UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x
o
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 3, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number: 001-09232
VOLT INFORMATION SCIENCES, INC.
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of
incorporation or organization)
50 Charles Lindbergh Boulevard, Uniondale, New York
(Address of principal executive offices)
13-5658129
(I.R.S. Employer Identification No.)
11553
(Zip Code)
Registrant’s telephone number, including area code:
(516) 228-6700
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Common Stock $0.10 Par Value
Trading Symbol(s)
VOLT
Name of each exchange on which registered
NYSE AMERICAN
Securities Registered Pursuant to Section 12(g) of the Act:
(Title of class)
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 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,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange
Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Smaller reporting company x
Emerging growth company o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
As of April 28, 2019, there were 21,211,828 shares of common stock outstanding. The aggregate market value of the voting and non-voting common stock held by non-
affiliates as of April 28, 2019 was $61,647,969, calculated by using the closing price of the common stock on such date on the NYSE AMERICAN market of $4.92.
As of January 10, 2020, there were 21,408,659 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement to be filed for its 2020 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 NOVEMBER 3, 2019
TABLE OF CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services
ITEM 15.
Exhibits, Financial Statement Schedules
Signatures
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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:
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competition within the staffing industry which has few significant barriers to
entry;
weak economic and uncertain business
conditions;
failure to comply with financial
covenants;
inability to renew our credit facility 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 claims and other claims from clients and third
parties;
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;
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 and/or
interruption;
inability to attract and retain high quality personnel and members of
management;
changes in sentiment toward the staffing industry that could affect the marketplace for our
services;
inability to retain acceptable insurance coverage limits at a commercially reasonable cost and
terms;
unexpected changes in workers' compensation and other insurance
plans;
impairment charges relating to our goodwill and long-lived
assets;
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 of 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.
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ITEM 1.
BUSINESS
PART I
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) as well as technical, information technology and engineering (professional) positions. Our managed service
programs (“MSP”) involve managing the procurement and on-boarding of contingent workers from multiple providers. Through June 2019, when we exited this business, our
customer care solutions business specialized 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 which included 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 70 of its own locations and has an on-site presence in over 50 customer locations. Approximately 88% of our revenue is generated in the
United States where we have employees in nearly all 50 states. Our principal non-U.S. markets include Europe, Canada and Asia Pacific locations. Our global footprint
enables us to deliver consistent quality to our large strategic customers that require an established international presence.
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 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 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.
In June 2019, the Company exited its customer care solutions business, which is currently reported as a part of the Corporate and Other category. This exit allows the
Company to further strengthen its focus on its core staffing business and align its resources to streamline operations, improve cost competitiveness and increase profitability.
The Company’s other non-reportable businesses will continue to be combined and disclosed with corporate services under the category Corporate and Other.
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 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.
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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, and 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 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 corporate services and remote hire services business in India, as well as our customer care solutions business through June
2019 and our quality assurance services and information technology infrastructure services businesses in fiscal 2017. 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 corporate services provide entity-wide general and administrative functions that support all of our segments.
Our remote hire services business in India provides skilled resources, technical infrastructure, and management for various areas including software development, engineering,
web design, technical support, call center operations, sales and marketing, customer service, research, and back-office accounting and administration.
Through the date of sale in October 2017, our quality assurance services business assisted in ensuring our customers’ products perform as designed. These services extended
to game, hardware, software, consumer product as well as 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.
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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.
Business Strategy
Strengthened the Foundation
Beginning in 2016, the Company 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 sold our non-core businesses including our
quality assurance and our information technology infrastructure businesses in fiscal 2017 and exited our customer care solutions business in fiscal 2019. 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 encompassed our front and back-office financial suite that is critical to our success and offered more
functionality at a lower cost to the Company. 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 continue to realize organic growth opportunities, reduce costs,
and increase profitability.
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 (“DZ Financing Program”) with DZ Bank AG Deutsche Zentral-
Genossenschafsbank (“DZ Bank”) which improved our debt maturity profile and provided additional runway to execute our strategic plan. During fiscal 2019, we amended
and restated the agreement to allow for the inclusion of certain accounts receivable from an originator in the United Kingdom further expanding our borrowing availability.
Current Strategic Priorities
In fiscal 2018 and 2019, we hired prominent staffing industry veterans to strengthen our 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:
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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 allow 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.
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 attracting 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. 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.
Growth and Expansion - Achieve revenue and margin growth with new and existing client relationships, through realigned sales and delivery efforts. We are re-
establishing 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.
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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 and generating positive cash flows. 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 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 new information
technology systems, which will support our front-end recruitment and placement capabilities as well as increase efficiencies in our back-office financial suite. We are
also investing in our sales and recruiting process and resources, which are critical to drive profitable revenue growth; 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 (as well as customer care solutions through June 2019 and quality assurance services and information technology infrastructure services in fiscal 2017). The
Company had no single customer that accounted for more than 10% of consolidated net revenue in fiscal 2019, 2018 or 2017. Our top 10 customers, which are not the same in
each year, represented approximately 39%, 36% and 30% of revenue in fiscal 2019, 2018 and 2017, 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 2019, the International Staffing segment’s revenue included three customers which accounted for approximately 15%, 13% and 11% of the total revenue of that
segment. The North American MSP segment’s revenue included two customers which accounted for approximately 24% and 11% of the total revenue of that segment.
In fiscal 2018, the International Staffing segment’s revenue included three customers which accounted for approximately 13%, 12% and 11% of the total revenue of that
segment. The North American MSP segment’s revenue included one customer which accounted for approximately 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.
For fiscal 2019, 2018 and 2017, 88%, 88% and 87% of our total revenue, respectively, was from customers in the United States.
Competition
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, Kelly Services, Inc., Manpower Group and 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, REMOTEHIRE and VOLTSOURCE are other registered trademarks in the United
States. The Company also owns and uses common law trademarks and service marks.
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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 few 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
As of November 3, 2019, Volt employed approximately 17,100 people, including approximately 15,900 who were on contingent staffing assignments, with the remainder as
full-time employees. The workers on contingent staffing assignments are on our payroll for the length of their assignment.
We are focused on developing a team that has both strong and deep experience and the leadership skills that are required to support our growth. Our strategy is to be a leader
in the markets we serve, which we plan to achieve by developing new workforce capabilities and a committed, diverse world-class management team.
We believe that our relations with our employees are satisfactory. While claims and legal actions related to staffing matters arise on a routine basis, we believe they are
inherent in maintaining a large workforce.
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’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, Code of Business Conduct and Ethics, Whistleblower Policy, Foreign Corrupt
Practices Act Policy, Equal Employment Opportunity 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, Suite 206, Uniondale, NY 11553,
Attention: Shareholder Relations, or by calling us at 817-778-8424.
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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 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.
Our business is adversely affected by weak economic and other business conditions
During periods of elevated unemployment levels, demand for contingent and permanent personnel decreases, which adversely impacts our staffing services. During slower
economic activity, many companies tend to reduce their use of contingent workers and reduce their recruitment of new employees. Decreased demand and higher
unemployment levels result in lower levels of pay rate increases and increased pressure on our markup of staffing service rates, direct margins and higher unemployment
insurance costs.
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 November 3, 2019, we were in compliance with all covenant requirements.
The inability to renew our credit facility 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 volatility in credit and capital markets may create additional risks to our business in the future. Turmoil in the credit markets or a contraction in the availability of
credit 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.
9
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.
10
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 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, resource challenges 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 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 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
11
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.”) 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 continue to be
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 volatility 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, trade negotiations and policies of
various governmental and regulatory agencies and, in particular, the Federal Reserve Board. 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, implementation and operation 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,
12
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.
Changes in sentiment toward the staffing industry could affect the marketplace for our services
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.
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.
Unexpected changes in 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.
13
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.
Decline in our operating results could lead to impairment charges relating to our goodwill 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 estimates and assumptions could result in the impairment of our goodwill or long-lived assets. In the event that we determine that our goodwill or long-lived
assets are impaired, we may be required to record a significant non-cash charge to earnings that could adversely affect our results of operations.
Our stock price could be volatile 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, 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;
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 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 are 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 shareholders might
be able to control the outcome of matters requiring shareholder approval and could have significant influence over our affairs. The interests of our substantial 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.
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.
14
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. In addition, provisions of our articles of incorporation and by-laws include:
•
•
•
requiring advance notice for shareholder proposals and director
nominees;
permitting removal of directors only 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.
ITEM 1B.
None.
UNRESOLVED STAFF
COMMENTS
15
ITEM 2. PROPERTIES
Our corporate headquarters is located in approximately 11,000 square feet at 50 Charles Lindbergh Boulevard, Uniondale, New York 11553. A summary of our principal
owned and leased properties (those exceeding 20,000 square feet) that are currently in use is set forth below:
Location
Business Segment/Category
Orange County, California
North American Staffing
North American MSP
Corporate & Other
Own/Lease
Lease
Lease
Expiration
2031
Approximate
Square Feet
200,000
We lease space in approximately 70 other facilities, excluding month-to-month leases, each of which consists of less than 20,000 square feet. The Company’s leases expire at
various times from 2020 until 2031.
At times, we lease space to others in the buildings that we occupy if we do not require the space for our own business. We believe that our facilities are adequate for our
presently anticipated uses, and we are not dependent upon any individual leased premises.
For additional information pertaining to lease commitments, see our Note 16 (a) on Commitments and Contingencies 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.
ITEM 4.
MINE SAFETY
DISCLOSURES
Not applicable.
16
PART II
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 November 3, 2019, 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 “VOLT”. Prior to September 9, 2019, our common stock was traded on the NYSE AMERICAN
under the symbol “VISI”. 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 November 3, 2019 and October 28, 2018. 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
2019
2018
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
High
Low
$
$
$
$
3.70 $
2.15 $
4.70 $
3.60 $
5.00 $
3.67 $
4.45 $
2.60 $
4.84 $
4.15 $
4.00 $
2.65 $
4.64
2.76
3.85
2.70
On January 10, 2020, there were 232 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 November 3, 2019 and through the date of this report.
Issuer Purchases of Equity Securities
There were no shares purchased in the fourth quarter of fiscal 2019.
17
ITEM 6.
SELECTED FINANCIAL
DATA
The following selected financial data reflects the results of operations and balance sheet data for the fiscal years ended November 3, 2019, October 28, 2018, and October 29,
2017. 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.
For the year ended,
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA
Net revenue
Operating income (loss)
Income (loss) from continuing operations, net of income taxes
Loss from discontinued operations, net of income taxes
Net income (loss)
PER SHARE DATA:
Basic:
Income (loss) from continuing operations
Loss from discontinued operations
Net income (loss)
Weighted average number of shares
Diluted:
Income (loss) from continuing operations
Loss from discontinued operations
Net income (loss)
Weighted average number of shares
(in thousands)
BALANCE SHEET DATA
Cash and cash equivalents
Working capital
Total assets
Short-term borrowings, including current portion of long-term debt
Long-term debt, excluding current portion
Total stockholders’ equity
Note - Cash dividends were not declared or paid during the above periods.
Volt Information Sciences, Inc. and Subsidiaries
Selected Financial Data
November 3,
2019
53 weeks
October 28,
2018
52 weeks
October 29,
2017 (a)
52 weeks
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
997,090 $
(9,833) $
(15,186 ) $
— $
(15,186 ) $
(0.72 ) $
—
(0.72 ) $
21,119
(0.72 ) $
—
(0.72 ) $
21,119
1,039,170 $
(28,407 ) $
(32,685 ) $
— $
(32,685 ) $
1,194,436
39,163
28,825
(1,693)
27,132
(1.55 ) $
—
(1.55 ) $
21,051
(1.55 ) $
—
(1.55 ) $
21,051
1.38
(0.08 )
1.30
20,942
1.37
(0.08 )
1.29
21,017
November 3,
2019
October 28,
2018
October 29,
2017 (a)
28,672 $
89,352 $
218,004 $
— $
55,000 $
36,189 $
24,763 $
104,171 $
236,696 $
— $
50,000 $
50,499 $
37,077
81,881
284,809
50,000
—
83,994
(a) Fiscal 2017 included a $48.0 million gain from the sale of our quality assurance business and a $3.9 million gain from the sale of our information
technology business.
18
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 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 of Non-GAAP measures on a constant currency basis and the elimination of special items 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 currency fluctuations or special items that management believes make it more difficult to understand and evaluate our results of operations.
Special items generally include impairments, restructuring and severance costs, as well as certain income or expenses that the Company does not consider to be indicative of
the current and future period performance.
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 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 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 (“FASB”) Accounting Standards Codification 280,
Segment Reporting (“ASC 280”), aligning with the way the Company evaluates its business performance and manages its operations.
In June 2019, the Company exited its customer care solutions business, which was reported as a part of the Corporate and Other category. This exit allows the Company to
further strengthen its focus on its core staffing business and align its resources to streamline operations, improve cost competitiveness and increase profitability. The
Company’s other non-reportable businesses will continue to be combined and disclosed with corporate services under the category Corporate and Other.
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)
as well as technical, information technology and engineering (professional) positions. Our managed service programs (“MSP”) involves managing the procurement and on-
boarding of contingent workers from multiple providers. Through June 2019, when we exited this business, our customer care solutions business specialized in serving as an
extension of our customers’ consumer relationships and processes including collaborating with customers, from help desk inquiries to advanced technical support.
As of November 3, 2019, we employed approximately 17,100 people, including 15,900 contingent workers. Contingent workers are on our payroll for the length of their
assignment. We operate in approximately 70 of our own locations and have an on-site presence in over 50 customer locations. Approximately 88% of our revenue is generated
in the United States. Our principal international markets include Europe, Canada and Asia Pacific locations. The industry is highly fragmented and very competitive in all of
the markets we serve.
19
Recent Developments
On January 14, 2020, the Company executed an amendment to the DZ Financing Program. The modifications to the agreement were to (1) extend the Amortization Date, as
defined, from January 25, 2021 to January 25, 2023, and extend the Facility Maturity Date, as defined, from July 25, 2021 to July 25, 2023; and (2) revise an existing
covenant to maintain positive net income in any fiscal year ending after 2020. All other terms and conditions remain unchanged.
In the first quarter of fiscal 2020, the Company approved a restructuring plan (the “Plan”) as part of its strategic initiative to optimize the Company’s cost infrastructure.
Included in this initiative is the Company’s plan to leverage the global capabilities of our staffing operations based in Bangalore, India and offshore a significant number of
strategically identified roles to this location. The plan will affect approximately 125 employees. The Company expects to incur a total estimated pre-tax restructuring charge of
approximately $1.2 million of severance and benefit costs in the first half of its fiscal year ending November 1, 2020. As a result of this offshoring plan, along with executing
on additional organizational cost savings initiatives during fiscal 2020, the Company estimates it will realize annualized net savings of approximately $10.0 million.
20
Consolidated Results of Continuing Operations and Financial Highlights (Fiscal 2019 vs. Fiscal 2018)
Results of Continuing Operations by Segment (Fiscal 2019 (53 weeks) vs. Fiscal 2018 (52 weeks) )
(in thousands)
Net revenue
Cost of services
Gross margin
Selling, administrative and other operating costs
Restructuring and severance costs
Impairment charges
Operating income (loss)
Other income (expense), net
Income tax provision
Net loss
(in thousands)
Net revenue
Cost of services
Gross margin
Selling, administrative and other operating
costs
Restructuring and severance costs
Impairment charges
Operating income (loss)
Other income (expense), net
Income tax provision
Net loss
$
Total
North American
Staffing
International
Staffing
North American
MSP
Corporate and
Other (1)
Elimination (2)
Year Ended November 3, 2019
$
997,090
$
830,947
$
114,377
$
708,824
122,123
103,437
719
4
17,963
95,552
18,825
15,422
510
—
2,893
844,527
152,563
157,052
4,656
688
(9,833)
(4,375)
978
$
(15,186 )
Year Ended October 28, 2018
39,010 $
28,324
10,686
5,595
68
—
5,023
15,320 $
14,391
929
32,598
3,359
684
(35,712 )
(2,564)
(2,564)
—
—
—
—
—
Total
$
1,039,170
$
International Staffing
$
117,351
$
North American
Staffing
860,544
735,050
125,494
112,459
932
—
12,103
North American
MSP
Corporate and Other
(1)
Elimination (2)
29,986 $
22,637
7,349
35,228 $
33,104
2,124
5,571
145
—
1,633
39,321
6,837
506
(44,540 )
(3,939)
(3,939)
—
—
—
—
—
98,640
18,711
15,986
328
—
2,397
885,492
153,678
173,337
8,242
506
(28,407 )
(3,320)
958
(32,685 )
(1) Revenues are primarily derived from Volt Customer Care Solutions business through June 2019.
(2) The majority of intersegment sales results from North American Staffing providing resources to Volt Customer Care Solutions business.
Results of Operations Consolidated (Fiscal 2019 vs. Fiscal 2018)
Net revenue in fiscal 2019 decreased $42.1 million, or 4.0%, to $997.1 million from $1,039.2 million in fiscal 2018, including the impact of fiscal 2019 consisting of 53 weeks
while fiscal 2018 consisted of 52 weeks. The revenue decline was primarily due to decreases in our North American Staffing segment of $29.6 million, the Corporate and
Other category of $19.9 million and the negative impact of foreign currency fluctuations of $6.0 million. These decreases were partially offset by an increase of $9.0 million
in our North American MSP segment and $3.0 million in our International Staffing segment on a constant currency basis. Excluding the impact on net revenue of the 53rd
week in fiscal 2019 of approximately $18.9 million, foreign currency fluctuations and $20.5 million in revenue from businesses exited during the periods, net revenue
decreased $34.4 million, or 3.5%.
Operating loss in fiscal 2019 decreased $18.6 million, or 65.4%, to $9.8 million from $28.4 million in fiscal 2018. Excluding the businesses exited during the periods, as well
as restructuring and severance costs and impairment charges, operating loss in fiscal 2019 decreased $14.6 million, or 67.2%. This decrease in operating loss of $14.6 million
was primarily the result of improvements in our North American Staffing segment of $4.9 million and North American MSP segment of $3.1 million. In addition, the
Corporate and Other category improved by $6.2 million primarily as a result of reductions in corporate support costs.
21
Results of Continuing Operations by Segments (Fiscal 2019 vs. Fiscal 2018)
Net Revenue
The North American Staffing segment revenue decreased $29.6 million, or 3.4% in fiscal 2019. Excluding the impact of the 53rd week in fiscal 2019 of approximately $15.8
million partially offset by revenue from our customer care solutions business, which we exited in June 2019, of $1.2 million, revenue decreased $44.2 million or 5.1% in fiscal
2019. The segment's revenue was impacted by lower demand from certain large customers and changes in other customers' staffing models, partially offset by growth from
new and existing customers. This was primarily driven by decreases from our customers in our administrative and office job category and to a lesser extent in our professional
job category. The year over year decrease in revenue improved from a decline of 6.4% in fiscal 2018 compared to fiscal 2017.
The International Staffing segment revenue decreased $3.0 million, or 2.5%. Excluding the negative impact of foreign currency fluctuations of $6.0 million and $0.7 million
of revenue from a business exited in fiscal 2018, partially offset by the 53rd week in fiscal 2019 of approximately $2.2 million, International Staffing revenue increased by
$1.5 million, or 1.3%, primarily due to growth in direct hire and managed service business.
The North American MSP segment revenue increase of $9.0 million, or 30.1%, was primarily due to growth in both payroll service and managed service businesses.
Excluding the 53rd week in fiscal 2019 of approximately $0.9 million, revenue increased $8.1 million, or 27.1%. The loss of several programs in early fiscal 2018 was offset
by new contracts and program expansions in the latter half of the year.
The Corporate and Other category revenue decreased $19.9 million, or 56.5%, primarily as a result of our exit from the customer care solutions business in the beginning of
June 2019.
Cost of Services and Gross Margin
Cost of services in fiscal 2019 decreased $41.0 million, or 4.6%, to $844.5 million from $885.5 million in fiscal 2018. Excluding the impact on cost of services of the 53rd
week in fiscal 2019 of approximately $15.6 million, cost of services in fiscal 2019 decreased $56.5 million, or 6.4%, to $829.0 million. Gross margin as a percent of revenue in
fiscal 2019 increased to 15.3% from 14.8% in fiscal 2018. Our North American Staffing segment margin as a percent of revenue improved as a result of lower payroll tax
rates, partially offset by a higher mix of larger price-competitive customers and a decline in higher-margin direct hire revenue. In addition, our North American MSP segment
margin as a percent of revenue increased due to increases in both payroll and managed service businesses. This improvement was partially offset by lower margins from our
customer care solutions business which we exited in June 2019 and lower headcount from reduced client demand earlier in the year. Excluding this business, gross margin
increased to 15.5% and 15.1% in fiscal years 2019 and 2018, respectively.
Selling, Administrative and Other Operating Costs
Selling, administrative and other operating costs in fiscal 2019 decreased $16.2 million, or 9.4%, to $157.1 million from $173.3 million in fiscal 2018. Excluding the impact
on selling, administrative and other operating costs of the 53rd week in fiscal 2019 of approximately $2.6 million, selling, administrative and other operating costs in fiscal
2019 decreased $18.8 million, or 10.9%, to $154.5 million. This decrease was primarily due to on-going cost reductions in all areas of the business including $13.1 million in
labor costs due to lower headcount and revised incentive plans, $2.4 million in facility related costs and $1.0 million in travel expenses. In addition, legal and consulting fees
were $3.0 million lower primarily related to corporate and cost-efficiency initiatives in the first quarter of 2018. These improvements were offset by $1.9 million in higher
medical claims experience in fiscal 2019. As a percent of revenue, these costs were 15.8% and 16.7% in fiscal years 2019 and 2018, respectively.
Restructuring and Severance Costs
On October 16, 2018, the Company approved a restructuring plan (the “2018 Plan”) based on an organizational and process redesign intended to optimize the Company's
strategic growth initiatives and overall business performance. Restructuring and severance costs in fiscal 2019 decreased $3.5 million to $4.7 million from $8.2 million in
fiscal 2018. The costs in fiscal 2019 primarily included $2.1 million of severance and lease termination costs in connection with exiting our customer care solutions business,
$1.0 million incurred under the 2018 Plan and $0.9 million incurred in accordance with the separation agreement with the former Chief Financial Officer. The remaining $0.7
million of restructuring and severance costs were from other restructuring actions taken by the Company as part of its continued efforts to reduce costs and achieve
operational efficiency.
In fiscal 2018, costs primarily included $4.4 million incurred under the 2018 Plan and $2.6 million incurred in accordance with the separation agreement with the Company's
former President and Chief Executive officer. The remaining $1.2 million of
22
restructuring and severance costs are from other restructuring actions taken by the Company as part of its continued efforts to reduce costs and achieve operational efficiency.
Impairment Charges
Impairment charges in fiscal 2019 increased $0.2 million to $0.7 million from $0.5 million in fiscal 2018. In fiscal 2019, we recorded an impairment charge of $0.3 million on
equipment used in our customer care solutions business, $0.3 million on software no longer in use and $0.1 million on equipment in closed facilities. In fiscal 2018, we made
the decision to forgo future use of a previously purchased software tool, which resulted in an impairment charge of $0.5 million.
Other Income (Expense), net
Other expense in fiscal 2019 increased $1.1 million, or 31.8%, to $4.4 million from $3.3 million in fiscal 2018 primarily as a result of non-cash net foreign exchange loss on
intercompany balances as well as increased interest expense as a result of higher weighted-average rates and an increase in borrowings under our financing program. These
increases were partially offset by lower amortization of deferred financing fees.
Income Tax Provision
Income tax provision in fiscal 2019 amounted to $1.0 million and was primarily related to locations outside of the United States. The income tax provision of $1.0 million in
fiscal 2018 was primarily related to locations outside the United States, which was partially offset by a $1.1 million reversal of uncertain tax provisions in early 2018.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations and proceeds from our financing arrangements with DZ Bank and with PNC Bank, National Association
(“PNC Bank”) until the termination of the PNC Financing Program (as defined below) in January 2018. Borrowing capacity under these arrangements is directly impacted by
the level of accounts receivable, which fluctuates during the year due to seasonality and other factors. Our business is subject to seasonality with our fiscal first quarter billings
typically the lowest due to the holiday season and generally increasing in the fiscal third and fourth quarters when our customers increase the use of contingent labor.
Generally, the first and fourth quarters of our fiscal year are the strongest for operating cash flows. Our operating cash flows consist primarily of collections of customer
receivables offset by payments for payroll and related items for our contingent staff and in-house employees; federal, foreign, state and local taxes; and trade payables. We
generally provide customers with 15 - 45 day credit terms, with few extenuating exceptions, while our payroll and certain taxes are paid weekly.
We manage our cash flow and related liquidity on a global basis. We fund payroll, taxes and other working capital requirements using cash supplemented as needed from our
borrowings. Our weekly payroll payments inclusive of employment-related taxes and payments to vendors are approximately $20.0 million. We generally target minimum
global liquidity to be 1.5 times our average weekly 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 will be sufficient to meet our cash needs for the next twelve months.
Capital Allocation
We have prioritized our capital allocation strategy to strengthen our balance sheet and increase our competitiveness in the marketplace. The timing of these initiatives is highly
dependent upon attaining the profitability objectives outlined in our plan. We also see this as an opportunity to demonstrate our ongoing commitment to Volt shareholders as
we continue to execute on our plan and return to sustainable profitability. Our capital allocation strategy includes the following elements:
• Maintaining appropriate levels of working capital. Our business requires a certain level of cash resources to efficiently execute operations. Consistent with similar
companies in our industry and operational capabilities, we estimate this amount to be 1.5 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 new information
technology systems, which will support our front-end recruitment and placement capabilities as well as increase efficiencies in our back-office financial suite. We are
also investing in our sales and recruiting process and resources, which are critical to drive profitable growth;
23
•
Deleveraging our balance sheet. By lowering our debt level, we will strengthen our balance sheet, reduce interest costs and reduce risk going
forward.
Initiatives to Improve Operating Income, Cash Flows and Liquidity
We continue to make progress on several initiatives undertaken to enhance our liquidity position and shareholder value.
On July 19, 2019, we amended and restated our long-term $115.0 million accounts receivable securitization program with DZ Bank, which was originally executed on
January 25, 2018. The restated agreement allows for the inclusion of certain accounts receivable from an originator in the United Kingdom, which added an additional $5.0 -
$7.0 million in borrowing availability. This will improve available liquidity allowing us to continue to advance our capital allocation plan and will provide us with additional
resources to execute our business strategy.
On January 14, 2020, the Company executed an amendment to the DZ Financing Program. The modifications to the agreement were to (1) extend the Amortization Date, as
defined, from January 25, 2021 to January 25, 2023, and extend the Facility Maturity Date, as defined, from July 25, 2021 to July 25, 2023; and (2) revise an existing
covenant to maintain positive net income in any fiscal year ending after 2020. All other terms and conditions remain unchanged.
Entering fiscal 2020, we have significant tax benefits including federal net operating loss carryforwards of $207.2 million, U.S. state NOL carryforwards of $239.3 million,
international NOL carryforwards of $9.3 million and federal tax credits of $53.5 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 of November 3, 2019, 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, the international NOL carryforwards expire at various dates beginning in 2020 (with some indefinite), capital loss
carryforwards expire between 2020 and 2022 and federal tax credits expire between 2020 and 2037.
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 2019 and 2018, we also took certain restructuring actions that will improve selling, general and administrative costs. 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 as needed.
Liquidity Outlook and Further Considerations
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 is directly related to the levels of accounts receivable generated by our businesses. Our level of borrowing capacity under the DZ
Financing Program increases or decreases in tandem with any increases or decreases in accounts receivable based on revenue fluctuations.
On June 4, 2019, we entered into an amendment with DZ Bank to temporarily exclude the receivables due from a specific customer from the securitization pool under our DZ
Financing Program for three subsequent reporting periods as of May 2019 through July 2019. This customer experienced internal processing issues related to specific Volt
purchase orders resulting in significant payment delays, which negatively impacted the 90-Day Delinquency Rate, as defined in the DZ Financing Program. Although this
change improved the delinquency rate, it also temporarily decreased our borrowing availability under the DZ Financing Program by approximately $2.0 - $3.0 million. These
payment delays were not credit related and the Company collected the past due amounts. The issue was resolved and the receivables from this customer were added back to
the securitization pool under the original terms of the agreement, as permitted under a provision in the amendment.
In June 2019, we exited our customer care solutions business. This business previously contributed accounts receivable as collateral under the DZ Financing Program and its
exit had a diminishing effect on our borrowing base under the DZ Financing Program.
At November 3, 2019, the Company had outstanding borrowings under the DZ Financing Program of $55.0 million, borrowing availability, as defined, under the DZ
Financing Program, of $22.3 million and global liquidity of $42.2 million.
24
Our DZ Financing Program is subject to termination under certain events of default such as breach of covenants, including the aforementioned financial covenants. At
November 3, 2019, we were in compliance with all debt covenants. We believe, based on our 2020 plan, we will continue to be able to meet our financial covenants under the
amended DZ Financing Program.
The following table sets forth our cash and global liquidity levels at the end of our last fiscal five quarters:
Global Liquidity
Cash and cash equivalents (a)
Total outstanding debt
Cash in banks (b) (c)
DZ Financing Program (d)
Global liquidity
Minimum liquidity threshold
Available liquidity
a. Per financial
statements.
b. Amount generally includes outstanding
checks.
October 28, 2018
January 27, 2019
April 28, 2019
July 28, 2019
November 3, 2019
$
$
$
$
24,763 $
32,925 $
39,689 $
36,031 $
28,672
50,000 $
55,000 $
55,000 $
55,000 $
55,000
17,685 $
38,302
55,987
15,000
23,646 $
31,072
54,718
15,000
29,946 $
22,222
52,168
15,000
24,224 $
16,416
40,640
15,000
40,987 $
39,718 $
37,168 $
25,640 $
19,945
22,271
42,216
15,000
27,216
c. Amounts in the USB collections account are excluded from cash in banks as the balance is included in the borrowing availability under the DZ Financing Program. As of November 3, 2019, the balance
in the USB collections account included in the DZ Financing Program availability was $7.5 million.
d. The borrowing base included the receivables from the United Kingdom effective July 19, 2019 and excluded the receivables from the customer care solutions business which we exited in June
2019.
Cash flows from operating, investing and financing activities, as reflected in our Consolidated Statements of Cash Flows, are summarized in the following table:
(in thousands)
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net increase (decrease) in cash and cash equivalents
Fiscal Year Ended November 3, 2019 compared to the Fiscal Year Ended October 28, 2018
Cash Flows – Operating Activities
For the Year Ended
November 3, 2019
October 28, 2018
$
$
7,368 $
(8,842 )
3,899
(525 )
1,900 $
(10,735 )
(3,234 )
(1,740 )
(1,844 )
(17,553 )
The net cash provided by operating activities in fiscal 2019 was $7.4 million, an increase of $18.1 million from fiscal 2018. This increase resulted primarily from the $17.5
million decrease in net loss in fiscal 2019 and a $1.4 million change in operating assets and liabilities.
Cash Flows – Investing Activities
The net cash used in investing activities in fiscal 2019 was $8.8 million, principally from the purchases of property, equipment and software of $9.1 million primarily relating
to our investment in updating our business processes, back-office financial suite and information technology tools. The net cash used in investing activities in fiscal 2018 was
$3.2 million, principally from 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.
25
Cash Flows – Financing Activities
The net cash provided by financing activities in fiscal 2019 was $3.9 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 $0.8 million related to the DZ Financing Program. The net cash used in financing activities in fiscal 2018 was $1.7
million principally from the payment of debt issuance costs of $1.5 million related to the DZ Financing Program.
Financing Program
On July 19, 2019, the Company amended and restated the DZ Financing Program, which was originally executed on January 25, 2018. The restated agreement allows for the
inclusion of certain accounts receivable from an originator in the United Kingdom, which added an additional $5.0 - $7.0 million in borrowing availability. All other material
terms and conditions of the original agreement remained substantially unchanged.
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 4, 2019, the Company entered into an amendment with DZ Bank to temporarily exclude the receivables due from a specific customer from the securitization pool
under the DZ Financing Program for three subsequent reporting periods as of May 2019 through July 2019. This customer experienced internal processing issues related to
specific Volt purchase orders resulting in significant payment delays, which negatively impacted the 90-Day Delinquency Rate, as defined in the DZ Financing Program.
Although this change improved the delinquency rate, it temporarily decreased the Company’s borrowing availability under the DZ Financing Program by approximately $2.0 -
$3.0 million. These payment delays were not credit related and the Company collected the past due amounts. The issue was resolved and the receivables from this customer
were added back to the securitization pool under the original terms of the agreement, as permitted under a provision in the amendment.
Loan advances may be made under the DZ Financing Program through January 25, 2021 and all loans will mature no later than July 25, 2021. 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 November 3, 2019, the letter of credit participation was $24.2
million inclusive of $22.8 million for the Company’s casualty insurance program, $1.2 million for the security deposit required under certain real estate lease agreements and
$0.2 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.
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 (as defined below). 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 Tangible Net Worth (as defined
under the DZ Financing Program) of at least $30.0 million through fiscal 2019, which will increase to $40.0 million in fiscal 2020; (2) positive net income in any fiscal year
ending after 2019; (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 the DZ Financing Program). At
November 3, 2019, there was $22.3 million of borrowing availability, as defined, under the DZ Financing program and the Company was in compliance with all debt
covenants.
The Company had entered into the original agreement with DZ Bank when it exited its financing relationship with PNC Bank (“PNC Financing Program”). 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.
The Company uses the availability from the DZ Financing Program from time-to-time for working capital and other general corporate purposes.
26
Off-Balance Sheet Arrangements
As of November 3, 2019, we issued letters of credit against our DZ Financing Program totaling $24.2 million including $22.8 million for the Company’s casualty insurance
program, $1.2 million for the security deposit required under certain lease agreements and $0.2 million for the Company’s corporate credit card program.
As of October 28, 2018, we issued letters of credit against our DZ Financing Program totaling $25.4 million including $23.5 million for the Company’s casualty insurance
program, $1.1 million for the security deposit required under certain lease agreements and $0.8 million for the Company’s corporate credit card program.
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 adopted 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 approaches compensates for the inherent risk associated with using either one on a stand-alone basis, and this combination is indicative of the
factors a market participant would consider when performing a similar valuation.
For the fiscal 2019 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 15%. 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 2019, it was determined that no adjustment to the carrying value of goodwill of $5.4 million was required as our Step
1 analysis resulted in the fair value of the reporting unit exceeding its carrying value. There were no triggering events since the annual goodwill impairment assessment that
caused the Company to perform an interim impairment assessment.
27
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 $22.8 million as of November 3, 2019.
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 five years after the end of the
respective policy year or through the ultimate life of the claim.
Medical Insurance Program
We are self-insured for a portion of our medical benefit programs for our employees. Eligible contingent staff on assignment with customers are offered medical benefits
through a fully insured program administered through a third party. Employees contribute a portion of the cost of these medical benefit programs.
The liability for the self-insured medical benefits is limited on a per claimant basis through the purchase of 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
28
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. In determining the amount of the allowance for uncollectible accounts receivable, we make judgments on a customer-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.
New Accounting Standards
For additional information regarding new accounting guidance see Note 1 - Summary of Business and Significant Accounting Policies in our Consolidated Financial
Statements.
29
ITEM 7A.
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 November 3,
2019, we had cash and cash equivalents on which interest income is earned at variable rates. At November 3, 2019, we had a long-term $115.0 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. 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 $0.2 million or a hypothetical 1-percentage-point decrease in interest rates would
have decreased net interest expense by $0.2 million in fiscal 2019.
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, Singapore Dollar and Indian Rupee. These fluctuations
impact reported earnings.
Fluctuations in currency exchange rates also impact the U.S. dollar amount of our net investment in foreign operations. The assets and liabilities of our foreign subsidiaries
are translated into U.S. dollars at the exchange rates in effect at the fiscal year-end balance sheet date. Income and expenses accounts are translated at an average exchange
rate during the year which approximates the rates in effect at the transaction dates. The resulting translation adjustments are recorded in stockholders’ equity as a component
of accumulated other comprehensive income. The U.S. dollar strengthened relative to many foreign currencies as of November 3, 2019 compared to October 28, 2018.
Consequently, stockholders’ equity increased by $0.3 million as a result of the foreign currency translation as of November 3, 2019.
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 November 3, 2019 would result in
an approximate $0.7 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 November 3, 2019 would result in an approximately $0.7 million negative translation adjustment recorded in other
comprehensive income within stockholders’ equity. We do not use derivative instruments for trading or other speculative purposes.
ITEM 8.
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.
ITEM 9.
None
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
30
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 November 3, 2019 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 November 3, 2019 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’s registered public accounting firm. The
Company’s internal control over financial reporting was not subject to audit by the Company’s registered public accounting firm pursuant to the SEC’s Exchange Act Rule
12b-2 that permits the Company to provide only management’s assessment report for the year ended November 3, 2019.
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 November 3, 2019, 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.
31
ITEM 9B.
OTHER
INFORMATION
Amendment No. 1 to Amended and Restated Receivables Loan and Security Agreement
On January 14, 2020, the Company executed Amendment No. 1 to the Amended and Restated Receivables Loan and Security Agreement. The modifications to the agreement
were to (1) extend the Amortization Date, as defined, from January 25, 2021 to January 25, 2023, and extend the Facility Maturity Date, as defined, from July 25, 2021 to
July 25, 2023; and (2) revise an existing covenant to maintain positive net income in any fiscal year ending after 2020. All other terms and conditions remain unchanged.
A copy of Amendment No. 1 is attached to this Annual Report as Exhibit 10.39, and this summary is qualified in its entirety by
reference to such exhibit.
32
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
PART III
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 2020
Annual Meeting of Shareholders (the “Proxy Statement”) or in an amendment to this Annual Report, which information is incorporated herein by reference.
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.
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.
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.
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.
33
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT
SCHEDULES
(a)(1) Financial Statements
The following documents are filed as a part of this report:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Balance Sheets
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
Page No.
F-1
F-2
F-3
F-4
F-5
F-6
F-7
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
3.1
3.2
10.1*
10.2*
10.3*
10.4
10.5*
10.6*
10.7*
10.8
10.9*
10.10*
10.11*
10.12*
10.13*
10.14
10.15
10.16
Description
Restated Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on
Form 10-Q for the fiscal quarter ended May 3, 2015 filed June 10, 2015; File No. 001-09232)
Amended and Restated By-Laws of the Company, as amended through September 7, 2017 (incorporated by reference to Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed September 12, 2017; File No. 001-9232)
2006 Incentive Stock Plan (incorporated by reference to Exhibit A to the Company’s Proxy Statement filed February 27, 2007; File No. 001-
09232)
Form of Restricted Stock Grant Notice for Employees (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K
for the fiscal year ended October 31, 2010 filed April 9, 2013; File No. 001-09232)
Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed
April 13, 2009; File No. 001-09232)
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.01 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended July 31, 2005 filed September 9, 2005; File No. 001-09232)
Employment Agreement, dated March 23, 2015, by and between the Company and Paul Tomkins (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed March 26, 2015; File No. 001-9232)
Employment Agreement, dated October 19, 2015, between the Company and Michael Dean (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed October 21, 2015; File No. 001-9232)
2015 Equity Incentive Plan (incorporated by reference to Appendix A to the Company’s Proxy Statement filed February 29, 2016; File No. 001-
9232)
Lease Agreement, dated February 25, 2016, by and between Glassell Grand Avenue Partners, LLC and Volt Information Sciences, Inc.
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March 1, 2016; File No. 001-9232)
Volt Information Sciences, Inc. Deferred Compensation and Supplemental Savings Plan, amended and restated effective June 8, 2016 (incorporated
by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 1, 2016 filed June 9, 2016; File No.
001-9232)
Volt Information Sciences, Inc. Annual Incentive Plan, effective September 7, 2016 (incorporated by reference to Exhibit 10.3 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)
First Amendment, dated January 27, 2017, to the Employment Agreement between the Company and Michael D. Dean dated October 19, 2015
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 30, 2017; File No. 001-09232)
Amended and Restated Employment Agreement by and between the Company and Jerome Shaw, dated as of February 21, 2017 (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 24, 2017; File No. 001-09232)
Employment Agreement, dated as of June 12, 2017, between the Company and Leonard Naujokas (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed June 12, 2017; File No. 001-09232)
Receivables Loan and Security Agreement, dated as of January 25, 2018, 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; File No. 001-9232)
Receivables Purchase and Sale Agreement, dated as of January 25, 2018, 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; File No. 001-9232)
Limited Guaranty, dated as of January 25, 2018, 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 10.3 to the Company’s Current
Report on Form 8-K filed January 29, 2018; File No. 001-9232)
10.17
10.18*
10.19*
10.20*
10.21*
10.22*
10.23
10.24
10.25*
10.26
10.27*
10.28
10.29
10.30
10.31
10.32*
10.33*
10.34*
10.35*
10.36*
10.37*
10.38*
Amendment No. 1, dated June 8, 2018, to the Receivables Loan and Security Agreement, dated as of January 25, 2018, among Volt Funding II,
LLC, as borrower, Volt Information Sciences, Inc., as servicer, Autobahn Funding Company LLC, as conduit lender, the other lenders party
thereto, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as agent, and Autobahn Funding
Company LLC and DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as letter of credit issuers
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 29, 2018 filed
September 7, 2018; File No. 001-09232)
Separation Agreement by and between Volt Information Sciences, Inc. and Michael D. Dean, dated as of June 29, 2018 (incorporated by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 3, 2018; File No. 001-9232)
Volt Information Sciences, Inc. 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 June 19, 2018; File No. 001-9232)
Volt Information Sciences, Inc. Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed June 19, 2018; File No. 001-9232)
Employment Agreement, dated December 4, 2018, between the Company and Linda Perneau (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed December 6, 2018; File No. 001-9232)
Separation Agreement by and between Volt Information Sciences, Inc. and Ann R. Hollins, dated as of October 12, 2018 (incorporated by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed December 6, 2018; File No. 001-9232)
Amendment No. 2, dated January 4, 2019, to the Receivables Loan and Security Agreement, dated as of January 25, 2018, among Volt Funding II,
LLC, as borrower, Volt Information Sciences, Inc., as servicer, Autobahn Funding Company LLC, as conduit lender, the other lenders party
thereto, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as agent, and Autobahn Funding
Company LLC and DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as letter of credit issuers
(incorporated by reference to Exhibit 10.51 to the Company’s Annual Report on Form 10-K for the fiscal year ended October 28, 2018 filed
January 9, 2019; File No. 001-9232)
Amendment No. 3 dated February 15, 2019 to the Receivables Loan and Security Agreement dated as of January 25, 2018, among Volt Funding II,
LLC, as borrower, Volt Information Sciences, Inc., as servicer, 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 February 20, 2019; File No. 001-9232)
2019 Equity Incentive Plan (incorporated by reference to Appendix A to the Company's Proxy Statement filed February 22, 2019; File No. 001-
9232)
Amendment No. 4 dated June 4, 2019 to the Receivables Loan and Security Agreement dated as of January 25, 2018, among Volt Funding II,
LLC, as borrower, Volt Information Sciences, Inc., as servicer, 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 10.2 to the Company’s Quarterly Report on Form 10-Q as filed June 5, 2019; File No. 001-9232)
Amended and Restated Employment Agreement by and between Volt Information Sciences, Inc. and Lori M. Schultz, dated as of June 25, 2019
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 27, 2019; File No. 001-9232)
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 July 24, 2019; File No. 001-9232)
Amended and Restated Receivables Purchase and Sale Agreement, dated as of 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 July 24, 2019; File No. 001-9232)
Receivables Purchase and Sale Agreement, dated as of July 19, 2019, among Volt Consulting Group Limited and Volt Europe Limited, as
originators, Volt Information Sciences, Inc. and Volt Funding II, LLC, as buyer (incorporated by reference to Exhibit 10.3 to the Company’s
Current Report on Form 8-K filed July 24, 2019; File No. 001-9232)
Amended and Restated Limited Guaranty, dated as of 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 10.4 to the Company’s
Current Report on Form 8-K filed July 24, 2019; File No. 001-9232)
Employment Agreement by and between Volt Information Sciences, Inc. and Herbert M. Mueller, effective as of August 24, 2019 (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 14, 2019; File No. 001-9232)
Volt Information Sciences, Inc. Form of Performance Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s
Quarterly Report on Form 10-Q filed September 6, 2019; File No. 001-9232)
Volt Information Sciences, Inc. Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.3 to the Company’s
Quarterly Report on Form 10-Q filed September 6, 2019; File No. 001-9232)
Volt Information Sciences, Inc. Form of Director Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.4 to the
Company’s Quarterly Report on Form 10-Q filed September 6, 2019; File No. 001-9232)
Volt Information Sciences, Inc. Form of Director Deferred Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.5 to
the Company’s Quarterly Report on Form 10-Q filed September 6, 2019; File No. 001-9232)
Amendment to Employment Agreement, dated November 4, 2019, between Nancy Avedissian and Volt Informations Sciences, Inc.
Amendment to Employment Agreement, dated December 30, 2019, between Linda Perneau and Volt Informations Sciences, Inc.
10.39
21
23
31.1
31.2
32.1
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Amendment No. 1, dated January 14, 2020, to the Amended and Restated Receivables Loan and Security Agreement. dated 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
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18
U.S.C. Section 1350
XBRL Instance Document.
XBRL Taxonomy Extension Schema Document.
XBRL Taxonomy Extension Calculation Linkbase Document.
XBRL Taxonomy Extension Definition Linkbase Document.
XBRL Taxonomy Extension Label Linkbase Document.
XBRL Taxonomy Extension Presentation Linkbase Document.
* Management contracts and compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
34
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.
SIGNATURES
Date: January 15, 2020
Date: January 15, 2020
Date: January 15, 2020
VOLT INFORMATION SCIENCES, INC.
By:
/s/ Linda Perneau
Linda Perneau
President and Chief Executive Officer
(Principal Executive Officer)
By:
/s/ Herbert M. Mueller
Herbert M. Mueller
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
By:
/s/ Leonard Naujokas
Leonard Naujokas
Controller and Chief Accounting Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: January 15, 2020
Date: January 15, 2020
By:
/s/ William J. Grubbs
William J. Grubbs
Chairman of the Board
By:
/s/ Linda Perneau
Linda Perneau
President and Chief Executive Officer
(Principal Executive Officer)
Date: January 15, 2020
By:
/s/ Celia R. Brown
Celia R. Brown
Director
Date: January 15, 2020
By:
/s/ Nick S. Cyprus
Nick S. Cyprus
Director
Date: January 15, 2020
By:
/s/ Bruce G. Goodman
Bruce G. Goodman
Director
Date: January 15, 2020
By:
/s/ Arnold Ursaner
Arnold Ursaner
Director
35
To the Stockholders and the Board of Directors of Volt Information Sciences, Inc. and subsidiaries:
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Volt Information Sciences, Inc. and subsidiaries (the Company) as of November 3,
2019 and October 28, 2018, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the years
then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at November 3, 2019 and October 28, 2018, 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’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’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our
opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1968.
New York, New York
January 15, 2020
F-1
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
Year Ended
November 3,
2019
October 28,
2018
NET REVENUE
Cost of services
GROSS MARGIN
Selling, administrative and other operating costs
Restructuring and severance costs
Impairment charges
OPERATING LOSS
OTHER INCOME (EXPENSE), NET
Interest income
Interest expense
Foreign exchange gain (loss), net
Other income (expense), net
TOTAL OTHER INCOME (EXPENSE), NET
LOSS BEFORE INCOME TAXES
Income tax provision
NET LOSS
PER SHARE DATA:
Basic:
Net loss
Weighted average number of shares
Diluted:
Net loss
Weighted average number of shares
The accompanying notes are an integral part of these consolidated financial statements.
F-2
$
997,090
$
844,527
152,563
157,052
4,656
688
(9,833 )
274
(3,156 )
(612 )
(881 )
(4,375 )
(14,208 )
978
(15,186 ) $
(0.72 ) $
21,119
(0.72 ) $
21,119
$
$
$
1,039,170
885,492
153,678
173,337
8,242
506
(28,407 )
173
(2,765 )
403
(1,131 )
(3,320 )
(31,727 )
958
(32,685 )
(1.55 )
21,051
(1.55 )
21,051
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
(In thousands)
NET LOSS
Other comprehensive income (loss):
Foreign currency translation adjustments net of taxes of $0 and $0, respectively
COMPREHENSIVE LOSS
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Year Ended
November 3,
2019
October 28,
2018
$
$
(15,186 )
$
269
(14,917 ) $
(32,685 )
(1,809 )
(34,494 )
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Restricted cash
Short-term investments
Trade accounts receivable, net of allowances of $117 and $759, respectively
Other current assets
TOTAL CURRENT ASSETS
Other assets, excluding current portion
Property, equipment and software, net
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accrued compensation
Accounts payable
Accrued taxes other than income taxes
Accrued insurance and other
Income taxes payable
TOTAL CURRENT LIABILITIES
Accrued insurance and other, excluding current portion
Deferred gain on sale of real estate, excluding current portion
Income taxes payable, excluding current portion
Deferred income taxes
Long-term debt, net
TOTAL LIABILITIES
Commitments and contingencies
STOCKHOLDERS’ EQUITY:
November 3, 2019
October 28, 2018
$
28,672
$
9,772
3,022
135,950
7,252
184,668
7,446
25,890
$
$
218,004
$
21,507
$
36,341
11,244
24,654
1,570
95,316
12,029
20,270
289
17
53,894
181,815
24,763
11,781
3,063
157,445
7,444
204,496
7,808
24,392
236,696
27,120
33,498
15,275
23,335
1,097
100,325
13,478
22,216
600
510
49,068
186,197
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 - 21,367,821 and 21,179,068,
respectively
Paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost; 2,370,182 and 2,558,935 shares, respectively
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
The accompanying notes are an integral part of these consolidated financial statements.
F-4
2,374
77,688
(10,917)
(6,801)
(26,155)
36,189
$
218,004
$
2,374
79,057
9,738
(7,070)
(33,600)
50,499
236,696
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
(Accumulated
Deficit) Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Stockholders’
Equity
BALANCE AT OCTOBER 29, 2017
23,738,003
$
2,374
$
Net loss
Share-based compensation
Issuance of common stock
Other comprehensive loss
—
—
—
—
—
—
—
—
BALANCE AT OCTOBER 28, 2018
23,738,003
$
2,374
$
Net loss
Share-based compensation
Issuance of common stock
Effect of new accounting principle
Other comprehensive income
—
—
—
—
—
—
—
—
—
—
78,645 $
—
1,270
(858)
—
79,057 $
—
499
(1,868)
—
—
45,843
$
(32,685 )
—
(3,420)
—
9,738
$
(15,186 )
—
(5,895)
426
—
(5,261)
$
—
—
—
(1,809 )
(7,070)
$
—
—
—
—
269
(37,607 ) $
—
—
4,007
—
(33,600 ) $
—
—
7,445
—
—
83,994
(32,685 )
1,270
(271)
(1,809)
50,499
(15,186 )
499
(318)
426
269
BALANCE AT NOVEMBER 3, 2019
23,738,003
$
2,374
$
77,688 $
(10,917 )
$
(6,801)
$
(26,155 ) $
36,189
The accompanying notes are an integral part of these consolidated financial statements.
F-5
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Year Ended
November 3, 2019
October 28, 2018
$
(15,186 ) $
(32,685 )
Depreciation and amortization
Release of doubtful accounts and sales allowances
Unrealized foreign currency exchange loss
Impairment charges
Loss on dispositions of property, equipment, and software
Amortization of gain on sale leaseback of property
Deferred income tax (benefit) provision
Share-based compensation expense
Change in operating assets and liabilities:
Trade accounts receivable
Other assets
Accounts payable
Accrued expenses and other liabilities
Income taxes
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of investments
Purchases of investments
Proceeds from sales of property, equipment and software
Purchases of property, equipment, and software
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of borrowings
Draw-down on borrowings
Debt issuance costs
Withholding tax payment on vesting of restricted stock awards
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net increase (decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents and restricted cash, beginning of year
Cash, cash equivalents, and restricted cash, end of year
Cash paid during the year:
Interest
Income taxes
Reconciliation of cash, cash equivalents, and restricted cash
Current assets:
Cash and cash equivalents
Restricted cash
Cash, cash equivalents, and restricted cash, end of the period
The accompanying notes are an integral part of these consolidated financial statements.
F-6
$
$
$
$
$
6,955
(245 )
510
688
14
(1,944 )
(88 )
499
22,472
432
2,839
(9,712 )
134
7,368
391
(221 )
41
(9,053 )
(8,842 )
(20,000 )
25,000
(783 )
(318 )
3,899
(525 )
1,900
36,544
38,444
$
3,156
1,194
$
$
28,672
$
9,772
38,444
$
7,209
(198 )
27
506
266
(1,944 )
24
1,270
16,735
5,111
(3,723 )
(4,107 )
774
(10,735 )
755
(443 )
19
(3,565 )
(3,234 )
(124,696 )
124,696
(1,469 )
(271 )
(1,740 )
(1,844 )
(17,553 )
54,097
36,544
2,765
3,341
24,763
11,781
36,544
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
NOTE 1: Summary of Business and Significant Accounting Policies
We are a global provider of staffing services (traditional time and materials-based as well as project-based). Our staffing services consist of workforce solutions that include
providing contingent workers, personnel recruitment services, and managed staffing services programs supporting primarily administrative and light industrial (“commercial”)
as well as technical, information technology and engineering (“professional”) positions. Our managed service programs (“MSP”) involves managing the procurement and on-
boarding of contingent workers from multiple providers. Through the time of our exit from the customer care solutions business in June 2019, we served as an extension of
our customers’ consumer relationships and processes including collaborating with customers, from help desk inquiries to advanced technical support.
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’s stock was traded on the NYSE AMERICAN under
the symbol “VISI” until September 6, 2019. As of September 9, 2019, the Company’s stock was traded on the NYSE AMERICAN under the symbol "VOLT".
(a)
Fiscal
Year
The Company’s fiscal year ends on the Sunday nearest October 31st. The fiscal year 2019 consisted of 53 weeks and fiscal 2018 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, share-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
Revenue is recognized when control of the promised services is transferred to the Company's customers at an amount that reflects the consideration the Company expects to
be entitled to in exchange for those services. The majority of customer contracts have performance obligations that the Company satisfies over time and revenue is recognized
by consistently applying a method of measuring progress toward satisfaction of that performance obligation. The Company will generally utilize an input measure of time
(e.g., hours, weeks, months) of service provided, which depicts the progress toward completion of each performance obligation.
Certain customer contracts have variable consideration, including rebates, guarantees, credits, or 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 net basis.
F-7
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
Refer to Note 2, Revenue Recognition for the revenue policies related to each specific transaction type.
(e)
Expense
Recognition
Cost of services within staffing 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 is 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.
Gross margin is calculated as revenue less direct costs for staffing services.
Selling, Administrative and Other Operating Costs
Selling, administrative and other operating costs primarily relate to the Company’s selling and administrative efforts, as well as the indirect costs associated with providing
staffing services.
(f)
Comprehensive Income
(Loss)
Comprehensive income (loss) is the net income (loss) of the Company combined with other changes in stockholders’ equity not involving ownership interest changes. The
Company recognizes foreign currency translation as comprehensive income (loss).
(g)
Cash and Cash
Equivalents
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
The Company has a nonqualified deferred compensation and supplemental savings plan that permits eligible employees to defer a portion of their compensation. The
employee compensation deferral is invested in short-term investments corresponding to the employees’ investment selections, primarily mutual funds, which are held in a
trust and are reported at current market prices. The liability associated with the nonqualified deferred compensation and supplemental savings plan consists of participant
deferrals and earnings thereon, and is reflected as a current liability within Accrued compensation in an amount equal to the fair value of the underlying short-term investments
held in the plan. Changes in asset values result in offsetting changes in the liability as the employees realize the rewards and bear the risks of their investment selections.
(i)
Property, Equipment and Software,
Net
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
Machinery and Equipment
Leasehold improvements
Software
25 to 32 years
3 to 15 years
Shorter of length of lease or life of the asset
3 to 7 years
Property, equipment and software are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable or it is no longer probable that software development will be completed. If circumstances require a long-lived asset or asset group be reviewed for possible
impairment, the Company first compares undiscounted cash flows expected to be generated by each asset or asset group to its carrying value. If the carrying value of the
F-8
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds the fair value.
(j)
Goodwill
Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. The
Company early-adopted and applies the method of assessing goodwill for possible impairment permitted by Accounting Standards Update (“ASU”) No. 2017-04, Intangibles
– Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment. The Company first assesses the qualitative factors for reporting units that carry goodwill. If
the qualitative assessment results in a conclusion that it is more likely than not that the fair value of a reporting unit exceeds the carrying value, then no further testing is
performed for that reporting unit.
When a qualitative assessment is not used, or if the qualitative assessment is not conclusive and it is necessary to calculate fair value of a reporting unit, then the impairment
analysis for goodwill is performed at the reporting unit level using a one-step approach. In conducting the goodwill impairment test, the fair value of a reporting unit is
compared with its carrying amount utilizing various valuation techniques. If the fair value of the reporting unit exceeds its carrying value, then no further testing is performed.
If the fair value of the reporting unit is less than its carrying value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill
over the implied fair value of that goodwill.
The Company performs its annual impairment review of goodwill in its second fiscal quarter and when a triggering event occurs between annual impairment tests.
(k)
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 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.
(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 is recognized over the requisite service or performance periods as a cost in Selling, administrative and other operating costs
in the Company’s Consolidated Statement of Operations. The Company has elected to account for forfeitures as they occur. If there are any modifications or cancellations of
the underlying unvested awards, the Company may be required to accelerate any remaining unearned share-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.
F-9
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
The resulting translation adjustments are directly recorded to a separate component of Accumulated other comprehensive income (loss). Gains and losses arising from
intercompany foreign currency transactions that are of a long-term nature are reported in the same manner as translation adjustments. Gains and losses arising from
intercompany foreign currency transactions that are not of a long-term nature and certain transactions of the Company’s subsidiaries which are denominated in currencies
other than the subsidiaries’ functional currency are recognized as incurred in Foreign exchange gain (loss), net in the Consolidated Statements of Operations.
(n)
Fair Value
Measurement
In accordance with Accounting Standards Codification (“ASC”) 820, Fair Value Measurements (“ASC 820”), the Company utilizes valuation techniques that maximize the
use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants
would use in pricing an asset or liability in the principal or most advantageous market. Fair value is defined as the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. When considering market participant assumptions in fair value
measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Quoted prices in active markets for similar assets and liabilities, quoted prices for identically similar assets or liabilities in markets that are not active and
models for which all significant inputs are observable either directly or indirectly.
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:
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 levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer.
(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.
(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.
(q)
Restructuring and Severance
Charges
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.
F-10
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
(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 the money" stock options and unvested restricted stock units. The dilutive impact is determined by applying the treasury stock
method. Performance-based share awards are included in the computation of diluted earnings per share only to the extent that the underlying performance conditions: (i) are
satisfied by the end of the reporting period, or (ii) would be satisfied if the end of the reporting period were the end of the related performance period and the result would be
dilutive.
(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 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)
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
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
(“ASU 2018-13”), which changes the fair value measurement disclosure requirements of ASC 820. ASU 2018-13 is effective for all entities for fiscal years beginning after
December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of ASU 2018-13. ASU 2018-13 is
effective for the Company in the first quarter of fiscal 2021. The Company does not anticipate a significant impact 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 the guidance in Topic 718 to include share-based payments for goods and services to non-employees and generally aligns it with the
guidance for share-based payments to employees. The amendments 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 June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).
This ASU provides guidance for recognizing credit losses on financial instruments based on an estimate of current expected credit losses model. The FASB subsequently
issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial
Instruments and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses to clarify and address certain items related to the amendments
in ASU 2016-13. ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief, was issued to provide entities that have certain instruments
within the scope of ASC 326 with an option to irrevocably elect the fair value option under ASC 825-10, Financial Instruments - Overall, applied on an instrument-by-
instrument basis for eligible instruments. ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842)
amends the mandatory effective date for ASU 2016-13. The amendments are effective for fiscal years beginning after December 15, 2022 for entities that are eligible to be
defined by the SEC as a smaller reporting company, which for the Company will be 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 its historical trend of bad debt expense relating to trade accounts receivable.
F-11
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). This ASU 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 amendments are effective for fiscal years beginning after December 15, 2018, which for the Company
will be the first quarter of fiscal 2020. Although the Company has made significant progress toward completing its evaluation of the impact of the pending adoption of ASU
2016-02 on its consolidated financial statements, our preliminary assessments are subject to change. The transition will be applied on a modified retrospective basis and the
package of three practical expedients has been elected to be used for transitional implementation. Accordingly, we will not reassess: 1) whether any expired or existing
contracts are or contain leases; 2) the lease classification for any expired or existing leases; or 3) initial direct costs for any existing leases. The Company expects that most of
its operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon adoption, which will increase the
Company’s total assets and total liabilities by approximately $50 - $60 million to such amounts prior to adoption. In addition, the Company’s deferred gain on the sale of real
estate in the amount of $22.2 million will be recognized as a cumulative-effect adjustment to equity upon adoption. This gain is currently being amortized at approximately
$0.5 million a quarter as an offset to rent expense in the Consolidated Statements of Operations and is included as an adjustment to reconcile net loss to cash provided by
operating activities in the Consolidated Statements of Cash Flows.
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 August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation
Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”), which aligns the requirements for capitalizing implementation costs incurred
in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting
arrangements that include an internal use software license). ASU 2018-15 is effective for fiscal years beginning after December 15, 2019 and interim periods within those
fiscal years. Early adoption of the amendments is permitted including adoption in any interim period. The amendments in ASU 2018-15 should be applied either
retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company early adopted this standard on a prospective basis in the second
quarter of fiscal 2019. Adoption of this standard did not have a significant impact on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU 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 Company
adopted this ASU in the first quarter of fiscal 2019, resulting in no significant impact on the Company’s consolidated financial statements.
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. This ASU clarifies the scope and application of Subtopic 610-20 on the sale or
transfer of non-financial assets and in substance non-financial assets to non-customers, including partial sales. The Company adopted this ASU in the first quarter of fiscal
2019, resulting in no significant impact on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This ASU clarifies how entities should present restricted cash and
restricted cash equivalents in the statement of cash flows and requires the entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash
equivalents in the statement of cash flows. The Company adopted this ASU retrospectively in the first quarter of fiscal 2019, resulting in no significant impact on the
Company’s consolidated financial statements other than a change in the presentation of restricted cash on the Consolidated Statements of Cash Flows.
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
F-12
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
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 Company adopted this ASU in the first quarter of fiscal 2019, resulting in no significant
impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU 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 was adopted by the
Company in the first quarter of fiscal 2019. Please refer to Note 2, Revenue Recognition for additional disclosures.
All other ASUs that became effective for Volt in fiscal 2019 were not applicable to the Company at this time and therefore, did not have any impact during the period.
NOTE 2: Revenue Recognition
Adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
As of October 29, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers, using the modified retrospective method applied to those contracts
which were not completed as of October 29, 2018. Results for reporting periods beginning on October 29, 2018 are presented under ASC 606, while prior period amounts are
not adjusted and continue to be reported in accordance with historical accounting guidance.
The cumulative impact of adopting ASC 606 resulted in an increase of $0.4 million to opening retained earnings. The impact is primarily driven by an adjustment to deferred
revenue due to a change in the required criteria for defining customer contracts under the new guidance. As of and for the period ended November 3, 2019, the consolidated
financial statements were not materially impacted by the implementation of ASC 606.
Revenue Recognition
All of the Company’s revenue and trade receivables are generated from contracts with customers. Revenue is recognized when control of the promised services is transferred
to the Company’s customers at an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. The Company’s revenue is
recorded net of any sales or other similar taxes collected from its customers.
A performance obligation is a promise in a contract to transfer a distinct service to the customer. The majority of the Company’s contracts contain single performance
obligations. For performance obligations that the Company satisfies over time, revenue is recognized by consistently applying a method of measuring progress toward
satisfaction of that performance obligation. The Company will generally utilize an input measure of time (e.g., hours, weeks, months) of service provided, which depicts the
progress toward completion of each performance obligation.
Volt generally determines the standalone selling prices based on the prices included in the customer contracts. The price as specified in its customer contracts is typically
considered the standalone selling price as it is an observable input that depicts the price as if sold to a similar customer. Certain customer contracts have variable
consideration, including rebates, guarantees, credits, or other similar items that reduce the transaction price. The Company will generally estimate the variable consideration
using the expected value method to predict the amount of consideration to which it will become entitled, based on the circumstances of each customer contract and historical
evidence. Revenue is recognized net of variable consideration to the extent that it is probable that a significant future reversal will not occur. The Company’s estimated
amounts of variable consideration are not material and it does not believe that there will be significant changes to its estimates.
In certain scenarios where a third-party vendor is involved in the Company’s revenue transactions with its customers, the Company will evaluate whether it is the principal or
the agent in the transaction. When Volt acts as the principal, it controls the performance obligation prior to transfer of the service to the customer and reports the related
consideration as gross revenues and the costs as cost of services. When Volt acts as an agent, it does not control the performance obligation prior to transfer of the service to
the customer and it reports the related amounts as revenue on a net basis. The Company generally demonstrates control over the service when it is responsible for the
fulfillment of services under the contract, responsible for the workers
F-13
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
performing the service and when it has latitude in establishing pricing. Volt generally acts as an agent in its transactions within its MSP programs where the Company provides
comprehensive management of its customer’s contingent workforce and receive fees based on the volume of services managed within each program. The Company is the
agent in these transactions since it does not have the responsibility for the fulfillment of the services by the vendors or contractors (referred to as associate vendors). In these
transactions, the Company does not control the third-party providers’ staffing services provided to the customers prior to those services being transferred to the customer.
Revenue Service Types
Staffing Services
Volt’s primary service is providing contingent (temporary) workers to its customers. These services are primarily provided through direct agreements with customers, and Volt
provides these services using its employees and, in some cases, by subcontracting with other vendors of contingent workers. Volt’s costs in providing these services consist of
the wages and benefits provided to the contingent workers as well as the recruiting costs, payroll department costs and other administrative costs. The Company recognizes
revenue for its contingent staffing services over time as services are performed in an amount that reflects the consideration it expects to be entitled to in exchange for its
services, which is generally calculated as hours worked multiplied by the agreed-upon hourly bill rate. The customer simultaneously receives and consumes the benefits of the
services as they are provided. The Company applies the practical expedient to recognize revenue for these services over the term of the agreement commensurate to the
amount it has the right to invoice the customer.
Direct Placement Services
Direct placement services include providing qualified candidates to the Company’s customers to hire on a permanent basis. These services are primarily recognized at a point
in time when the qualified candidate is placed and begins permanent employment which is the point when control has transferred to the customer and the Company has the
right to payment for the service. Each placement is a single performance obligation under the Company’s contracts and the related consideration is typically based upon a
percentage of the candidates’ base salary. Direct placement revenue is recognized net of a reserve for permanent placement candidates that do not remain with the customer
through the contingency period, which is typically 60 days or less. This contingency is estimated based on historical data and recorded as a refund liability.
Managed Service Programs (“MSP”)
The Company’s MSP programs provide comprehensive solutions for delivery of contingent labor for assignment to customers, including supplier and worker sourcing,
selecting, qualifying, on/off-boarding, time and expense recordation, reporting and approved invoicing and payment processing procedures. Since the individual activities are
not distinct, the Company accounts for these activities as a single performance obligation. The Company’s fee for these MSP services is a fixed percentage of the staffing
services spend that is managed through the program. The Company recognizes revenue over time for each month of MSP services provided as the customer simultaneously
receives and consumes the services the Company provides. The Company applies the practical expedient to recognize revenue for these services over the term of the
agreement commensurate to the amount it has the right to invoice the customer.
Call Center Services
The customer care solutions business specializes in serving as an extension of its customers’ relationships and processes, from help desk inquiries to advanced technical
support. The Company earns a fee based upon the type, volume and level of services provided as part of the call center operations. Since the individual activities are not
distinct, the Company accounts for them as a single performance obligation. The Company recognizes revenue over time as the customer simultaneously receives and
consumes the services the Company provides. The Company applies the practical expedient to recognize revenue for these services over the term of the agreement
commensurate to the amount it has the right to invoice the customer.
F-14
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
Disaggregation of Revenues
The following table presents our segment revenues disaggregated by service type (in thousands):
Segment
Service Revenues:
Staffing Services
Direct Placement Services
Managed Service Programs
Call Center Services
Geographical Markets:
Domestic
International, principally Europe
Payment Terms
$
$
$
$
Total
North American
Staffing
International Staffing
North American
MSP
Corporate and Other
Eliminations
Fiscal Year Ended November 3, 2019
950,595 $
14,880
17,023
14,592
997,090 $
822,550 $
8,397
—
—
105,815 $
4,600
3,962
—
830,947 $
114,377 $
878,095 $
118,995
997,090 $
827,641 $
3,306
830,947 $
— $
114,377
114,377 $
22,987 $
2,962
13,061
—
39,010 $
38,337 $
673
39,010 $
728 $
—
—
14,592
15,320 $
14,592 $
728
15,320 $
(1,485)
(1,079 )
—
—
(2,564)
(2,475)
(89 )
(2,564)
Customer payment terms vary by arrangement although payments are typically due within 15 - 45 days of invoicing. The timing between the satisfaction of the performance
obligations and the payment is not significant and the Company currently does not have any significant financing components or significant payment terms.
Unsatisfied Performance Obligations
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for
which they will recognize revenue at the amount to which it has the right to invoice for services performed. Unsatisfied performance obligations for contracts not meeting the
aforementioned criteria are immaterial.
Accounts Receivable, Contract Assets and Contract Liabilities
The Company records accounts receivable when its right to consideration becomes unconditional. The Company maintains a sales allowance for any potential billing errors
and service-related adjustments to the customer. The amount of the sales allowance is determined based on a historical transaction analysis and additions to the sales allowance
are recorded as a reduction to net revenue.
As required under Topic 606, the Company changed its presentation to show this allowance as a liability, whereas under Topic 605, these accounts receivables were recorded
net of an allowance. As of November 3, 2019, the change in the reserve balance from adoption was $0.4 million. 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 November 3, 2019 and October 28, 2018.
The Company may incur fulfillment costs after obtaining a contract to generate a resource that will be used to provide the MSP services. These costs are related to the set up
and implementation of customer specific MSP programs and are considered incremental and recoverable costs to fulfill the Company’s contract with the customer. These
costs are deferred and amortized over the expected period of benefit of the MSP services provided to the customer, determined by taking into consideration its customer
contracts and other relevant factors. Amortization expense is included in Selling, administrative and other operating costs on the Consolidated Statements of Operations.
Deferred fulfillment costs were immaterial as of November 3, 2019.
F-15
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
NOTE 3: Restricted Cash and Short-Term Investments
Restricted cash primarily includes amounts related to requirements under certain contracts with MSP 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, where contractually
required. At November 3, 2019 and October 28, 2018 restricted cash included $9.3 million and $11.3 million, respectively, restricted for payment to associate vendors and
$0.5 million and $0.5 million, respectively, restricted for other collaterized accounts.
At November 3, 2019 and October 28, 2018, short-term investments were $3.0 million and $3.1 million, respectively. These short-term investments consisted primarily of the
fair value of deferred compensation investments corresponding to employees’ selections, primarily in mutual funds, based on quoted prices in active markets.
NOTE 4: Fair Value of Financial Instruments
The following table presents assets and liabilities measured at fair value (in thousands):
Short-term investments
Total financial assets
Deferred compensation plan liabilities
Total financial liabilities
November 3,
2019
October 28,
2018
$
$
$
$
3,022 $
3,022 $
3,022 $
3,022 $
Fair Value
Hierarchy
Level 1
Level 1
3,063
3,063
3,063
3,063
The fair value of the deferred compensation plan liabilities is based on the fair value of the investments corresponding to the employees’ investment selections, primarily in
mutual funds, based on quoted prices in active markets for identical assets. The deferred compensation plan liability is recorded in Accrued compensation in the Consolidated
Balance Sheets.
There have been no changes in the methodology used to fair value the financial instruments as well as no transfers between levels during the fiscal years ended November 3,
2019 and October 28, 2018.
NOTE 5: Trade Accounts Receivable
Trade accounts receivable includes both billed and unbilled amounts due from customers. Billed trade receivables generally do not bear interest. Unbilled receivables
represent accrued revenue earned and recognized on contracts for which billings have not yet been presented to the customer. At November 3, 2019 and October 28, 2018,
trade accounts receivable included unbilled receivables of $7.7 million and $7.9 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 in the Consolidated Statement of Operations. The
Company also maintains a sales allowance for specific customers related to 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. As required under ASC 606, the Company changed its presentation to show this sales allowance as a
liability, which is included in Accrued insurance and other in the Consolidated Balance Sheet.
F-16
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
For the years ended November 3, 2019 and October 28, 2018, the activity in the allowance accounts were as follows (in thousands):
Balance at
beginning of year
Adoption of
Topic 606
Provision / (Release)
Deductions
Balance at end
of year
Year Ended November 3, 2019
Sales allowance
Allowance for doubtful accounts
Total included in Trade Accounts Receivable
Accrued Sales Reserve included in Accrued
insurance and other
Year Ended October 28, 2018
Sales allowance
Allowance for doubtful accounts
Total included in Trade Accounts Receivable
$
$
$
$
$
705 $
54
759 $
(705)
$
—
(705)
$
— $
150
150
$
— $
(87)
(87)
$
— $
705
$
(395)
$
— $
—
117
117
310
Balance at
beginning of year
Provision /
(Release)
Deductions
Balance at end
of year
895 $
354
1,249 $
$
(190)
(8)
(198)
$
— $
(292 )
(292)
$
705
54
759
NOTE 6: Property, Equipment and Software
Property, equipment and software consisted of (in thousands):
Land and buildings
Machinery and equipment
Leasehold improvements
Less: Accumulated depreciation and amortization
Property and equipment
Software
Less: Accumulated amortization
Property, equipment, and software, net
November 3,
2019
October 28,
2018
$
$
375 $
30,215
3,398
(29,757 )
4,231
101,903
(80,244 )
25,890 $
363
31,856
4,322
(31,751 )
4,790
94,527
(74,925 )
24,392
Depreciation and amortization expense totaled $7.0 million and $7.2 million for the fiscal years ended 2019 and 2018, respectively. Depreciation and amortization is included
in Cost of services and Selling, administrative and other operating costs in the Consolidated Statements of Operations.
NOTE 7: Impairment Charges
Impairment of Property, Equipment and Software
In fiscal 2019, there was a $0.3 million impairment of equipment used in the customer care solutions business, which was exited in June 2019. In addition, the Company
recorded a $0.3 million impairment charge for previously purchased software that will no longer be used, as well as a $0.1 million impairment charge on equipment from
closed facilities. In fiscal 2018, the Company recorded an impairment charge of $0.5 million for previously purchased software no longer in use.
F-17
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
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 fiscal 2019 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 15%. 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 2019, it was determined that no adjustment to the carrying value of goodwill of $5.4 million was
required as our Step 1 analysis resulted in the fair value of the reporting unit exceeding its carrying value.
The following represents the change in the carrying amount of goodwill during each fiscal year (in thousands):
International Staffing
Foreign Currency
Translation
Adjustment
November 3, 2019
— $
—
46
46 $
10,483
(3,733 )
(1,353 )
5,397
October 28, 2018
$
$
10,483 $
(3,733 )
(1,399 )
5,351 $
Aggregate goodwill acquired
Accumulated impairment losses
Foreign currency translation adjustment
Goodwill, net of impairment losses
NOTE 8: Restructuring and Severance Charges
The Company incurred total restructuring and severance costs of $4.7 million and $8.2 million for fiscal 2019 and 2018, respectively.
2018 Restructuring Plan
On October 16, 2018, the Company approved a restructuring plan (the “2018 Plan”) based on an organizational and process redesign intended to optimize the Company’s
strategic growth initiatives and overall business performance. In connection with the 2018 Plan, the Company incurred restructuring charges comprised of severance and
benefit costs and facility and lease termination costs. The 2018 Plan was completed by the end of fiscal 2019. The total costs since inception through November 3, 2019 were
approximately $5.4 million, consisting of $1.1 million in North American Staffing, $0.4 million in International Staffing and $3.9 million in Corporate and Other. As of
November 3, 2019, the Company anticipates payments of $0.9 million will be made in fiscal 2020. 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, Michael 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.
Effective August 23, 2019, Paul Tomkins stepped down from his role as Senior Vice President and Chief Financial Officer of the Company. The Company and Mr. Tomkins
subsequently executed a separation agreement, effective September 11, 2019. The Company incurred related severance costs of $0.9 million in the fourth quarter of fiscal
2019, which is payable over a period of 12 months beginning November 2019.
Exit of Customer Care Solutions Business
In June 2019, the Company exited its customer care solutions business, which is currently reported as a part of the Corporate and Other category. This exit will enable the
Company to further strengthen its focus on its core staffing business, align its resources to streamline operations, improve cost competitiveness and increase profitability. As a
result of this exit, the Company incurred restructuring and severance costs of $2.1 million during fiscal 2019.
F-18
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
Other Restructuring Costs
During fiscal 2019 and 2018, there were other restructuring actions taken by the Company as part of its continued efforts to reduce costs and achieve operational efficiency.
The Company recorded severance costs of $0.7 million and $1.3 million, respectively, primarily resulting from the elimination of certain positions.
The following tables present the restructuring and severance and benefit costs for the twelve months ended November 3, 2019 and October 28, 2018 (in thousands):
Severance and benefit costs
Other
2018 Plan
Severance and benefit costs
Other
Exit of Customer Care Solutions Business
Severance and benefit costs
Other
Other
Change in Executive Management
Total
Severance and benefit costs
Other
2018 Plan
Severance and benefit costs
Other
Other
Change in Executive Management
Total
$
$
$
$
Total
North American
Staffing
International Staffing
North American
MSP
Corporate &
Other
Year Ended November 3, 2019
803 $
260
1,063
212
1,849
2,061
493
171
664
200 $
37
237
—
—
—
390
92
482
404 $
33
437
—
—
—
48
25
73
868
4,656 $
—
719 $
—
510 $
— $
14
14
—
—
—
—
54
54
—
68 $
199
176
375
212
1,849
2,061
55
—
55
868
3,359
Total
North American
Staffing
International Staffing
North American
MSP
Corporate &
Other
Year Ended October 28, 2018
401 $
428
829
103
—
103
—
932 $
1,526 $
2,826
4,352
1,009
246
1,255
2,635
8,242 $
F-19
— $
—
—
210
118
328
—
328 $
— $
—
—
37
108
145
—
145 $
1,125
2,398
3,523
659
20
679
2,635
6,837
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
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 November 3, 2019 and October 28, 2018 are summarized as follows (in thousands):
Balance, beginning of year
Charged to expense
Cash payments
Ending Balance
November 3, 2019
October 28, 2018
$
$
5,702 $
4,656
(6,513 )
3,845 $
297
8,242
(2,837 )
5,702
The remaining balance at November 3, 2019 of $3.8 million, primarily related to Corporate and Other, includes $1.6 million related to the cost reduction plan implemented in
fiscal 2018, $1.5 million related to change in executive management, $0.6 million related to the exit of the customer care solutions business and $0.1 million of other
restructuring and severance charges.
NOTE 9: 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”) is
insured under a paid loss deductible casualty insurance program for losses exceeding specified deductible levels. The Company is financially responsible for losses 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’s DZ Financing Program of $22.8 million as of November 3, 2019.
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
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 $9.6 million and $10.2 million in fiscal 2019 and 2018, respectively.
(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 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 utilizing actuarial estimates of expected claims based on statistical analysis of historical data. The Company records the expense
associated with the expected losses, net of employee contributions, primarily in 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 $5.4 million and $4.3 million in fiscal
2019 and 2018, respectively.
F-20
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
NOTE 10: Income Taxes
Loss before income taxes is derived from (in thousands):
U.S. Domestic
International
Loss before income tax
Income tax provision (benefit) by taxing jurisdiction consists of (in thousands):
Current:
U.S. Federal
U.S. State and local
International
Total current
Deferred:
U.S. State and local
International
Total deferred
Income tax provision
$
$
$
$
$
$
Year Ended
November 3, 2019
October 28,
2018
(17,529 ) $
3,321
(14,208 ) $
(36,077 )
4,350
(31,727 )
Year Ended
November 3, 2019
October 28,
2018
— $
6
1,060
1,066 $
$
4
(92 )
(88 )
978
$
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):
U.S. Federal statutory rate
U.S. State income tax, net of U.S. Federal tax benefits
International permanent differences
International tax rate differentials
U.S. tax on international income
General business credits
Non-deductible expenses
Other, net
Change in valuation allowance for rate change
Change in valuation allowance for deferred tax assets
Income tax provision
Year Ended
November 3, 2019
October 28,
2018
$
$
(2,984 ) $
142
95
145
471
(1,718 )
358
—
—
4,469
978 $
F-21
(1,423 )
188
2,169
934
(2 )
26
24
958
(7,424 )
212
(161 )
1,282
(1,136 )
(2,400 )
64
(1,108 )
26,798
(15,169 )
958
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
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):
November 3,
2019
October 28,
2018
Deferred tax assets:
Net operating loss carryforwards
Capital loss carryforwards
U.S. federal tax credit carryforwards
Deferred income
Compensation accruals
Other, net
Total deferred tax assets
Less valuation allowance
Deferred tax assets, net
Deferred tax liabilities:
Unremitted earnings from foreign subsidiaries
Software development costs
Other, net
Total deferred tax liabilities
Net deferred tax liability
Balance sheet classification
Non-current assets
Non-current liabilities
Net deferred tax asset (liability)
$
$
$
$
60,706 $
3,357
53,462
6,045
3,199
5,744
132,513
(123,266 )
9,247
2,017
6,767
466
9,250
(3 ) $
14 $
(17 )
(3 ) $
55,522
3,403
51,288
6,366
4,305
5,365
126,249
(118,559 )
7,690
2,010
4,884
959
7,853
(163 )
347
(510 )
(163 )
At November 3, 2019, the Company has available unused U.S. federal net operating loss (“NOL”) carryforwards of $207.2 million, U.S. state NOL carryforwards of $239.3
million, international NOL carryforwards of $9.3 million, capital loss carryforwards of $12.9 million and federal tax credits of $53.5 million. As of November 3, 2019, the
U.S. federal NOL carryforwards 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, the international NOL carryforwards expire at various dates beginning in 2020 (with some indefinite), capital loss carryforwards expire between 2020 and
2022 and federal tax credits expire between 2020 and 2037. At November 3, 2019, 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 2019
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
$123.3 million and $118.6 million for fiscal 2019 and 2018, 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
F-22
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
tax positions, excluding interest and penalties (in thousands):
Balance, beginning of year
Decreases relating to tax positions taken in a prior period
Settlements
Lapse of statute of limitations
Total
November 3,
2019
October 28,
2018
$
$
$
491
(21 )
(146 )
(41 )
283
$
1,495
(10 )
—
(994 )
491
Of the total unrecognized tax benefits at November 3, 2019 and October 28, 2018, approximately $0.3 million and $0.5 million, respectively, would affect the Company’s
effective income tax rate, if and when recognized in future years. The amount accrued for related potential interest and penalties at October 28, 2018 was $0.1 million. The
income tax provision for the fiscal years ended November 3, 2019 and October 28, 2018 included a reversal of reserves on uncertain tax provisions of $0.2 million and $1.1
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.
Other provisions under the Tax Act which are effective for the Company in fiscal 2019, includes limitations on deductibility of executive compensation and interest, as well as
a new minimum tax on Global Intangible Low-Taxed Income (“GILTI”), both of which did not have a material impact on the Company's financial statements.
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 was no significant impact.
NOTE 11: 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 200,000 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
F-23
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
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 was deferred and, through the fourth quarter of fiscal 2019, was being recognized over the remaining lease term in proportion to
the related gross rental charges. However, in the first quarter of fiscal 2020, the unamortized deferred gain of $22.2 million will be recognized as a cumulative-effect
adjustment to equity upon adoption of ASU 2016-02, Leases (Topic 842). For fiscal 2019 and 2018, the amortization was $1.9 million and $1.9 million, respectively.
NOTE 12: Debt
The Company’s primary sources of liquidity are cash flows from operations and proceeds from our financing arrangements. Both operating cash flows and borrowing capacity
under the Company’s financing arrangements 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 employees; federal, foreign,
state and local taxes; and trade payables. The Company’s level of borrowing capacity under its financing arrangements 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 million. The Company generally targets minimum global liquidity to be 1.5 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.
On July 19, 2019, the Company amended and restated its long-term $115.0 million accounts receivable securitization program (“DZ Financing Program”) with DZ Bank AG
Deutsche Zentral-Genossenschafsbank (“DZ Bank”), which was originally executed on January 25, 2018. The restated agreement allows for the inclusion of certain accounts
receivable from an originator in the United Kingdom, which added an additional $5.0 - $7.0 million in borrowing availability. All other material terms and conditions of the
original agreement remained substantially unchanged.
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, that subsidiary may request that DZ Bank make loans from time-to-time to that subsidiary which are secured by liens on those
receivables.
On June 4, 2019, the Company entered into an amendment with DZ Bank to temporarily exclude the receivables due from a specific customer from the securitization pool
under its DZ Financing Program for three subsequent reporting periods as of May 2019 through July 2019. This customer experienced internal processing issues related to
specific Volt purchase orders resulting in significant payment delays, which negatively impacted the 90-Day Delinquency Rate, as defined in the DZ Financing Program.
Although this change improved the delinquency rate, it temporarily decreased the Company’s borrowing availability under the DZ Financing Program by approximately $2.0 -
$3.0 million. These payment delays were not credit related and the Company collected the past due amounts. The issue was resolved and the receivables from this customer
were added back to the securitization pool under the original terms of the agreement, as permitted under a provision in the amendment.
Loan advances may be made under the DZ Financing Program through January 25, 2021 and all loans will mature no later than July 25, 2021. 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 November 3, 2019, the letter of credit participation was $24.2
million, inclusive of $22.8 million for the Company’s casualty insurance program, $1.2 million for the security deposit required under certain real estate lease agreements, and
$0.2 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.
F-24
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
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 (as defined below). 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 Tangible Net Worth (as defined
under the DZ Financing Program) of at least $30.0 million through fiscal 2019, which will increase to $40.0 million in fiscal 2020; (2) positive net income in any fiscal year
ending after 2019; (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 the DZ Financing Program). At
November 3, 2019, there was $22.3 million of borrowing availability, as defined, under the DZ Financing program and the Company was in compliance with all debt
covenants.
The Company uses the availability from the DZ Financing Program from time-to-time for working capital and other general corporate purposes. The Company had entered
into the original agreement with DZ Bank when it exited its financing relationship with PNC Bank (“PNC Financing Program”). 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.
At November 3, 2019 and October 28, 2018, the Company had outstanding borrowings under the DZ Financing Program of $55.0 million and $50.0 million, respectively,
with a weighted average annual interest rate of 4.1% and 3.6% during fiscal years 2019 and 2018, respectively.
Long-term debt consists of the following (in thousands):
Financing programs
Less:
Deferred financing fees
Total long-term debt, net
November 3,
2019
October 28,
2018
$
$
55,000 $
1,106
53,894 $
50,000
932
49,068
On January 14, 2020, the Company executed an amendment to the DZ Financing Program. The modifications to the agreement were to (1) extend the Amortization Date, as
defined, from January 25, 2021 to January 25, 2023, and extend the Facility Maturity Date, as defined, from July 25, 2021 to July 25, 2023; and (2) revise an existing
covenant to maintain positive net income in any fiscal year ending after 2020. All other terms and conditions remain unchanged.
NOTE 13: Stockholders’ Equity
(a)
Common Stock
Each outstanding share of common stock is entitled to one vote per share on all matters submitted to a vote by shareholders. Subject to the rights of any preferred stock which
may from time-to-time be outstanding, the holders of outstanding shares of common stock are entitled to receive dividends and, upon liquidation or dissolution, are entitled to
receive pro rata all assets legally available for distribution to stockholders. No dividends were declared or paid on the common stock during fiscal 2019 or 2018. The holders
of common stock have no preemptive or other subscription rights and there is no redemption or sinking fund provisions with respect to such shares. There is no preferred
stock outstanding.
F-25
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
(b)
Treasury Stock
The Company issues shares out of treasury stock to satisfy share-based compensation awards. Activity for the fiscal years ended November 3, 2019 and October 28, 2018 is
summarized as follows (in thousands):
Balance, beginning of the year
Shares issued for share-based compensation awards
Ending Balance
(c) Comprehensive Income (Loss)
November 3, 2019
October 28, 2018
(33,600 ) $
(37,607 )
7,445
4,007
(26,155 ) $
(33,600 )
$
$
The accumulated balances for each classification of other comprehensive income (loss) are as follows (in thousands):
Balance at October 29, 2017
Other comprehensive income (loss) before reclassifications
Current period other comprehensive income (loss)
Balance at October 28, 2018
Other comprehensive income (loss) before reclassifications
Current period other comprehensive income
Balance at November 3, 2019
Foreign
currency
gains/(losses)
(5,261 )
(1,809 )
(1,809 )
(7,070 )
269
269
(6,801 )
$
$
There were no reclassifications from accumulated other comprehensive loss in fiscal 2019 and 2018.
NOTE 14: Share-Based Compensation Plans
For the twelve months ended in fiscal year 2019 and 2018, the Company recognized share-based compensation expense of $1.4 million and $1.8 million, respectively. These
expenses are included in Selling, administrative and other operating costs in the Company’s Consolidated Statements of Operations.
2019 Equity Incentive Plan
On May 1, 2019, the stockholders of the Company approved the Company’s 2019 Equity Incentive Plan (the “2019 Plan”). The 2019 Plan permits the granting of (1) stock
options, including incentive stock options, (2) stock appreciation rights, (3) restricted stock, (4) restricted stock units, (5) performance awards, and (6) other awards valued in
whole or in part by reference to or otherwise based on our common stock (as defined in the 2019 Plan, “other share-based awards”). Subject to adjustment as provided in the
2019 Plan, up to an aggregate of 2,500,000 shares of the Company’s common stock will be available for awards under the 2019 Plan, plus any shares granted under the
Company’s 2015 Equity Incentive Plan that become available for awards under such plan.
Equity Awards
During fiscal 2019, the Company granted long-term incentive awards in the aggregate of 297,229 performance stock units (“PSUs”) to executive management and 430,563
restricted stock units (“RSUs”) to certain employees including executive
F-26
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
management. Additionally, an annual equity grant totaling 86,405 RSUs was made to the Board of Directors of the Company (“Board of Directors”).
The PSUs are eligible to vest in three equal tranches at the end of each performance period. Vesting of the PSUs is dependent on the achievement of the adjusted Earnings
Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) margin percentage goals based on adjusted revenues at the end of each fiscal year end of the one-year,
two-year and three-year performance periods and provided that the employees remain employed with the Company on each of those vesting dates. The payout percentages can
range from 0% to 150%. The RSUs for the employees vest in equal annual tranches over three years, provided the employees remain employed with the Company on each of
those vesting dates. The RSUs for the Board of Directors vest in one year from the grant date provided that the director provides continued service through the vesting date.
The grant date fair value for the PSUs and RSUs is measured using the closing stock price on the grant date. The total fair value of the PSUs and RSUs granted during fiscal
2019 was approximately $1.2 million and $2.1 million, respectively.
There were no grants of stock options in fiscal 2019. For stock options granted in the prior fiscal years, the fair value of the option grants was estimated using the Black-
Scholes option-pricing model, which requires estimates of key assumptions based on both historical information and management judgment regarding market factors and
trends. For RSUs granted in the prior fiscal year that are classified as equity awards, the grant date fair value is measured using the closing stock price on the grant date. These
awards vest in equal annual tranches over three years, provided the employees remain employed with the Company on each of those vesting dates. The Company granted
133,181 stock options in fiscal 2018 with a total grant date fair value of $0.2 million.
Determining Fair Value - Stock Options
The fair value of the option grants under both plans was estimated using the Black-Scholes option-pricing model, which requires estimates of key assumptions based on both
historical information and management judgment regarding market factors and trends.
Expected volatility - We developed the expected volatility by using the historical volatilities of the Company for a period equal to the expected life of the option.
Expected term - We derived our expected term assumption based on the simplified method due to a lack of historical exercise data, which results in an expected term based on
the midpoint between the graded vesting dates and contractual term of an option.
Risk-free interest rate - The rates are based on the average yield of a U.S. Treasury bond, with a term that was consistent with the expected life of the stock options.
Expected dividend yield - We have not paid and do not anticipate paying cash dividends on our shares of common stock; therefore, the expected dividend yield was assumed
to be zero.
The weighted average assumptions used to estimate the fair value of stock options for fiscal 2018 were as follows:
Weighted-average fair value of stock option granted
Expected volatility
Expected term (in years)
Risk-free interest rate
Expected dividend yield
Fiscal Year Ended
October 28,
2018
$1.75
40.0%
6.00
2.73%
0.0%
The grants vest in equal annual tranches over three years, provided the employees remain employed on each of those vesting dates. Compensation expense for the stock
options is recognized over the vesting period. The stock options expire 10 years from the initial grant date and have a weighted average exercise price of $4.10 for fiscal 2018.
F-27
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
Liability Awards
During fiscal 2018, the Company granted 276,396 PSUs and 491,138 RSUs that are classified as a liability at fair value, which is computed using a Monte Carlo simulation
and re-measured periodically based on the effect that the market condition has on these awards. The liability and corresponding expense are adjusted accordingly until the
awards are settled. As of the fiscal year ended November 3, 2019, the total fair value of the remaining PSUs and RSUs was approximately $0.1 million and $0.5 million,
respectively.
Vesting of the PSUs is dependent on the achievement of target stock prices at the end of each of the one-year, two-year and three-year performance periods. The ending stock
price is the average price of the last 20 trading days prior to and including the final day of each performance period. The payout percentages can range from 0% to 200%. The
RSUs vest in equal annual tranches over three years, provided the employees remain employed with the Company on each of those vesting dates.
Upon vesting, the PSUs and RSUs may be settled in either cash or stock at the Company’s election, with any stock settlement being subject to the Company having a
sufficient number of shares then available under its equity incentive plan to satisfy such awards. Any awards settled in cash will be capped at two times the Company’s
closing stock price on the grant date, multiplied by the number of awards vesting. During the third quarter of fiscal 2019, the first tranches of the PSUs and RSUs that vested
were settled in stock.
In prior years, the Company granted phantom units in the form of cash-settled RSUs to certain senior management level employees. The total fair value at the grant date was
approximately $0.3 million with a weighted average fair value per unit of $4.35. The units vest in equal annual tranches over three years, provided the employees remain
employed on each of those vesting dates. These awards are classified as a liability and re-measured at the end of each reporting period based on the change in fair value of one
share of the Company’s common stock. As of the end of fiscal 2019, the total fair value was less than $0.1 million and 6,012 phantom units were outstanding.
Summary of Equity and Liability Awards
The following tables summarize the activities related to the Company’s share-based equity and liability awards for the fiscal year ended November 3, 2019:
Stock Options
Outstanding at October 29, 2017
Granted
Forfeited
Outstanding at October 28, 2018
Exercised
Forfeited
Expired
Outstanding at November 3, 2019
Unvested at November 3, 2019
Exercisable at November 3, 2019
Number of
shares
Weighted
average
exercise price
Weighted average
contractual life
(in years)
Aggregate
Intrinsic
Value
(in thousands)
2,499,922 $
133,181 $
(1,033,063) $
1,600,040 $
(200,000 ) $
(335,972 ) $
(460,584 ) $
603,484 $
108,695 $
494,789 $
6.32
4.10
7.16
5.25
4.35
5.42
5.36
6.28
—
6.75
F-28
8.20 $
— $
— $
7.27 $
— $
— $
— $
6.81 $
— $
6.55 $
6,051
—
—
—
—
—
—
—
—
—
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
Performance Share Units
Outstanding at October 29, 2017
Granted
Outstanding at October 28, 2018
Granted (a) (b)
Forfeited
Vested
Number of
Shares
Weighted Average
Grant Date Fair Value
— $
276,396 $
276,396 $
377,833 $
(179,981 ) $
(97,262 ) $
376,986 $
Outstanding at November 3, 2019
(a) Includes the incremental issuance of shares related to the Fiscal 2018 PSU grant.
(b) Includes the incremental shares for the first tranche of the fiscal 2019 PSU grant based on attainment of the
fiscal 2019 EBITDA margin percentage goal. These shares will be issued upon vesting.
Restricted Stock Units
Outstanding at October 29, 2017
Granted
Forfeited
Vested
Outstanding at October 28, 2018
Granted
Forfeited
Vested
Outstanding at November 3, 2019
Number of
Shares
Weighted Average
Grant Date Fair Value
338,966 $
491,138 $
(40,769 ) $
(206,504 ) $
582,831 $
516,968 $
(236,035 ) $
(196,682 ) $
667,082 $
—
3.38
3.38
4.05
3.61
3.82
3.90
5.20
3.23
4.62
5.33
3.53
4.11
3.73
3.75
3.86
As of November 3, 2019 total unrecognized compensation expense of $2.6 million related to PSUs, stock options, RSUs and phantom units will be recognized over the
remaining weighted average vesting period of 2.1 years, of which $1.8 million, $0.6 million, and $0.2 million is expected to be recognized in fiscal 2020, 2021 and 2022,
respectively.
F-29
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
NOTE 15: Earnings (Loss) Per Share
Basic and diluted net income (loss) per share is calculated as follows (in thousands, except per share amounts):
Numerator
Net income (loss)
Denominator
Year Ended
November 3, 2019
October 28, 2018
$
(15,186 ) $
(32,685 )
Basic weighted average number of shares
Dilutive weighted average number of shares
21,119
21,119
21,051
21,051
Per Share Data:
Basic:
Net income (loss)
Diluted:
Net income (loss)
$
$
(0.72 ) $
(1.55 )
(0.72 ) $
(1.55 )
The fiscal 2019 diluted earnings per share did not include the effect of potentially dilutive outstanding shares comprised of 667,082 RSUs, 603,484 of stock options and
376,986 PSUs because the effect would have been anti-dilutive. The fiscal 2018 diluted earnings per share did not include the effect of potentially dilutive outstanding shares
comprised of 97,719 RSUs, 1,600,040 of stock options and 276,936 PSUs because the effect would have been anti-dilutive.
NOTE 16: Commitments and Contingencies
(a)
Leases
The future minimum rental commitments as of November 3, 2019 for all non-cancelable operating leases were as follows (in thousands):
Fiscal year:
2020
2021
2022
2023
2024
Thereafter
Total minimum payments required (a)
$
$
Amount
11,782
9,287
7,457
6,328
5,486
28,422
68,762
(a) - Minimum payments have not been reduced by minimum sublease rentals of $9.6 million, or approximately $1.5 million annually, due in the future under noncancelable subleases.
Many of the leases also require the Company to pay and contribute to property taxes, insurance and ordinary repairs and maintenance. The lease agreements, which expire at
various dates through 2031, may be subject in some cases to renewal options, early termination options or escalation clauses.
Rent expense for all operating leases in fiscal 2019 and 2018 were $13.8 million and $16.3 million, respectively.
(b)
Legal
Proceedings
The Company is involved in various claims and legal actions arising in the ordinary course of business. The Company’s loss contingencies not discussed elsewhere consist
primarily of claims and legal actions arising in the normal course of business
F-30
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
related to contingent worker employment matters in the staffing services business. These matters are at varying stages of investigation, arbitration or adjudication. The
Company has accrued for losses on individual matters that are both probable and reasonably estimable.
Estimates are based on currently available information and assumptions. Significant judgment is required in both the determination of probability and the determination of
whether a matter is reasonably estimable. The Company’s estimates may change and actual expenses could differ in the future as additional information becomes available.
(c) Other Matters
As previously disclosed in the Annual Report on Form 10-K for the year ended October 28, 2018, certain qualification failures related to nondiscrimination testing for the
Company’s 401(k) plans consisting of the (1) Volt Technical Services Savings Plan and the (2) Volt Information Sciences, Inc. Savings Plan occurred during plan years prior
to 2016. The Company has obtained the approval from the Internal Revenue Service regarding the method for curing the failures and made a contribution of $0.8 million in
the fourth quarter of fiscal 2019.
NOTE 17: Subsequent Events
On January 14, 2020, the Company executed an amendment to the DZ Financing Program. The modifications to the agreement were to (1) extend the Amortization Date, as
defined, from January 25, 2021 to January 25, 2023, and extend the Facility Maturity Date, as defined, from July 25, 2021 to July 25, 2023; and (2) revise an existing
covenant to maintain positive net income in any fiscal year ending after 2020. All other terms and conditions remain unchanged.
In the first quarter of fiscal 2020, the Company approved a restructuring plan (the “Plan”) as part of its strategic initiative to optimize the Company’s cost infrastructure.
Included in this initiative is the Company’s plan to leverage the global capabilities of our staffing operations based in Bangalore, India and offshore a significant number of
strategically identified roles to this location. The plan will affect approximately 125 employees. The Company expects to incur a total estimated pre-tax restructuring charge of
approximately $1.2 million of severance and benefit costs in the first half of its fiscal year ending November 1, 2020.
NOTE 18: Segment Disclosures
We report our segment data in accordance with the provisions of ASC 280, Segment Reporting, aligning with the way the Company evaluates its business performance and
manages its operations. 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.
In June 2019, the Company exited its customer care solutions business, which was currently reported as a part of the Corporate and Other category. This exit allows the
Company to further strengthen its focus on its core staffing business and align its resources to streamline operations, improve cost competitiveness and increase profitability.
The Company’s other non-reportable businesses continued to be combined and disclosed with corporate services under the category Corporate and Other.
Segment operating income (loss) is comprised of segment net revenue less cost of services, selling, administrative and other operating costs, impairment charges and
restructuring and severance costs. The Company allocates to the segments all operating costs except for 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.
F-31
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
Financial data concerning the Company’s segment revenue and operating income (loss) as well as results from Corporate and Other are summarized in the following tables (in
thousands):
Total
North American
Staffing
International
Staffing
North American
MSP
Corporate and
Other (1)
Eliminations (2)
Year Ended November 3, 2019
Net revenue
Cost of services
Gross margin
Selling, administrative and other operating costs
Restructuring and severance costs
Impairment charges
Operating income (loss)
Other income (expense), net
Income tax provision
Net loss
$
997,090
$
830,947
$
708,824
122,123
103,437
719
4
17,963
844,527
152,563
157,052
4,656
688
(9,833)
(4,375)
978
(15,186 )
$
$
114,377
95,552
18,825
39,010 $
28,324
10,686
15,320 $
14,391
929
15,422
510
—
2,893
5,595
68
—
5,023
32,598
3,359
684
(35,712 )
(2,564)
(2,564)
—
—
—
—
—
Total
North American
Staffing
International
Staffing
North American
MSP
Corporate and
Other (1)
Eliminations (2)
Year Ended October 28, 2018
Net revenue
Cost of services
Gross margin
Selling, administrative and other operating costs
Restructuring and severance costs
Impairment charges
Operating income (loss)
Other income (expense), net
Income tax provision
Net loss
$
1,039,170
$
860,544
$
735,050
125,494
112,459
932
—
12,103
885,492
153,678
173,337
8,242
506
(28,407 )
(3,320)
958
(32,685 )
$
$
117,351
98,640
18,711
15,986
328
—
2,397
29,986 $
22,637
7,349
5,571
145
—
1,633
35,228 $
33,104
2,124
39,321
6,837
506
(44,540 )
(3,939)
(3,939)
—
—
—
—
—
(1) Revenues are primarily derived from Volt Customer Care Solutions business through June 7, 2019.
(2) The majority of intersegment sales results from North American Staffing providing resources to Volt Customer Care Solutions business.
Assets of the Company by reportable segment are summarized in the following table (in thousands):
Assets:
North American Staffing
International Staffing
North American MSP
Corporate & Other
Total Assets
November 3,
2019
October 28,
2018
$
$
109,067 $
30,327
19,196
59,414
218,004 $
121,510
27,765
20,194
67,227
236,696
F-32
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
Sales to external customers and long-lived assets of the Company by geographic area are as follows (in thousands):
Net Revenue:
Domestic
International
Total Net Revenue
Long-Lived Assets:
Domestic
International
Total Long-Lived Assets
$
$
$
$
Year Ended
November 3,
2019
October 28,
2018
878,095 $
118,995
997,090 $
916,561
122,609
1,039,170
November 3,
2019
October 28,
2018
24,525 $
1,365
25,890 $
Capital expenditures and depreciation and amortization by the Company’s operating segments are as follows (in thousands):
Capital Expenditures:
North American Staffing
International Staffing
North American MSP
Corporate & Other
Total Capital Expenditures
Depreciation and Amortization:
North American Staffing
International Staffing
North American MSP
Corporate & Other
Total Depreciation and Amortization
Year Ended
November 3,
2019
October 28,
2018
$
$
$
$
415 $
315
295
8,028
9,053 $
415 $
281
50
6,209
6,955 $
F-33
23,274
1,118
24,392
340
207
28
2,990
3,565
464
359
9
6,377
7,209
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
NOTE 19: Quarterly Financial Information (unaudited)
The following tables present certain unaudited consolidated quarterly financial information for each quarter in the fiscal years ended November 3, 2019 and October 28, 2018
(in thousands, except per share amounts):
Three Months Ended
January 27, 2019
April 28, 2019
July 28, 2019
November 3, 2019
(unaudited)
13 weeks
(unaudited)
13 weeks
(unaudited)
13 weeks
(unaudited)
14 weeks
NET REVENUE
Cost of services
GROSS MARGIN
Selling, administrative and other operating costs
Restructuring and severance costs
Impairment charges
OPERATING INCOME (LOSS)
Interest income
Interest expense
Foreign exchange gain (loss), net
Other income (expense), net
LOSS BEFORE INCOME TAXES
Income tax provision
NET LOSS
PER SHARE DATA:
Basic:
Net Loss
Weighted average number of shares
Diluted:
Net Loss
Weighted average number of shares
$
253,436
$
215,737
37,699
39,810
59
—
(2,170 )
55
(801 )
213
(239 )
(2,942 )
273
252,070 $
215,813
36,257
233,176 $
197,528
35,648
38,939
724
347
(3,753 )
66
(765 )
(314 )
(166 )
(4,932 )
233
38,395
2,017
79
(4,843)
87
(801)
(151)
(184)
(5,892)
165
(6,057) $
(3,215 ) $
(5,165) $
(0.15 ) $
21,080
(0.24 ) $
21,082
(0.29 ) $
21,157
(0.15 ) $
21,080
(0.24 ) $
21,082
(0.29 ) $
21,157
F-34
$
$
$
258,408
215,449
42,959
39,908
1,856
262
933
66
(789 )
(360 )
(292 )
(442 )
307
(749)
(0.04 )
21,157
(0.04 )
21,157
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 3, 2019
NET REVENUE
Cost of services
GROSS MARGIN
Selling, administrative and other operating costs
Restructuring and severance costs
Impairment charges
OPERATING LOSS
Interest income
Interest expense
Foreign exchange gain (loss), net
Other income (expense), net
LOSS BEFORE INCOME TAXES
Income tax provision (benefit)
NET LOSS
PER SHARE DATA:
Basic:
Net loss
Weighted average number of shares
Diluted:
Net loss
Weighted average number of shares
Three Months Ended
January 28, 2018
April 29, 2018
July 29, 2018
October 28, 2018
(unaudited)
13 weeks
(unaudited)
13 weeks
(unaudited)
13 weeks
(unaudited)
13 weeks
$
$
$
$
253,338 $
217,329
36,009
46,938
518
—
(11,447 )
22
(804 )
703
(528 )
(12,054 )
(1,360 )
(10,694 ) $
263,219 $
225,918
37,301
42,916
104
155
(5,874 )
47
(678 )
(497 )
(55 )
(7,057 )
630
(7,687) $
257,808 $
221,448
36,360
42,222
3,108
—
(8,970)
50
(602)
(294)
(296)
(10,112 )
1,306
(11,418 ) $
(0.51 ) $
21,029
(0.37 ) $
21,032
(0.54 ) $
21,071
(0.51 ) $
21,029
(0.37 ) $
21,032
(0.54 ) $
21,071
F-35
264,805
220,797
44,008
41,261
4,512
351
(2,116 )
54
(681 )
491
(252 )
(2,504 )
382
(2,886)
(0.14 )
21,072
(0.14 )
21,072
VOLT INFORMATION SCIENCES, INC.
LIST OF SUBSIDIARIES
Exhibit 21
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
Name (1)
Arctern Consulting Private Limited (2)
Arctern, Inc.
Nuco I, Ltd.
Nuco II, Ltd.
P/S Partner Solutions, Ltd.
ProcureStaff Technologies, Ltd.
Volt Consulting MSP Canada Ltd.
VMC Consulting Europe Limited
VMC Consulting Germany Gmbh
VMC Services India Private Limited (3)
Volt Asia Enterprises (Malaysia) Sdn. Bhd.
Volt Asia Enterprises, Ltd.
Volt Australia, Ltd.
Volt Consulting Group, Ltd.
Volt Delta International B.V.
Volt Directory Marketing, Ltd. (4)
Volt Delta Resource Holdings, Inc
Volt Europe (Belgium) SPRL
Volt Europe (Deutschland) GmbH
Volt Europe (Espana) S.L.
Volt Europe (France) SARL
Volt Europe (Germany) GmbH
Volt Europe (Nederland) BV
Volt Europe (Switzerland) SA
Volt Europe Ceska Republika s.r.o
Volt Europe Holdings Limited
Volt Europe Limited
Volt Europe Slovakia s.r.o.
Volt Europe Temporary Services Limited
Volt Funding Corp.
Volt Gatton Holding, Inc.
Volt Information Sciences (India) Private Limited (2)
Volt Management Corp.
Volt Netherlands Holding BV
Volt Reach, Inc.
Volt Consulting Group Limited
Volt Service Corporation Pte, Ltd.
Volt Service K.K.
Volt Services Group (Netherlands) B.V.
Volt Telecommunications Group, Inc.
Volt Funding II, LLC
Jurisdiction of
Incorporation
India
Virginia
Nevada
Delaware
Delaware
Delaware
Canada
United Kingdom
Germany
India
Malaysia
Delaware
Delaware
Delaware
Netherlands
Delaware
Nevada
Belgium
Germany
Spain
France
Germany
Netherlands
Switzerland
Czech Republic
United Kingdom
United Kingdom
Slovakia
United Kingdom
Delaware
Delaware
India
Delaware
Netherlands
Delaware
United Kingdom
Singapore
Japan
Netherlands
Delaware
Delaware
Footnotes
(1) Except as noted, each named subsidiary is wholly owned, directly or indirectly by Volt Information Sciences, Inc., except that, in the case of certain foreign
subsidiaries, qualifying shares may be registered in the name of directors.
(2) 99.99% owned by Volt Asia Enterprises, Ltd. / 00.01% owned by Nuco I,
Ltd.
(3) 99.39% owned by Volt Information Sciences (India) Private Limited /0.61% owned by Volt Asia Enterprises Ltd. /1 fractional share owned by Nuco I,
Ltd.
(4) 80% owned by Nuco II, Ltd. / 20% owned by Market Access
International.
Consent of Independent Registered Public Accounting Firm
Exhibit 23
We consent to the incorporation by reference in the following Registration Statements:
1. Registration Statement (Form S-8 No. 333-232096),
2. Registration Statement (Form S-8 No. 333-211928),
3. Registration Statement (Form S-8 No. 333-211927), and
4. Registration Statement (Form S-8 No. 333-148355);
of our report dated January 15, 2020, with respect to the consolidated financial statements of Volt Information Sciences, Inc. included in this Annual
Report (Form 10-K) for the year ended November 3, 2019.
/s/ Ernst & Young LLP
New York, New York
January 15, 2020
CERTIFICATION PURSUANT TO RULE 13a–14(a)/15d–14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES–OXLEY ACT OF 2002
Exhibit 31.1
I, Linda Perneau, certify that:
1. I have reviewed this annual report on Form 10-K of Volt Information Sciences, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter
(the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: January 15, 2020
/s/ Linda Perneau
Linda Perneau
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO RULE 13a–14(a)/15d–14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES–OXLEY ACT OF 2002
Exhibit 31.2
I, Herbert M. Mueller, certify that:
1. I have reviewed this annual report on Form 10-K of Volt Information Sciences, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter
(the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: January 15, 2020
/s/ Herbert M. Mueller
Herbert M. Mueller
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO § 906
OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the annual report on Form 10-K of Volt Information Sciences, Inc., a New York corporation (the “Company”), for the year ended November 3, 2019,
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Linda Perneau, President and Chief Executive Officer of the
Company, and Herbert M. Mueller, Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and
for the periods indicated.
Date: January 15, 2020
/s/ Linda Perneau
Linda Perneau
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Herbert M. Mueller
Herbert M. Mueller
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)