the first quarter of fiscal 2020, the Company approved a restructuring plan (the “2018“2020 Plan”) based on an organizational and process redesign intendedas part of its strategic initiative to optimize the Company’s strategic growth initiativescost infrastructure. The 2020 Plan leveraged the global capabilities of the Company's staffing operations based in Bangalore, India and overall business performance. Inoff-shored a significant number of strategically identified roles to this location. The total costs incurred in fiscal 2020 in connection with the 20182020 Plan the Company incurred a restructuring chargewere $1.2 million, consisting of $4.3$0.1 million in North American Staffing, $0.1 million in International Staffing and $1.0 million in the fourth quarter of fiscal 2018 comprised of $1.5 million related to severanceCorporate and benefit costs and $2.8 million related to facility and lease termination costs. The lease termination costs primarily consist of the differential cost between the lease obligation for the former corporate office in New York, NY and the total sublease payments to be received pursuant to a sublease agreement entered into in the fourth quarter of fiscal 2018. The 2018 Plan is expected to be completed by the Company's fiscal year end on November 3, 2019. As of October 28, 2018, the Company anticipates payments of $2.2 million and $0.6 million will be made in fiscal 2019 and 2020, respectively. The remaining $1.3 million related to facility and lease termination costs will be paid through December 2025.
Change in Executive Management
Effective June 6, 2018, 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 of the Company (the “Board of Directors”). The Company and Mr. Dean subsequently executed a separation agreement, effective June 29, 2018. The Company incurred related severance costs of $2.6 million in the third quarter of fiscal 2018, which is payable over a period of 24 months.Other category.
Other Restructuring Costs
During fiscal 2018, there were other restructuring actions taken by the Company asAs part of its continued efforts to reduce costs, the Company recorded other restructuring costs. In fiscal 2021 and achieve operational efficiency. The2020, the Company recorded $1.8 million and $0.3 million, respectively, related to ongoing costs of facilities impaired in the second half of fiscal 2020. In fiscal 2021 and 2020, the Company recorded severance costs of $1.3$1.0 million and $1.1 million, respectively, primarily resulting from the elimination of certain positions.
Additionally, the Company incurred restructuring and severance costs of $1.4 million during fiscal 2017 under a cost reduction plan implemented in fiscal 2016 resulting primarily from a reduction in workforce, facility consolidation and lease termination costs.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
31, 2021
The following table presentstables present the restructuring and severance and benefit costs for the twelve months ended October 28, 201831, 2021 and October 29, 2017November 1, 2020 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended October 31, 2021 |
| Total | | North American Staffing | | International Staffing | | North American
MSP | | Corporate & Other |
| Severance and benefit costs | $ | 1,040 | | | $ | 112 | | | $ | 213 | | | $ | 130 | | | $ | 585 | |
| Other | 1,799 | | | (169) | | | — | | | — | | | 1,968 | |
| Total | $ | 2,839 | | | $ | (57) | | | $ | 213 | | | $ | 130 | | | $ | 2,553 | |
| | | | | | | | | |
| Year Ended November 1, 2020 |
| Total | | North American Staffing | | International Staffing | | North American
MSP | | Corporate & Other |
| Severance and benefit costs | $ | 1,163 | | | $ | 78 | | | $ | 136 | | | $ | — | | | $ | 949 | |
| 2020 Plan | 1,163 | | | 78 | | | 136 | | | — | | | 949 | |
| | | | | | | | | |
| Severance and benefit costs | (23) | | | — | | | — | | | — | | | (23) | |
| Other | 180 | | | — | | | — | | | — | | | 180 | |
| 2018 Plan | 157 | | | — | | | — | | | — | | | 157 | |
| | | | | | | | | |
| Severance and benefit costs | 1,137 | | | 764 | | | 193 | | | — | | | 180 | |
| Other | 184 | | | 41 | | | 9 | | | — | | | 134 | |
| Other | 1,321 | | | 805 | | | 202 | | | — | | | 314 | |
| | | | | | | | | |
| Total | $ | 2,641 | | | $ | 883 | | | $ | 338 | | | $ | — | | | $ | 1,420 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended October 28, 2018 |
| | Total | | North American Staffing | | International Staffing | | North American MSP | | Corporate & Other |
| Severance and benefit costs | $ | 1,526 |
| | $ | 401 |
| | $ | — |
| | $ | — |
| | $ | 1,125 |
|
| Other | 2,826 |
| | 428 |
| | — |
| | — |
| | 2,398 |
|
| 2018 Plan | 4,352 |
| | 829 |
| | — |
| | — |
| | 3,523 |
|
| | | | | | | | | | |
| Severance and benefit costs | 1,009 |
| | 103 |
| | 210 |
| | 37 |
| | 659 |
|
| Other | 246 |
| | — |
| | 118 |
| | 108 |
| | 20 |
|
| Other | 1,255 |
| | 103 |
| | 328 |
| | 145 |
| | 679 |
|
| | | | | | | | | | |
| Change in Executive Management | 2,635 |
| | — |
| | — |
| | — |
| | 2,635 |
|
| Total | $ | 8,242 |
| | $ | 932 |
| | $ | 328 |
| | $ | 145 |
| | $ | 6,837 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended October 29, 2017 |
| | Total | | North American Staffing | | International Staffing | | North American MSP | | Corporate & Other |
| Severance and benefit costs | $ | 1,301 |
| | $ | 294 |
| | $ | 24 |
| | $ | — |
| | $ | 983 |
|
| Other | 78 |
| | 88 |
| | (10 | ) | | — |
| | — |
|
| 2016 Plan | $ | 1,379 |
| | $ | 382 |
| | $ | 14 |
| | $ | — |
| | $ | 983 |
|
Accrued restructuring and severance costs are included in Accrued compensation and Accrued insurance and other in the Consolidated Balance Sheets. Activity for the fiscal years ended October 28, 201831, 2021 and October 29, 2017November 1, 2020 are summarized as follows (in thousands): | | | | | | | | | | | | | | | | | |
| | October 31, 2021 | | November 1, 2020 | |
| Balance, end of previous year | | $ | 212 | | | $ | 3,845 | | |
| Cease use liabilities transferred to ROU assets | | — | | | (1,964) | | |
| Charged to expense | | 2,839 | | | 2,641 | | |
| Cash payments | | (2,502) | | | (4,310) | | |
| Ending Balance | | $ | 549 | | | $ | 212 | | |
|
| | | | | | | | |
| | | October 28, 2018 | | October 29, 2017 |
| Balance, beginning of year | | $ | 297 |
| | $ | 1,653 |
|
| Charged to expense | | 8,242 |
| | 1,379 |
|
| Cash payments | | (2,837 | ) | | (2,735 | ) |
| Ending Balance | | $ | 5,702 |
| | $ | 297 |
|
as a reduction to the related ROU asset, per the accounting guidance. The remaining balance atas of October 28, 201831, 2021 of $5.7$0.5 million, primarilywas related to $0.2 million of severance costs in the International Staffing segment and $0.1 million in the North American MSP segment, as well as $0.2 million in the Corporate and Other includes $3.5 million related to the cost reduction plan implemented in fiscal 2018 and $2.2 million of other restructuring and severance charges.category.
NOTE 10: Accrued Insurance
(a)Casualty Insurance Program
Workers’ compensation insurance is purchased through mandated participation in certain state funds and the experience-rated premiums in these state plans relieve the Company of any additional liability. Liability for workers’ compensation in all other states as well as automobile and general liability (collectively "casualty liability"“casualty liability”) is insured under a paid loss deductible casualty insurance program for losses exceeding specified deductible levels. The Company is financially responsible for losses
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 31, 2021
below the specified policy deductible limits while losses incurred above the deductible limit are absorbed by the insurer. The casualty program is secured by a letter of credit against the Company'sCompany’s DZ Financing Program of $23.5$20.9 million as of October 28, 2018.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
31, 2021.
The Company recognizes expense and establishes 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. The Company develops 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. Expense recognized by the Company under its casualty insurance program amounted to $10.2$7.6 million and $9.3$6.4 million in fiscal 20182021 and 2017,2020, respectively. At October 31, 2021 and November 1, 2020, the casualty insurance liability was $13.9 million and $15.2 million, respectively. The current portion is included in Accrued insurance and other and the non-current portion is included in Accrued payroll taxes and other in the Consolidated Balance Sheets.
| |
(b) | Medical Insurance Programs |
(b)Medical Insurance Programs
The Company is self-insured for a portion of its medical benefit programs for its employees. Eligible contingent staff on assignment with customers are offered medical benefits through a fully insured program administered by 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. The Company’s retained liability for the self-insured medical benefits is determined utilizing actuarial estimates of expected claims based on statistical analysis of historical data. Amounts contributed by employees and additional amounts necessary to fund the self-insured program administered by the third party were transferred to a 501(c)(9) employee welfare benefit trust. The Company terminated the employee welfare benefit trust during October 2016. The Company records the expense associated with the expected losses, net of employee contributions, primarily in Cost of services or Selling, administrative and other operating costs in the Consolidated Statement of Operations, depending on the employee’s role. Expense recognized by the Company under its self-insured medical benefit programs amounted to $4.8$5.8 million and $7.1$4.9 million in fiscal 20182021 and 2017,2020, respectively. In fiscal 2017, the expense was reduced by the release of a reserve related to the dissolution of the employee welfare benefit trust of $1.4 million.
NOTE 11: Income Taxes
Income (loss) from continuing operations before income taxes is derived from (in thousands):
| | | | | | | | | | | |
| | Year Ended |
| | October 31, 2021 | | November 1, 2020 |
| U.S. Domestic | $ | (2,193) | | | $ | (34,889) | |
| International | 4,970 | | | 2,347 | |
| Income (loss) before income tax | $ | 2,777 | | | $ | (32,542) | |
|
| | | | | | | |
| | Year Ended |
| | October 28,
2018 | | October 29,
2017 |
| U.S. Domestic | $ | (36,077 | ) | | $ | 22,464 |
|
| International | 4,350 |
| | 9,749 |
|
| Income (loss) from continuing operations before income tax | $ | (31,727 | ) | | $ | 32,213 |
|
Income tax provision (benefit) by taxing jurisdiction consists of (in thousands): | | | | Year Ended | | Year Ended |
| | October 28,
2018 | | October 29,
2017 | | October 31, 2021 | | November 1, 2020 |
| Current: | | | | Current: | | | |
| U.S. Federal | $ | (1,423 | ) | | $ | (1,178 | ) | |
| U.S. State and local | 188 |
| | 448 |
| U.S. State and local | $ | 117 | | | $ | 118 | |
| International | 2,169 |
| | 3,399 |
| International | 1,207 | | | 938 | |
| Total current | $ | 934 |
| | $ | 2,669 |
| Total current | $ | 1,324 | | | $ | 1,056 | |
| Deferred: | | | | Deferred: | | | |
| U.S. Federal | $ | — |
| | $ | 1 |
| |
| U.S. State and local | (2 | ) | | 721 |
| |
| International | 26 |
| | (3 | ) | International | $ | 79 | | | $ | (11) | |
| Total deferred | 24 |
| | 719 |
| Total deferred | 79 | | | (11) | |
| Income tax provision | $ | 958 |
| | $ | 3,388 |
| Income tax provision | $ | 1,403 | | | $ | 1,045 | |
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 201831, 2021
The difference between the income tax provision on income (loss) and the amount computed at the U.S. federal statutory rate is due to (in thousands):
| | | | | | | | | | | |
| | Year Ended |
| | October 31, 2021 | | November 1, 2020 |
| U.S. Federal statutory rate | $ | 586 | | | $ | (6,834) | |
| U.S. State income tax, net of U.S. Federal tax benefits | 262 | | | (1,235) | |
| International permanent differences | 15 | | | 91 | |
| International tax rate differentials | 508 | | | 232 | |
| U.S. tax on international income | (173) | | | (705) | |
| General business credits | (351) | | | (999) | |
| Foreign tax credit, net | 1,558 | | | — | |
| Non-deductible compensation | 529 | | | — | |
| Non-deductible expenses | 92 | | | 66 | |
| Capital loss | — | | | 3,357 | |
| Change in valuation allowance for deferred tax assets | (1,623) | | | 7,072 | |
| Income tax provision | $ | 1,403 | | | $ | 1,045 | |
|
| | | | | | | |
| | Year Ended |
| | October 28,
2018 | | October 29,
2017 |
| U.S. Federal statutory rate | $ | (7,424 | ) | | $ | 11,275 |
|
| U.S. State income tax, net of U.S. Federal tax benefits | 212 |
| | 419 |
|
| International permanent differences | (161 | ) | | 651 |
|
| International tax rate differentials | 1,282 |
| | (467 | ) |
| U.S. tax on international income | (1,136 | ) | | 3,446 |
|
| General business credits | (2,400 | ) | | 1,099 |
|
| Meals and entertainment | 64 |
| | 163 |
|
| Other, net | (1,108 | ) | | (387 | ) |
| Change in valuation allowance for rate change | 26,798 |
| | — |
|
| Change in valuation allowance for dispositions | — |
| | (2,211 | ) |
| Change in valuation allowance for deferred tax assets | (15,169 | ) | | (10,600 | ) |
| Income tax provision | $ | 958 |
| | $ | 3,388 |
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and also include operating loss carryforwards. The significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
| | | | October 28,
2018 | | October 29,
2017 | | October 31, 2021 | | November 1, 2020 |
| Deferred tax assets: | | | | Deferred tax assets: | | | |
| Net operating loss carryforwards | $ | 55,522 |
| | $ | 66,806 |
| Net operating loss carryforwards | $ | 60,559 | | | $ | 61,723 | |
| Capital loss carryforwards | 3,403 |
| | 5,293 |
| |
| Interest carryforward | | Interest carryforward | 896 | | | 1,345 | |
| U.S. federal tax credit carryforwards | 51,288 |
| | 48,154 |
| U.S. federal tax credit carryforwards | 53,317 | | | 54,727 | |
| Deferred income | 6,366 |
| | 10,251 |
| |
| Operating lease liabilities | | Operating lease liabilities | 10,189 | | | 11,477 | |
| Deferred withholding tax | | Deferred withholding tax | 3,435 | | | 5,385 | |
| Compensation accruals | 4,305 |
| | 6,276 |
| Compensation accruals | 3,341 | | | 1,639 | |
| Other, net | 5,365 |
| | 8,738 |
| Other, net | 8,005 | | | 5,366 | |
| Total deferred tax assets | 126,249 |
| | 145,518 |
| Total deferred tax assets | 139,742 | | | 141,662 | |
| Less valuation allowance | (118,559 | ) | | (134,195 | ) | Less valuation allowance | (123,792) | | | (125,396) | |
| Deferred tax assets, net | 7,690 |
| | 11,323 |
| Deferred tax assets, net | 15,950 | | | 16,266 | |
| | | | | | | | |
| Deferred tax liabilities: | | | | Deferred tax liabilities: | |
| Unremitted earnings from foreign subsidiaries | 2,010 |
| | 3,453 |
| |
| Un-remitted earnings from foreign subsidiaries | | Un-remitted earnings from foreign subsidiaries | 1,518 | | | 1,725 | |
| Software development costs | 4,884 |
| | 6,403 |
| Software development costs | 8,453 | | | 7,914 | |
| Right-of-use assets - operating leases | | Right-of-use assets - operating leases | 5,530 | | | 6,178 | |
| Other, net | 959 |
| | 1,606 |
| Other, net | 450 | | | 452 | |
| Total deferred tax liabilities | 7,853 |
| | 11,462 |
| Total deferred tax liabilities | 15,951 | | | 16,269 | |
| Net deferred tax asset (liability) | $ | (163 | ) | | $ | (139 | ) | |
| Net deferred tax liabilities | | Net deferred tax liabilities | $ | (1) | | | $ | (3) | |
| | | | | | | | |
| Balance sheet classification | | | | Balance sheet classification | |
| Non-current assets | $ | 347 |
| | $ | 1,067 |
| Non-current assets | $ | — | | | $ | — | |
| Non-current liabilities | (510 | ) | | (1,206 | ) | Non-current liabilities | (1) | | | (3) | |
| Net deferred tax asset (liability) | $ | (163 | ) | | $ | (139 | ) | |
| Net deferred tax liability | | Net deferred tax liability | $ | (1) | | | $ | (3) | |
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 201831, 2021
At October 28, 2018,31, 2021, the Company has available unused U.S. federal net operating loss (“NOL”) carryforwards of $187.5$210.0 million, U.S. state NOL carryforwards of $224.1$226.3 million, international NOL carryforwards of $9.1 million, capital loss carryforwards of $12.9$8.3 million and federal tax credits of $51.3$53.3 million. As of October 28, 2018,31, 2021, the U.S. federal NOL carryforwards will expire at various dates between 2031 and 2038 (with some indefinite), the U.S. state NOL carryforwards expire at various dates between 2020 and 2038,beginning in 2022 (with some indefinite), the international NOL carryforwards expire at various dates beginning in 20192022 (with some indefinite), capital loss carryforwards expire between 2019 and 2022 and federal tax credits expire between 20202022 and 2037.2040. At October 28, 2018,31, 2021, the undistributed earnings of the Company’s non-U.S. subsidiaries are not intended to be permanently invested outside of the U.S. and therefore U.S. deferred taxes have been provided.
A valuation allowance has been recognized due to the uncertainty of realization of the loss carryforwards and other deferred tax assets. Beginning in fiscal 2010, the Company’s cumulative U.S. domestic and certain non-U.S. results for each three-year period were a loss. Accordingly, the Company recorded a full valuation allowance against its net U.S. domestic and certain net non-U.S. deferred tax assets as a non-cash charge to income tax expense. The three-year cumulative loss continued in fiscal 2018, 2017, and 20162021 so the Company maintained a full valuation allowance against its net U.S. domestic and certain net non-U.S. deferred tax assets resulting in a total valuation allowance of $118.6$123.8 million and $134.2$125.4 million for fiscal 20182021 and fiscal 2017,2020, respectively. In reaching this conclusion, the Company considered the U.S. domestic demand and recent operating losses causing the Company to be in a three-year cumulative loss position. 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.
The Company recognizes income tax benefits for tax positions determined more likely than not to be sustained upon examination based on the technical merits of the positions. The following table sets forth the change in the accrual for uncertain tax positions, excluding interest and penalties (in thousands): |
| | | | | | | |
| | October 28,
2018 | | October 29,
2017 |
| Balance, beginning of year | $ | 1,495 |
| | $ | 5,237 |
|
| Add related to current year tax provision | (10 | ) | | 269 |
|
Reduction for tax provision of prior years - (a) | — |
| | (2,973 | ) |
| Settlements | — |
| | (993 | ) |
| Lapse of statute of limitations | (994 | ) | | (45 | ) |
| Total | $ | 491 |
| | $ | 1,495 |
|
(a) - As a result of the sale of the quality assurance business, the parent-subsidiary relationship between the Company and Volt Canada, Inc. no longer exists and, as such, the indemnity granted at the time of sale of approximately $3.7 million is subject to recognition under ASC 460 by the Company. This amount had previously been recognized as part of the Company’s uncertain tax positions and has been reclassified to Accrued insurance and other under ASC 460. As of October 28, 2018, the liability provision was $1.6 million. | | | | | | | | | | | |
| October 31, 2021 | | November 1, 2020 |
| Balance, beginning of year | $ | 85 | | | $ | 283 | |
| Decrease relating to tax positions taken in a prior period | — | | | (3) | |
| Settlements | — | | | (195) | |
| Lapse of statute of limitations | (20) | | | — | |
| Total | $ | 65 | | | $ | 85 | |
Of the total unrecognized tax benefits at October 28, 201831, 2021 and October 29, 2017,November 1, 2020, approximately $0.5$0.1 million and $1.5$0.1 million, respectively, would affect the Company’s effective income tax rate, if and when recognized in future years. TheThere was no amount accrued for related potential interest and penalties at October 28, 2018 and October 29, 2017 was $0.1 million and $0.2 million, respectively.31, 2021. The income tax provision for the fiscal years ended October 28, 201831, 2021 and October 29, 2017November 1, 2020 included a reversal of reserves on uncertain tax provisions of $1.1less than $0.1 million and $1.3$0.2 million, respectively.
The Company is subject to taxation at the federal, state and local levels in the U.S. and in various international jurisdictions. With few exceptions, the Company is generally no longer subject to examination by the U.S. federal, state, local or non-U.S. income tax authorities for years before fiscal 2008.
On December 22, 2017, the U.S. President signed the Tax Cuts and Jobs Act (“Tax Act”) into law. The Tax Act includes a number of provisions, including the lowering of the U.S. corporate tax rate from 35.0% to 21.0%, and the establishment of a territorial-style system for taxing foreign-source income of domestic multinational corporations.
The Tax Act reduces the U.S. statutory tax rate from 35.0% to 21.0% effective January 1, 2018. U.S. tax law required that taxpayers with a fiscal year that begins before and ends after the effective date of a rate change calculate a blended tax rate based on the pro-rata number of days in the fiscal year before and after the effective date. As a result, for the fiscal year ending October 28, 2018, the Company’s statutory income tax rate is 23.4%. Our statutory rate will be approximately 21.0% for the
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
fiscal year ended November 3, 2019. Other provisions under the Tax Act are not effective for us until fiscal 2019, including limitations on deductibility of executive compensation and interest, as well as a new minimum tax on Global Intangible Low-Taxed Income (“GILTI”).
The SEC staff issued Staff Accounting Bulletin ("SAB") 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. The measurement period ended on December 22, 2018. There is no significant impact.
The Company did not record any change to its U.S. net deferred tax balances as of the enactment date since our U.S. net deferred tax assets are fully offset by a full valuation allowance. We have reduced our net deferred tax assets and corresponding valuation allowance by approximately $26.8 million for the fiscal year ended October 28, 2018.
Under the Tax Act, the Company may be subject to a Transition Tax on the untaxed foreign earnings of its foreign subsidiaries by deeming those earnings to be repatriated. Foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5% rate and the remaining earnings are taxed at an 8.0% rate. In calculating the Transition Tax, the Company must calculate the cumulative earnings and profits of each of the non-U.S. subsidiaries back to 1987. The Company has completed this computation and due to the Company’s cumulative historic foreign losses, the Company did not have an impact related to the Transition Tax. The Company also adjusted its deferred tax liability related to its unremitted earnings taking into consideration the impact of the reduced statutory rate and the Transition Tax computation. This adjustment did not have an impact on the Company’s financials as the decrease in deferred tax liability was offset by a corresponding adjustment to the Company’s valuation allowance.
NOTE 12: Real Estate Transactions
Orange, CA
In March 2016, Volt Orangeca Real Estate Corp., an indirect wholly-owned subsidiary of the Company, completed the sale of real property comprised of land and buildings with office space of approximately 191,000 square feet in Orange, California for a purchase price of $35.9 million. The Company concurrently entered into a Purchase and Sale Agreement (the “PSA”) and a Lease Agreement (the “Lease”) with Glassell Grand Avenue Partners, LLC (the “Buyer”), a limited liability company formed by Hines, a real estate investment and management firm, and funds managed by Oaktree Capital Management L.P., an investment management firm. The Buyer assigned the PSA and the Lease to Glassell Acquisitions Partners LLC, an affiliate of the Buyer, prior to the closing.
The transaction was accounted for as a sale-leaseback transaction and as an operating lease. The initial lease term is 15 years plus renewal options for two terms of five years, each based on the greater of fair market value at the time of the renewal or the base annual rent payable during the last month of the then-current term immediately preceding the extended period. The annual base rent was $2.9 million for the first year of the initial term and subsequently increases on each adjustment date by 3.0% of the then-current annual base rent. A security deposit of $2.1 million was required for the first year of the lease term which is secured by a letter of credit under the Company’s existing financing program, which was reduced to $1.4 million in the second quarter of fiscal 2017 and further reduced to $0.7 million in the second quarter of fiscal 2018. The security deposit will subsequently be reduced if certain conditions are met. Accordingly, the gain on sale of $29.4 million will be deferred and recognized in proportion to the related gross rental charges to expense over the lease term. For fiscal 2018 and 2017, the amortization was $1.9 million and $1.9 million, respectively.
NOTE 13: Debt
The Company’s primary sources of liquidity are cash flows from operations and proceeds from our financing arrangements.arrangement with DZ Bank. Both operating cash flows and borrowing capacity under the Company’s financing arrangementsDZ Financing Program are directly related to the levels of accounts receivable generated by its businesses. The Company’s operating cash flows consist primarily of collections of customer receivables offset by payments for payroll and related items for the Company’s contingent staff and in-house
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
employees; federal, foreign, state and local taxes; and trade payables. The Company’s level of borrowing capacity under its financing arrangementsthe DZ Financing Program increases or decreases in tandem with any change in accounts receivable based on revenue fluctuations.
The Company manages its cash flow and related liquidity on a global basis. The weekly payroll payments inclusive of employment-related taxes and payments to vendors are approximately $20.0$16.0 - $17.0 million. The Company generally targets minimum global liquidity to be 1.5 to 2.0 times its average weekly requirements. The Company also maintains minimum effective cash balances in foreign operations and uses a multi-currency netting and overdraft facility for its European entities to further minimize overseas cash requirements.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 31, 2021
On January 25, 2018,March 27, 2020, the Company entered into a two-year $115.0 million accounts receivable securitization program (“DZ Financing Program”) with DZ Bank AG Deutsche Zentral-Genossenschafsbank (“DZ Bank”) and exited its financing relationship with PNC Bank (“PNC Financing Program”). WhileU.S. government enacted the borrowing capacity was reduced from $160.0 million underCARES Act which, among other things, permits 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 sizedeferral of the DZ Financing Program may be increasedemployer’s portion of social security tax payments between March 27, 2020 and December 31, 2020. As a result, as of October 31, 2021, $26.2 million of employer payroll tax payments were deferred with $13.2 million paid on January 3, 2022 and the remaining payable with the approval of DZ Bank.December 31, 2022 tax payment in January 2023.
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, the Companythat subsidiary may request that DZ Bank make loans from timetime-to-time to time to the Company that subsidiary which are secured by liens on those receivables.
At October 28, 2018,In July 2019, the Company was subject to certain financialamended and portfolio performance covenants under ourrestated its long-term DZ Financing Program, including a minimum tangible net worthwhich was originally executed on January 25, 2018. The restated agreement allows for the inclusion of $40.0 million, positive net incomecertain accounts receivable from originators in fiscal year 2019, maximum debt to tangible net worth ratio of 3:1 and a minimum of $15.0the United Kingdom, which added an additional $5.0 - $7.0 million in liquid assets, as defined. At October 28, 2018,borrowing availability. In June 2020, the Company was in compliance with all debt covenants. At October 28, 2018, there was $38.3 million of borrowing availability,Maximum Facility Amount, as defined underin the DZ Financing program.
On June 8, 2018, the Company amended its DZ Financing Program, was reduced from $115.0 million to modify a provision in the calculation of eligible receivables, as defined. This amendment permits the Company to exclude the receivables of a single large, high-quality customer from its threshold limitation, resulting in additional borrowing capacity of approximately $10.0$100.0 million.
On January 4, 2019,In December 2020, the Company amended 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, 2023 to January 25, 2021;2024; (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, 2023 to $40.0 million in fiscal 2020; andJuly 25, 2024; (3) revise an existing covenant to maintain positive net income in any fiscal year ending after 2019;2020 to any fiscal year ending after 2021; (4) increasereplace 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 (5) revise 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 forincreased our overall availability under the Company.Program by $1.0 - $3.0 million. All other material terms and conditions remainof the DZ Financing Program remained 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 commercial paper (“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, 2018,31, 2021, the letter of credit participation was $25.4$22.1 million, inclusive of $23.5$20.9 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.
The Company is subject to certain financial and portfolio performance covenants under the DZ Financing Program, including (1) a minimum TNW, as defined in the DZ Financing Program, of at least $20.0 million through the Company's fiscal quarter ending on or about July 31, 2021 and $25.0 million in each quarter thereafter; (2) positive net income in any fiscal year ending after 2021; (3) maximum debt to tangible net worth ratio of 3:1; and (4) a minimum of $15.0 million in liquid assets, as defined under DZ Financing Program. At October 31, 2021, the Company was in compliance with all debt covenants. At October 31, 2021, there was $6.0 million of borrowing availability, as defined under the DZ Financing Program.
At October 31, 2021 and November 1, 2020, the Company had outstanding borrowings under the DZ Financing Program of $60.0 million and $60.0 million, respectively, with a weighted average annual interest rate of 1.9% and 2.6% during fiscal 2021 and 2020, respectively.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of October 28, 2018
31, 2021
The Company 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 expects 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 were 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, the Company entered into Amendment No. 10 to the PNC Financing Program, which gave the Company 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.
At October 28, 2018, the Company had outstanding borrowings under the DZ Financing Program of $50.0 million, with a weighted average annual interest rate of 3.6% during fiscal 2018. At October 29, 2017, the Company had outstanding borrowings under the PNC Financing Program of $50.0 million with a weighted average annual interest rate of 3.1% during fiscal 2017, which is inclusive of certain facility fees.
Long-term debt consists of the following (in thousands):
| | | | | | | | | | | |
| | October 31,
2021 | | November 1,
2020 |
| Financing programs | $ | 60,000 | | | $ | 60,000 | |
| Less: | | | |
| Deferred financing fees | 693 | | | 846 | |
| Total long-term debt, net | $ | 59,307 | | | $ | 59,154 | |
The following tables present certain unaudited consolidated quarterly financial information for each quarter in the fiscal years ended October 28, 201831, 2021 and October 29, 2017November 1, 2020 (in thousands, except per share amounts):