UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 1, 2020
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)
2401 N. Glassell Street, Orange, California
(Address of principal executive offices)
13-5658129
(I.R.S. Employer Identification No.)
92865
(Zip Code)
Registrant’s telephone number, including area code:
(714) 921-8800
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock $0.10 Par Value
VOLT
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 ☒
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 ☒
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 ☒ 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 ☒ 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”, “non-accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
Large accelerated filer
☒ Emerging growth company
☒ Smaller reporting company
☐ Non-accelerated filer
☐ Accelerated filer
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of May 3, 2020, there were 21,408,659 shares of common stock outstanding. The aggregate market value of the voting and non-voting common stock held by non-affiliates
as of May 3, 2020 was $13,946,091, calculated by using the closing price of the common stock on such date on the NYSE AMERICAN market of $0.80.
As of January 8, 2021, there were 21,736,575 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement to be filed for its 2021 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 1, 2020
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
ITEM 15.
Signatures
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
Exhibits, Financial Statement Schedules
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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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global public health epidemics, including the strain of coronavirus known as COVID-19;
the loss of major customers;
cyber-attacks or the improper disclosure of sensitive or confidential employee or customer data;
turmoil in the financial markets or the inability to fully utilize our credit facility;
vulnerability of information technology systems to damage and/or interruption;
failure to keep pace with rapid changes in technology;
failure or inability to comply with financial covenants;
inability to retain acceptable insurance coverage limits at a commercially reasonable cost and terms;
unexpected changes in workers' compensation and other insurance plans;
contracts with no minimum purchase requirements, or cancellable during the term or both;
volatility of stock price and related ability of investors to resell their shares at or above the purchase price;
significant percentage of common stock owned by certain 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.
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 60 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, Asia Pacific and Canada 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 allowed 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.
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
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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.
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 back-office accounting and
administration, as well as software development, engineering, web design, technical support, call center operations, sales and marketing, customer service and research.
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Business Strategy
Strategic Priorities
We have built a leadership team of prominent staffing industry veterans to strengthen our sales leadership team with a focus on our 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 allows 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 the expectations of candidates in the market.
Business Optimization - Drive further efficiencies, productivity and cost savings by optimizing technology to drive performance through increased integration of
available digital tools, reporting and processes and migrating from manual, customized processes to automated, standard processes. These enhancements should 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.
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). The Company had no single customer that accounted for more than 10% of consolidated net revenue
in fiscal 2020 or 2019. Our top 10 customers, which are not the same in each year, represented approximately 41% and 39% of revenue in fiscal 2020 and 2019, 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 2020, the International Staffing segment’s revenue included two customers which accounted for approximately 24% and 12% of the total revenue of that segment. The
North American MSP segment’s revenue included four customers which accounted for approximately 22%, 14%, 12% and 10% of the total revenue of that segment.
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 both fiscal 2020 and 2019, 88% of our total revenue was from customers in the United States.
Competition
The markets for Volt's staffing services are highly competitive with few barriers to entry. The industry is large and fragmented, comprised of thousands of firms employing
millions of people and generating billions of dollars in annual revenue. In most areas, no single company has a dominant share of the employment services market. The largest
companies in the industry collectively represent less than half of all staffing services revenues and there are many smaller companies competing in varying degrees at local
levels or in particular market sectors. Dominant leaders in the industry include Adecco, Allegis, Kelly Services, Inc., Manpower Group and Randstad.
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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.
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 and Human Capital Resource Management
Volt operates on the fundamental philosophy that people are our most valuable asset as every person who works for us has the potential to impact our success as well as the
success of our clients. As a staffing company, identifying quality talent is at the core of everything we do and our success is dependent upon our ability to attract, develop and
retain highly qualified employees, both in-house and for our clients. The Company’s core values of integrity, customer centric, ownership, innovation, empowerment,
collaborative change and teamwork establish the foundation on which the culture is built and represent the key expectations we have of our employees. We believe our culture
and commitment to our employees attract and retain our qualified talent, while simultaneously providing significant value to our Company and its shareholders.
Demographics
As of November 1, 2020, Volt employed approximately 15,600 people, including approximately 14,500 who were on contingent staffing assignments with our clients, and the
remainder as full-time in-house employees. The workers on contingent staffing assignments are on our payroll for the length of their assignment with the client.
Diversity and Inclusion
Volt values building diverse teams, embracing different perspectives and fostering an inclusive, empowering work environment for our employees and clients. We have a long-
standing commitment to equal employment opportunity as evidenced by the Company’s EEO policy. Of our in house employee population, approximately 70% are women and
approximately 40% have self-identified as Hispanic or Latino, Native American, Pacific Islander, Asian, Black or African American, or of two or more races. As part of Volt’s
commitment to continued enhancements in this area, we recently launched our Expert Momentum Diversity and Inclusion Program. This program involved the creation of a
task force made up of a group of employees from across the organization. The program has established initiatives to strengthen the promotion of workplace diversity for our
employees and clients, to create a collaborative environment that promotes authenticity and a culture that celebrates our differences, and embraces a collaborative environment
with unique experiences and diverse perspectives. The program’s task force will enhance company-wide engagement on diversity and inclusion, provide education
opportunities for our employees, help identify areas for improvement and monitor progress against these initiatives.
Compensation and Benefits
Critical to our success is identifying, recruiting, retaining, and incentivizing our existing and future employees. We strive to attract and retain the most talented employees in the
industry by offering competitive compensation and benefits. Our pay-for-performance compensation philosophy is based on rewarding each employee’s individual contributions
and striving to achieve equal pay for equal work regardless of gender, race or ethnicity. We use a combination of fixed and variable pay including base
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salary, bonus, commissions and merit increases which vary across the business. In addition as part of our long-term incentive plan for executives and certain employees, we
provide share-based compensation to foster our pay-for-performance culture and to attract, retain and motivate our key leaders.
As the success of our business is fundamentally connected to the well-being of our people, we offer benefits that support their physical, financial and emotional well-being. We
provide our employees with access to flexible and convenient medical programs intended to meet their needs and the needs of their families. In addition to standard medical
coverage, we offer eligible employees dental and vision coverage, health savings and flexible spending accounts, paid time off, employee assistance programs, voluntary short-
term and long-term disability insurance and term life insurance. Additionally, we offer a 401(k) Savings Plan and Deferred Compensation Plan to certain employees. Our
benefits vary by location and are designed to meet or exceed local laws and to be competitive in the marketplace.
In response to the COVID-19 pandemic, government legislation and key authorities, we implemented changes that we determined were in the best interest of our employees, as
well as the communities in which we operate. This included having the majority of our employees work from home for several months, while implementing additional safety
measures for employees continuing critical on-site work. We continue to embrace a flexible working arrangement for a majority of our in-house employees, as well as a portion
of our contingent workforce where we continue to provide key services to customers remotely.
Commitment to Values and Ethics
Along with our core values, we act in accordance with our Code of Business Conduct and Ethics (“Code of Conduct”), which sets forth expectations and guidance for
employees to make appropriate decisions. Our Code of Conduct covers topics such as anti-corruption, discrimination, harassment, privacy, appropriate use of company assets,
protecting confidential information, and reporting Code of Conduct violations. The Code of Conduct reflects our commitment to operating in a fair, honest, responsible and
ethical manner and also provides direction for reporting complaints in the event of alleged violations of our policies (including through an anonymous hotline). Our executive
officers and supervisors maintain “open door” policies and any form of retaliation is strictly prohibited.
Professional Development and Training
We believe a key factor in employee retention is training and professional development for our talent. We have training programs across all levels of the Company to meet the
needs of various roles, specialized skill sets and departments across the Company. We provide compliance education as well as general workplace safety training to our
contingent employees and offer OSHA training to key employees and clients. Volt is committed to the security and confidentiality of our employees’ personal information and
employs software tools and periodic employee training programs to promote security and information protection at all levels. We utilize certain employee turnover rates and
productivity metrics in assessing our employee programs to ensure that they are structured to instill high levels of in-house employee tenure, low levels of voluntary turnover
and the optimization of productivity and performance across our entire workforce. Additionally, we have implemented a new performance evaluation program which adopts a
modern approach to valuing and strengthening individual performance through on-going interactive progress assessments related to established goals and objectives.
Communication and Engagement
We strongly believe that Volt’s success depends on employees understanding how their work contributes to the Company’s overall strategy. To this end, we communicate with
our workforce through a variety of channels and encourage open and direct communication, including: (i) quarterly company-wide CEO update calls; (ii) regular company-wide
calls with executives; (iii) frequent email corporate communications and (iv) employee engagement surveys.
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.
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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 other significant corporate documents (our Corporate Governance Guidelines, Nominating/Corporate Governance Committee Charter,
Audit Committee Charter, Human Resources and Compensation Committee Charter, 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., 2401 N. Glassell Street, Orange, CA 92865, Attention: Shareholder Relations, or by calling us at 714-921-8800.
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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 and the
market price of our common stock.
Risks Related to the Company’s Industry and Business Environment
Our business, results of operations and financial condition has been and may continue to be adversely impacted by global public health epidemics, including the strain
of coronavirus known as COVID-19, and future adverse impacts could be material and difficult to predict
The global spread of the coronavirus (“COVID-19”), which was declared a global pandemic by the World Health Organization on March 11, 2020, has created significant
volatility, uncertainty and global macroeconomic disruption due to related government actions (including declared states of emergency and quarantine, “shelter in place” or
similar orders), non-governmental agency recommendations and public perceptions and disruption in global economic and labor market conditions. These effects have had, and
continue to have, an adverse impact on our business, including reduced demand for our services, worker absences, client shutdowns and reduced operations, a reduction in bill
rates and a shift of a majority of our in-house workforce to remote operations. Other impacts of the spread of COVID-19 include continued or expanded closures of our clients’
facilities, the increased possibility our clients will not be able to pay for our services and solutions, or that they will attempt to defer payments owed to us, any of which could
materially impact our liquidity. Further, we may continue to experience adverse financial impacts if we cannot offset revenue declines with cost savings through expense-
related initiatives, human capital management initiatives or otherwise. Additionally, adverse changes in economic or operating conditions impacting our estimates and
assumptions can result in the impairment of our goodwill or long-lived assets, including our lease right of use assets. A decline in the fair market rent of real estate properties
has impacted the amount of impairment charges we are required to record on certain of our lease assets as a result of these adverse economic conditions. In addition, this global
pandemic has also resulted in a significant number of new regulations and rules, the cost of compliance and monitoring of which may have a continued impact on our business
and existing resources.
Risks Related to the Company’s Capital Structure and Finances
Our credit facility contains financial covenants that may limit our ability to take certain actions
We remain dependent upon our financing agreement which includes certain financial covenants. These covenants could constrain the execution of our business strategy and
growth plans. Our ability to continue to meet these financial covenants is not assured. If we default under any of these requirements, our lenders could restrict our ability to
access funds in our customer collections account, declare all outstanding borrowings, accrued interest and fees due and payable, or significantly increase the cost of the
facility. Under such circumstances, there could be no assurance that we would have sufficient liquidity to repay or refinance the indebtedness at favorable rates or at all. If we
are forced to refinance these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected by increased costs and rates. As of
November 1, 2020, we were in compliance with all covenant requirements, as amended.
Turmoil in the financial markets could limit our ability to fully utilize available credit, which could negatively affect our operations and limit our liquidity
We rely on financing for future working capital, capital expenditures and other corporate purposes. Turmoil in financial markets may create additional risks to our business in
the future which may limit our ability to fully utilize available credit provided by our financing program. Volatility in the credit markets or a contraction in the availability of
credit or higher borrowing costs due to increasing interest rates may make it more difficult for us to meet our working capital requirements and could have a material adverse
effect on our business, results of operations and financial position.
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Our ability to retain acceptable insurance coverage limits at commercially reasonable cost and terms may adversely impact our financial results
We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future, that adequate replacement policies will be available on acceptable terms, if
at all, and at commercially reasonable cost, or that the companies from which we have obtained insurance will be able to pay claims we make under such policies. Our coverage
under certain insurance policies is limited and the losses that we may face may not be covered, may be subject to high deductibles or may exceed the limits purchased.
Some customers require extensive insurance coverage and request insurance endorsements that are not available under standard monoline policies. There can be no assurance
that we will be able to negotiate acceptable compromises with customers or negotiate appropriate changes in our insurance contracts. This may adversely affect our ability to
take on new customers or accepted changes in insurance terms with existing customers.
Risks Related to the Company’s Operations
The loss of major customers could adversely impact our business
We experience revenue concentration with large customers within certain operating segments, as well as concentrations of interrelated customers. Although we have no
customer that represents over 10% of our consolidated revenues, there are customers that exceed 10% of revenues within both the International Staffing and North American
MSP segments. The deterioration of the financial condition or significant change to the business or staffing model of these customers or multiple customers in a similar industry,
or similar customers that are interdependent could have a material adverse effect on our business, financial condition and results of operations.
Our results of operations and ability to grow may be negatively affected if we are not able to keep pace with rapid changes in technology
The Company’s success depends on our ability to keep pace with rapid technological changes in the development, implementation and operation of our services and solutions.
We must innovate and evolve our services and products to satisfy customer requirements, attract talent and remain competitive. There can be no assurance that 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.
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.
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.
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
11
assurances that typical long-term contracts often provide and are inherently uncertain with respect to the amount of revenues and earnings we may realize.
Risks Related to the Company’s Information Technology, Cybersecurity and Data Protection
We could incur liabilities, or our 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 revenues.
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 rely extensively on our information technology systems which are vulnerable to damage and interruption
We rely on information technology networks and systems, including the Internet and cloud services, to process, transmit and store electronic and financial information, manage
a variety of business processes and activities and comply with regulatory, legal and tax requirements. We depend on our information technology infrastructure for digital
marketing activities, collection and retention of customer data, employee information and for electronic communications among our locations, personnel, customers and
suppliers around the world. While we take various precautions and have enhanced controls around our systems, our information technology systems may be susceptible to
damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures,
computer viruses, attacks by computer hackers, telecommunication failures, user errors or catastrophic events. Our sales, financial condition and results of operations may be
materially and adversely affected and we could experience delays in reporting our financial results, if our information technology systems suffer severe damage, disruption or
shutdown and our business continuity plans do not effectively resolve the issues in a timely manner.
12
Risks Related to Our Common Stock
Our stock price has experienced volatility and, as a result, investors may not be able to resell their shares at or above the price they paid for them
Our stock price may fluctuate as a result of a variety of factors, including:
•
•
•
•
•
•
•
•
•
our failure to meet the expectations of the investment community or our estimates of our future results of operations;
industry trends and the business success of our customers;
loss of one or more key customers;
strategic moves by our competitors, such as product or service announcements or acquisitions;
regulatory developments;
litigation;
general economic conditions;
other domestic and international macroeconomic factors unrelated to our performance; and
any of the other previously noted risk factors.
The stock market has experienced and is likely to experience in the future, 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 may be able to exercise
significant influence over Volt
Ownership of a significant amount of our outstanding common stock is concentrated among certain 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 such persons might be able to control or
materially influence the outcome of advisory votes or matters requiring shareholder approval. The interests or motivations of such individual shareholders may not align with
those of our shareholders generally.
Our business could be negatively affected as a result of a potential proxy contest for the election of directors at our annual meeting or other shareholder activism
A proxy contest would require us to incur significant legal fees and proxy solicitation expenses and require significant time and attention by management and the Board of
Directors. The potential of a proxy contest or other shareholder activism could interfere with our ability to execute our strategic plan, give rise to perceived uncertainties as to
our future direction, adversely affect our relationships with key business partners, result in the loss of potential business opportunities or make it more difficult to attract and
retain qualified personnel, any of which could materially and adversely affect our business and operating results.
The market price of our common stock could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties related to stockholder
activism.
New York State law, our Articles of Incorporation and By-laws contain provisions that could make corporate ownership changes at Volt more difficult
Certain provisions of New York State law and our articles of incorporation and by-laws could have the effect of delaying or preventing a third party from acquiring Volt, even
if a change in control would be beneficial to our shareholders.
The provisions of the New York Business Corporation Law, to which we are subject, require the affirmative vote of the holders of two-thirds of all of our outstanding shares
entitled to vote to adopt a plan of merger or consolidation between us and another entity or to approve any sale, lease, exchange or other disposition of all or substantially all of
our assets not made in the ordinary course of business. Accordingly, our substantial shareholders, if they were to act together, could prevent approval of such transactions even if
such transactions are in the best interest of our other shareholders.
In addition, our articles of incorporation and by-laws provide:
•
•
•
an advance notice requirement for shareholder proposals and director nominees;
that removal of directors shall only be for cause; and
that vacancies on the Board of Directors be filled for the unexpired term by a majority vote of the remaining directors then in office.
13
General Risk Factors
The contingent staffing industry is very competitive with few significant barriers to entry
The markets for Volt’s staffing services are highly competitive with few barriers to entry. Our industry is large and fragmented, comprised of thousands of firms employing
millions of people and generating billions of dollars in annual revenue. In most areas, no single company has a dominant share of the employment services market. Some of our
competitors are larger than us, have substantial marketing and financial resources and may be better positioned in certain markets than we are. These companies may be better
able than we are to attract and retain qualified personnel, to offer more favorable pricing and terms, or otherwise attract and retain the business that we seek. Any inability to
compete effectively could adversely affect our business and financial results. Clients may also take advantage of low-cost alternatives including using their own in-house
resources rather than engaging a third party. In addition, some of our staffing services customers, generally larger companies, are mandated or otherwise motivated to utilize the
services of small or minority-owned companies rather than large corporations. There can be no assurance that we will be able to continue to compete effectively in our business
segments.
We are dependent upon the quality of our human capital
Our operations are dependent upon our ability to attract and retain 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, which could directly impact our gross margins and overall results of
operations.
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.
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.
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
14
Financial Statements. Exchange rates for currencies of these countries may fluctuate in relation to the U.S. dollar and these fluctuations may have an adverse or favorable effect
on our operating results when translating foreign currencies into U.S. dollars.
In addition, the Company faces risks in complying with various foreign laws and technical standards and unpredictable changes in foreign regulations, including U.S. legal
requirements governing U.S. companies operating in foreign countries, legal and cultural differences in the conduct of business, potential adverse tax consequences, difficulty in
staffing and managing international operations.
We are additionally subject to numerous legal and regulatory requirements that prohibit bribery and corrupt acts. These include the U.S. Foreign Corrupt Practices Act and the
U.K. Bribery Act 2010, as well as similar legislation in many of the countries and territories in which we operate. While we have training programs and appropriate internal
controls in place, there can be no assurances that these will be effective to prevent and detect all potential business practices that are prohibited by our policies and these laws
and regulations.
The United Kingdom’s (“U.K.”) referendum to exit from the European Union (“E.U.”) will continue to have uncertain effects and could adversely impact our
business, results of operations and financial condition
As a result of a referendum in June 2016, the U.K. withdrew from the E.U. (“Brexit”) on January 31, 2020. It began a transition period in which to negotiate a new trading
relationship for goods and services that ended on December 31, 2020. During the time since the June 2016 referendum, there have been periods of significant volatility in the
global stock markets and currency exchange rates, as well as challenging market conditions in the U.K. On December 24, 2020, the U.K. and E.U. announced they had entered
into a post-Brexit deal on certain aspects of trade and other strategic and political issues. We are currently in the process of evaluating our own risks and uncertainty related to
ascertain what financial, trade, regulatory and legal implications this new Brexit trade deal could have on our U.K. and European business operations. This uncertainty also
includes the impact on our customers’ business operations and capital planning as well as the overall impact on the staffing industry. While we have not experienced any direct
material financial impact since the 2016 referendum, we cannot predict its future implications, however Brexit and its related effects could result in a negative impact on our
consolidated financial position and results of operations.
New or increased government regulation, employment costs or taxes could have a material adverse effect on our business, especially for our contingent staffing
business
Certain of our businesses are subject to licensing and regulation in some states and most foreign jurisdictions. There can be no assurance that we will be able to continue to
comply with these requirements, or that the cost of compliance will not become material. Additionally, the jurisdictions in which we do or intend to do business may:
•
•
•
•
•
create new or additional regulations that mandate additional requirements or prohibit or restrict the types of services that we currently provide;
change regulations in ways that cause short-term disruption or impose costs to comply;
impose new or additional employment costs that we may not be able to pass on to customers or that could cause customers to reduce their use of our services;
require us to obtain additional licenses; or
increase taxes (especially payroll and other employment-related taxes) or enact new or different taxes payable by the providers or users of services such as those offered by
us, thereby increasing our costs, some of which we may not be able to pass on to customers or that could cause customers to reduce their use of our services especially in
our staffing services, which could adversely impact our results of operations or cash flows.
From time to time, the staffing industry has come under criticism from unions, works councils, regulatory agencies and other constituents that maintain that labor and
employment protections, such as wage and benefits regulations, are subverted when customers use contingent staffing services. Our business is dependent on the continued
acceptance of contingent staffing arrangements as a source of flexible labor for our customers. If attitudes or business practices in some locations change due to pressure from
organized labor, political groups or regulatory agencies, it could have a material adverse effect on our business, results of operations and financial condition. In some of our
foreign markets, new and proposed regulatory activity, including the pending off-payroll working rules (IR35 legislation) in Europe, may impose additional requirements and
costs, which could have an adverse effect on our contingent staffing business.
15
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters is located in approximately 200,000 square feet at 2401 N. Glassell Street, Orange, California 92865. We currently operate out of approximately
50,000 square feet of that space after our recent real estate rationalization initiatives. Operations from this location are primarily corporate functions, as well as our North
American Staffing and North American MSP segments. The lease on this facility expires in 2031.
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 2021 until 2031.
At times, we have leased space that we no longer require for our own business and sublease to others when favorable business terms can be achieved based on the specific
attributes of each lease. We believe that our facilities are adequate for our presently anticipated uses and we are not dependent upon any individual leased premises.
For additional information pertaining to lease commitments, see our Note 2 Leases in our Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is subject to claims in legal proceedings arising in the ordinary course of its business, including payroll-related and various employment-related
matters. All litigation currently pending against the Company relates to matters that have arisen in the ordinary course of business and the Company believes that such matters
will not have a material adverse effect on its consolidated financial condition, results of operations or cash flows.
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 1, 2020, 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 1, 2020 and November 3, 2019. 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
2020
Fourth Quarter
Second Quarter
Third Quarter
First Quarter
2019
High
Low
High
Low
$
$
$
$
3.10
2.28
3.70
2.15
$
$
$
$
2.51
0.68
5.00
3.67
$
$
$
$
1.71
0.70
4.84
4.15
$
$
$
$
1.74
1.12
4.64
2.76
On January 8, 2021, there were 235 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 1, 2020 and through the date of this report.
Issuer Purchases of Equity Securities
There were no shares purchased in the fourth quarter of fiscal 2020.
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 1, 2020, November 3, 2019 and October 28,
2018. The data below should be read in conjunction with, and is qualified by reference to, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations and the Company’s Consolidated Financial Statements and notes thereto. The financial information presented may not be indicative of our future performance.
For the year ended,
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA
Net revenue
Operating loss
Net loss
PER SHARE DATA:
Basic:
Net loss
Weighted average number of shares
Diluted:
Net loss
Weighted average number of shares
(in thousands)
BALANCE SHEET DATA
Cash and cash equivalents
Working capital
Total assets
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 1,
2020
52 weeks
November 3, 2019
53 weeks
October 28,
2018
52 weeks
997,090
(9,833)
(15,186)
(0.72)
21,119
(0.72)
21,119
November 3, 2019
28,672
89,352
218,004
55,000
36,189
$
$
$
$
$
$
$
$
$
$
1,039,170
(28,407)
(32,685)
(1.55)
21,051
(1.55)
21,051
October 28,
2018
24,763
104,171
236,696
50,000
50,499
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
822,055
(29,369)
(33,587)
(1.56)
21,507
(1.56)
21,507
November 1,
2020
38,550
101,756
241,845
60,000
27,874
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. Our
Non-GAAP measures are generally presented on a constant currency basis, and exclude (i) the impact of businesses sold or exited, (ii) the impact from the migration of certain
clients from a traditional staffing model to a managed service model (“MSP transitions”) and (iii) the elimination of special items. Special items generally include impairments,
restructuring and severance costs, as well as certain income or expenses which the Company does not consider indicative of the current and future period performance. We
believe that the difference in revenue recognition accounting under each model of the MSP transitions could be misleading on a comparative period basis. We further believe
that the use of Non-GAAP measures provides useful information to management and investors regarding certain financial and business trends relating to our financial condition
and results of operations because they permit evaluation of the results of 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.
Segments
Our reportable segments are (i) North American Staffing, (ii) International Staffing and (iii) North American MSP. All other business activities that do not meet the criteria to
be reportable segments are aggregated with corporate services under the category Corporate and Other. Our reportable segments have been determined in accordance with our
internal management structure, which is based on operating activities. We evaluate business performance based upon several metrics, primarily using revenue and segment
operating income as the primary financial 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 we believe that doing so would not enhance the understanding of segment operating performance
and such costs are not used by management to measure segment performance.
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 allowed 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.
19
As of November 1, 2020, we employed approximately 15,600 people, including 14,500 contingent workers. Contingent workers are on our payroll for the length of their
assignment. We operate in approximately 60 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, Asia Pacific and Canada locations. The industry is highly fragmented and very competitive in all of the
markets we serve.
COVID-19 and Our Response
The global spread of COVID-19, which was declared a global pandemic by the World Health Organization (“WHO”) on March 11, 2020, has created significant volatility,
uncertainty and global macroeconomic disruption. Our business experienced significant changes in revenue trends at the mid-point of our second quarter of fiscal 2020 as
market conditions rapidly deteriorated and continued to decline through the beginning of our third quarter of fiscal 2020. During the second half of fiscal 2020, revenue has
increased sequentially month over month as a result of a combination of existing customers returning to work, expanding business with existing customers and winning new
customers.
Beginning in mid-March 2020 and continuing throughout the year, a number of countries and U.S. federal, state and local governments issued stay-at-home orders requiring
persons who were not engaged in essential activities and businesses as defined in those specific orders to remain at home. Many other countries and jurisdictions without stay-
at-home orders required nonessential businesses to close or otherwise reduce operations and capacity. Our first priority, with regard to the COVID-19 pandemic, was to ensure
the health and safety of our employees, clients, suppliers and others with whom we partner in our business activities to continue our business operations in this unprecedented
business environment. Our business was largely converted to a remote in-house workforce and remained open as we provided key services to essential businesses, both remotely
and onsite at our customers’ locations.
We created a COVID-19 Incident Response Team comprised of key senior leaders in the organization, to track and manage our COVID-19 activities, including monitoring the
most up-to-date developments and safety standards from the Centers for Disease Control and Prevention, WHO, Occupational Safety and Health Administration and other key
authorities. All internal and external information and communications relating to our COVID-19 safety protocols, FAQs and reporting on COVID-19 incidents are managed by
this central team. In addition to updating our external website, we actively shared information via regular emails, conference and video calls and other digital communications
with clients and employees on how companies and workers can protect themselves during this time. While certain locations remained fully operational throughout the
pandemic, other offices have opened on a limited voluntary basis. We continue to monitor the environment to determine whether to close offices, reduce capacity or change
required mitigation measures based on federal, state and local regulations as well as guidance from the key authorities described above.
The impact on sales has varied for each segment based on different levels of COVID-19 related measures enacted across geographies, the diverse customer industries we serve,
as well as the quality and capability of the talent provided to successfully work remotely to support the customers’ needs. In our largest segment, North American Staffing,
essential businesses represented approximately 80% of the segment’s portfolio of business and in our International Staffing segment most of our contractors were able to work
from home during the lockdown.
We shifted our sales approach to include a response to the pandemic and secured new business wins in opportunities that arose as a direct result of COVID-19. These work
orders included making face shields and masks to help protect our healthcare professionals, requests to meet the needs of additional cleaning requirements and safety protocols,
as well as expanding into other COVID-19 impacted industries. Our focus on sales and recruitment has shifted to be centered around businesses that are actively hiring in the
current environment and these COVID-19 specific opportunities remained available throughout 2020 and may remain in some form into 2021 until a vaccine is available and
widely distributed.
Prior to the outbreak of COVID-19, we were focused on reducing our operating expenses and as the impact of the pandemic began to unfold, we took additional measures to
manage our costs, including:
•
•
•
•
•
•
Reduced compensation for the CEO, CFO and members of the Board of Directors
Managed our cost base through a combination of headcount reductions, furloughs and reduced hours
Implemented an early halt on all domestic and international travel
Eliminated most discretionary spending
Continued to negotiate reductions of committed spend
Assessed our real estate footprint, including consolidating and exiting certain leased office locations throughout North America where we can be fully
operational and successfully support our clients and business operations remotely
20
•
Temporarily suspended the matching contributions under the Volt Information Sciences, Inc. Savings Plan
In addition, we continue to actively pursue further options to increase financial flexibility.
While our global business environment is and will continue to operate in various stages of economic turbulence, we have continued to see a gradual increase in order activity
and demand throughout the Company, including certain positive impacts of customers reopening previously shut down site operations. Although there is still significant
uncertainty related to COVID-19, our ability to continue successfully serving our existing customers during this pandemic as well as our agility in responding to immediate and
critical demands in new areas has allowed us to mitigate the more significant adverse impacts of this global environment to date.
Recent Developments
On December 17, 2020, the Company amended its long-term accounts receivable securitization program (“DZ Financing Program”) with DZ Bank AG Deutsche Zentral-
Genossenschaftsbank (“DZ Bank”). The modifications to the agreement were to (1) extend the Amortization Date, as defined in the DZ Financing Program, from January 25,
2023 to January 25, 2024, and extend the Facility Maturity Date, as defined in the DZ Financing Program, from July 25, 2023 to July 25, 2024; (2) revise an existing covenant
to maintain positive net income in any fiscal year ending after 2020 to any fiscal year ending after 2021; (3) replace the existing Tangible Net Worth (“TNW”) covenant
requirement, as defined in the DZ Financing Program, to a minimum TNW of $20.0 million through the Company’s fiscal quarter ending on or about July 31, 2021 and
$25.0 million in each quarter thereafter; and (4) revise the eligibility threshold for the receivables of a large North American Staffing customer from 5% of eligible receivables
to 8%, which will increase our overall availability under the Program by $1.0 - $3.0 million. All other terms and conditions of the DZ Financing Program remain substantially
unchanged.
21
Consolidated Results of Operations and Financial Highlights (Fiscal 2020 (52 weeks) vs. Fiscal 2019 (53 weeks))
Results of Operations by Segment (Fiscal 2020 (52 weeks) vs. Fiscal 2019 ( 53 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
689,095
586,255
102,840
85,776
883
1,859
14,322
$
822,055
694,204
127,851
137,666
2,641
16,913
(29,369)
(3,173)
1,045
(33,587)
Total
North American
Staffing
830,947
708,824
122,123
103,437
719
4
17,963
$
997,090
844,527
152,563
157,052
4,656
688
(9,833)
(4,375)
978
(15,186)
$
$
$
$
Year Ended November 1, 2020
International Staffing
95,308
$
79,087
16,221
$
14,484
338
—
1,399
North American
MSP
37,915
29,471
8,444
5,370
—
—
3,074
Corporate and Other
674
$
328
346
$
32,036
1,420
15,054
(48,164)
Elimination
(937)
(937)
—
—
—
—
—
Year Ended November 3, 2019
International Staffing
114,377
$
95,552
18,825
$
15,422
510
—
2,893
North American
MSP
Corporate and Other
(1)
Elimination (2)
$
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)
—
—
—
—
—
(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 2020 (52 weeks) vs. Fiscal 2019 (53 weeks))
Net revenue in fiscal 2020 decreased $175.0 million, or 17.6%, to $822.1 million from $997.1 million in fiscal 2019, including the impact of fiscal 2020 consisting of 52 weeks
while fiscal 2019 consisted of 53 weeks. The revenue decline was primarily due to decreases in our North American Staffing segment of $141.8 million, our International
Staffing segment of $19.1 million and the Corporate and Other category of $14.6 million (related to the exit from our customer care solutions business in June 2019). Excluding
the impact on net revenue of the 53rd week in fiscal 2019 of approximately $18.9 million, $14.6 million in revenue from a business exited last year, $14.1 million related to
MSP transitions and negative foreign currency fluctuations of $0.1 million, net revenue decreased $127.6 million, or 13.4%. While difficult to accurately estimate the exact
amount, approximately $90.0 million to $105.0 million of this decline is attributable to the impact of COVID-19 in the form of business shutdowns or reduced hours from some
of our customers and remain at home orders from various states and municipalities.
Operating loss in fiscal 2020 increased $19.6 million, or 198.7%, to $29.4 million from $9.8 million in fiscal 2019 primarily due to higher impairment charges in fiscal 2020 and
the additional week in fiscal 2019. Excluding the business exited last year, the impact of the additional week in fiscal 2019, as well as restructuring and severance costs and
impairment charges, operating loss in fiscal 2020 increased $4.7 million, or 90.8%. This increase in operating loss of $4.7 million was primarily due to lower results in our North
American MSP segment of $1.8 million, our International Staffing segment of $1.4 million and our North American Staffing segment of $0.9 million.
22
Results of Continuing Operations by Segments (Fiscal 2020 (52 weeks) vs. Fiscal 2019 (53 weeks))
Net Revenue
The North American Staffing segment revenue decreased $141.8 million, or 17.1%, to $689.1 million in fiscal 2020 from $830.9 million in fiscal 2019. Excluding the impact of
the 53rd week in fiscal 2019 of approximately $15.8 million, $14.4 million in revenue from MSP transitions and revenue from our customer care solutions business exited in
June 2019 of $0.7 million, revenue decreased $110.9 million, or 13.9% in fiscal 2020. While difficult to accurately estimate the exact amount, approximately, $90.0 million to
$100.0 million of this decline is attributable to the impact of COVID-19 in the form of business shutdowns or reduced hours from some of our customers and remain at home
orders from various states and municipalities. In addition, the segment's revenue was impacted by lower demand from certain larger customers, partially offset by growth from
new and existing customers. The decrease was primarily experienced in our light industrial, information technology, as well as administrative and office job categories.
The International Staffing segment revenue decreased $19.1 million, or 16.7%, to $95.3 million in fiscal 2020 from $114.4 million in fiscal 2019. Excluding the negative impact
of foreign currency fluctuations of $0.1 million and the impact of the 53rd week in fiscal 2019 of approximately $2.2 million, International Staffing revenue decreased by $17.0
million, or 15.1%, primarily due to adjustments to work orders related to statutory legislation changes in the United Kingdom and decreases in France, partially offset by
improvements in Belgium and Singapore.
The North American MSP segment revenue decreased $1.1 million, or 2.8%, to $37.9 million in fiscal 2020 from $39.0 million in fiscal 2019. Excluding the 53rd week in fiscal
2019 of approximately $0.9 million partially offset by $0.4 million in revenue from MSP transitions, revenue decreased $0.5 million, or 1.4%. The decrease was primarily the
result of the completion of one project in fiscal 2019 and the impact of COVID-19 on headcount in a small number of clients partially offset by increased demand in their
payroll service business.
The Corporate and Other category revenue decreased $14.6 million, or 95.6%, to $0.7 million in fiscal 2020 from $15.3 million in fiscal 2019 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 2020 decreased $150.3 million, or 17.8%, to $694.2 million from $844.5 million in fiscal 2019. Excluding the impact on cost of services of the 53rd
week and a business exited in fiscal 2019 of approximately $29.6 million, cost of services in fiscal 2020 decreased $120.7 million, or 14.8%. This decrease is primarily due to
the 13.4% decline in adjusted revenue partially offset by improvements in gross margin as a percent of revenue.
Gross margin as a percent of revenue in fiscal 2020 increased to 15.6% from 15.3% in fiscal 2019. Excluding the customer care solutions business which we exited in June 2019
and the additional week in fiscal 2019, gross margin as a percentage of revenue in fiscal 2020 increased to 15.6% from 15.4% in fiscal 2019. Our North American Staffing
segment margin as a percent of revenue increased primarily due to higher positive workers’ compensation adjustments and claims development and lower payroll tax expense as
a percent of direct labor offset by other state-mandated benefit costs as a percent of revenue. In addition, the impact of COVID-19 resulted in lower non-billable expenses. This
was partially offset by a decrease in direct hire revenue in fiscal 2020 and a decline in administrative fee revenue as a result of the exit from our customer care solutions
business. Our International Staffing segment margin as a percentage of revenue increased due to the decline in lower-margin business. Our North American MSP segment
margin decreased as a result of a higher mix of payroll service revenue and lower margins in the managed service business.
Selling, Administrative and Other Operating Costs
Selling, administrative and other operating costs in fiscal 2020 decreased $19.4 million, or 12.3%, to $137.7 million from $157.1 million in fiscal 2019. Excluding the impact on
selling, administrative and other operating costs of the 53rd week in fiscal 2019 of approximately $2.6 million, selling, administrative and other operating costs in fiscal 2020
decreased $16.8 million, or 10.9%. The decrease was primarily due to cost reductions and COVID-19 restrictions on travel and working remotely, including $12.3 million in
labor and related costs primarily due to lower headcount, $2.0 million in lower non-capitalized professional fees, $1.2 million in facility related costs and $1.2 million in travel
expenses. In addition, other professional fees decreased by $1.4 million in fiscal 2020 and fiscal 2019 included amortization of a deferred gain on the sale of real estate of
$1.9 million. As a percent of revenue, these costs were 16.7% and 15.8% in fiscal years 2020 and 2019, respectively.
23
Restructuring and Severance Costs
Restructuring and severance costs in fiscal 2020 decreased $2.1 million to $2.6 million from $4.7 million in fiscal 2019. The costs in fiscal 2020 were primarily due to our
continued efforts to reduce costs and to offset COVID-19 related revenue losses. This included our plan to leverage the global capabilities of our staffing operations based in
Bangalore, India and offshore a significant number of strategically identified roles to this location.
In October 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. 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 our 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.
Impairment Charges
Impairment charges in fiscal 2020 increased $16.2 million to $16.9 million from $0.7 million in fiscal 2019. In fiscal 2020, impairment charges were primarily related to
consolidating and exiting certain leased office locations throughout North America based on where we can be fully operational and successfully support our clients and business
operations remotely. In fiscal 2019, impairment charges were primarily related to the impairment of equipment used in our customer care solutions business and previously
purchased software.
Other Income (Expense), net
Other expense in fiscal 2020 decreased $1.2 million, or 27.5%, to $3.2 million from $4.4 million in fiscal 2019 due to a decrease in interest expense as a result of lower rates and
a decrease in non-cash foreign exchange losses primarily on intercompany balances.
Income Tax Provision
Income tax provision of $1.0 million in both fiscal 2020 and 2019, respectively, was primarily related to locations outside of the United States.
Liquidity and Capital Resources
Our primary source of liquidity is cash flows from operations and proceeds from our financing arrangements with DZ Bank. Borrowing capacity under these arrangements is
directly impacted by the level of accounts receivable, which fluctuates during the year due to seasonality and other factors. Our business is subject to seasonality with our fiscal
first quarter billings typically the lowest due to the holiday season and generally increasing in the fiscal third and fourth quarters when our customers increase the use of
contingent labor. Generally, the first and fourth quarters of our fiscal year are the strongest for operating cash flows. Our operating cash flows consist primarily of collections of
customer receivables offset by payments for payroll and related items for our contingent staff and in-house employees; federal, foreign, state and local taxes; and trade payables.
We generally provide customers with 15 - 45 day credit terms, with few extenuating exceptions, while our payroll and certain taxes are paid weekly.
We manage our cash flow and related liquidity on a global basis. We fund payroll, taxes and other working capital requirements using cash supplemented as needed from our
borrowings. Our weekly payroll payments inclusive of employment-related taxes and payments to vendors are approximately $15.0 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.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act which, among other things, permits the deferral of the employer’s
portion of social security tax payments between March 27, 2020 and December 31, 2020. As a result, $26.2 million of employer payroll tax payments were deferred with 50%
due by December 31, 2021 and the remaining 50% by December 31, 2022. In addition, certain state governments have delayed payment of various state payroll taxes for a
shorter period of time. State payroll taxes of approximately $3.5 million deferred from the third quarter of fiscal 2020 were paid in the fourth quarter of fiscal 2020. The
Company's payment of approximately $4.1 million of state payroll taxes will be deferred from the fourth quarter of fiscal 2020 with payments scheduled to begin in the first
quarter of fiscal 2021.
24
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. We estimate the 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 updating new information
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, which are critical to drive profitable growth;
Deleveraging our balance sheet. By lowering our debt level, we will strengthen our balance sheet, reduce interest costs and reduce risk going forward.
Initiatives to Improve Operating Income, Cash Flows and Liquidity
We continue to make progress on several initiatives undertaken to enhance our liquidity position and shareholder value.
On July 19, 2019, we amended and restated the DZ Financing Program, which was originally executed on January 25, 2018. The restated agreement allows for the inclusion of
certain accounts receivable from an originator in the United Kingdom, which added $5.0 - $7.0 million in borrowing availability. This allowed 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 in the DZ Financing Program, from January 25, 2021 to January 25, 2023 and extend the Facility Maturity Date, as defined in the DZ Financing Program, from July 25,
2021 to July 25, 2023; and (2) revise an existing covenant to maintain positive net income in any fiscal year ending after 2020. All other terms and conditions remain
unchanged.
On March 12, 2020, the Company executed an amendment to the DZ Financing Program. The modifications to the agreement were to revise an existing covenant to maintain a
TNW, as defined in the DZ Financing Program, from $40.0 million to $35.0 million through the Company’s fiscal quarter ending on or about July 31, 2020 and at least
$40.0 million in each quarter thereafter. All other terms and conditions remain unchanged.
On June 11, 2020, the Company amended the DZ Financing Program to replace the existing TNW covenant requirement, as defined in the DZ Financing Program, to a
minimum TNW of $20.0 million through the Company’s fiscal quarter ending on or about July 31, 2021 and $40.0 million in each quarter thereafter. In addition to this change,
the Company elected to reduce the Maximum Facility Amount, as defined in the DZ Financing Program, from $115.0 million to $100.0 million to better reflect our asset base
level and reduce borrowing costs going forward. All other terms and conditions remain unchanged.
On October 2, 2020 the Company amended the DZ Financing Program to replace the existing TNW covenant requirement, as defined, in the DZ Financing Program, to a
minimum TNW of $25.0 million for the Company’s fiscal quarter ending on or about October 31, 2021 and $40.0 million in each quarter thereafter. All other terms and
conditions remain unchanged.
On December 17, 2020, the Company amended the DZ Financing Program. The modifications to the agreement were to (1) extend the Amortization Date, as defined in the DZ
Financing Program, from January 25, 2023 to January 25, 2024, and extend the Facility Maturity Date, as defined in the DZ Financing Program, from July 25, 2023 to July 25,
2024; (2) revise an existing covenant to maintain positive net income in any fiscal year ending after 2020 to any fiscal year ending after 2021; (3) replace the existing TNW
covenant requirement, as defined in the DZ Financing Program, to a minimum TNW of $20.0 million through the Company’s fiscal quarter ending on or about July 31, 2021
and $25.0 million in each quarter thereafter; and (4) revise the eligibility threshold for the receivables of a large North American Staffing customer from 5% of eligible
receivables to 8%, which will increase our overall availability under the Program by $1.0 - $3.0 million. All other terms and conditions remain substantially unchanged.
25
As of November 1, 2020, we have significant tax benefits including federal net operating loss carryforwards of $212.0 million, U.S. state NOL carryforwards of $230.0 million,
international NOL carryforwards of $10.3 million and federal tax credits of $54.7 million, which are fully reserved with a valuation allowance which we will be able to utilize
against future profits. As of November 1, 2020, the U.S. federal NOL carryforwards will expire at various dates beginning in 2031 (with some indefinite), the U.S. state NOL
carryforwards expire at various dates beginning in 2021 (with some indefinite), the international NOL carryforwards expire at various dates beginning in 2021 (with some
indefinite) and federal tax credits expire between 2021 and 2040.
As previously discussed, we approved a restructuring plan during the first quarter of fiscal 2020 (the “2020 Plan”) as part of our strategic initiative to optimize cost
infrastructure. The 2020 Plan leverages the global capabilities of our staffing operations based in Bangalore, India by offshoring a significant number of strategically identified
roles to this location. The 2020 Plan affected approximately 125 employees. To date, we incurred a total pre-tax restructuring charge of approximately $1.2 million of severance
and benefit costs in fiscal 2020. As a result of the offshoring under the 2020 Plan, along with executing on additional organizational cost savings initiatives during fiscal 2020,
we estimate we will realize annualized net savings of approximately $14.0 million.
Liquidity Outlook and Further Considerations
As previously noted, our primary sources of liquidity are cash flows from operations and proceeds from our 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, among other factors.
We experienced a decline in the demand for our services in the second half of March 2020 due to the impact of the COVID-19 pandemic. As a result, our operating cash flow
increased and accounts receivable balances decreased as customer collections outpaced sales. This pattern is not sustainable in the event the pandemic continues at resurgence
levels or an economic downturn continues for an extended period. However, we experienced improved client payment patterns in the second half of fiscal 2020 and we expect
this trend to continue in fiscal 2021. We will continue to monitor default risks and diligently pursue payments from our customers consistent with original payment terms.
Many governments in countries and territories in which we do business have announced that certain payroll, income and other tax payments may be deferred without penalty
for a certain period of time as well as providing other cash flow related relief packages. We have determined that we will qualify for the payroll tax deferral which allows us to
delay payment of the employer portion of payroll taxes and we are evaluating whether we qualify for certain employment tax credits. If we qualify for such credits, the credits
will be treated as government subsidies which will offset related operating expenses. At this time, we do not anticipate this to be material. We continue to actively monitor these
relief packages to take advantage of all of those which are available to us.
At November 1, 2020, the Company had outstanding borrowings under the DZ Financing Program of $60.0 million, borrowing availability, as defined in the DZ Financing
Program, of $2.8 million and global liquidity of $39.0 million.
Our DZ Financing Program is subject to termination under certain events of default such as breach of covenants, including financial covenants. At November 1, 2020, we were
in compliance with all debt covenants, as defined in the DZ Financing Program. We believe, based on our 2020 Plan, we will continue to be able to meet our financial covenants
under the amended DZ Financing Program.
26
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
Global liquidity
Minimum liquidity threshold
Available liquidity
November 3, 2019 February 2, 2020 May 3, 2020
$
30,876 $
28,672 $
26,223 $
August 2, 2020 November 1, 2020
38,550
30,928 $
$
$
$
55,000 $
55,000 $
60,000 $
60,000 $
60,000
19,945 $
22,271
42,216
15,000
27,216 $
21,287 $
11,302
32,589
15,000
17,589 $
22,876 $
4,202
27,078
15,000
12,078 $
26,126 $
5,122
31,248
15,000
16,248 $
36,218
2,828
39,046
15,000
24,046
a. Per financial statements.
b. Amount generally includes outstanding checks.
c. Amounts in the USB collections account are excluded from cash in banks as the balance is included in the borrowing availability under the DZ Financing Program. As of November 1, 2020, the balance in
the USB collections account included in the DZ Financing Program availability was $11.0 million.
Cash flows from operating, investing and financing activities, as reflected in our Consolidated Statements of Cash Flows, are summarized in the following table:
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net increase in cash and cash equivalents
For the Year Ended
November 1, 2020
November 3, 2019
$
$
$
18,154
(4,629)
4,580
(116)
17,989 $
7,368
(8,842)
3,899
(525)
1,900
Fiscal Year Ended November 1, 2020 compared to the Fiscal Year Ended November 3, 2019
Cash Flows – Operating Activities
The net cash provided by operating activities in fiscal 2020 was $18.2 million, an increase of $10.8 million from fiscal 2019. This increase resulted primarily from the
$18.4 million increase in net loss in fiscal 2020 which was offset by non-cash adjustments including increases in impairment charges of $16.2 million, amortization of operating
lease assets of $7.6 million, amortization of a gain on sale leaseback of property of $1.9 million in fiscal 2019, increases in share-based compensation of $1.2 million and
depreciation expense of $1.0 million. In addition, the change in operating assets and liabilities included a $9.6 million increase in accounts payable and accrued expenses,
partially offset by a $8.4 million decrease in accounts receivable.
Cash Flows – Investing Activities
The net cash used in investing activities in fiscal 2020 was $4.6 million, principally from the purchases of property, equipment and software of $5.3 million primarily relating to
our investment in updating our business processes, back-office financial suite and information technology tools partially offset by $0.4 million of proceeds from the sale of
property, equipment and software. 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.
27
Cash Flows – Financing Activities
The net cash provided by financing activities in fiscal 2020 was $4.6 million principally from a $5.0 million increase in net borrowing under the DZ Financing Program,
partially offset by the payment of debt issuance costs of $0.3 million related to the DZ Financing Program. 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.
Financing Program
The DZ Financing Program is fully collateralized by certain receivables of the Company that are sold to a wholly-owned, consolidated, bankruptcy-remote subsidiary. To
finance the purchase of such receivables, we may request that DZ Bank make loans from time to time to the Company that are secured by liens on those receivables.
On 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 $5.0 - $7.0 million in borrowing availability. All other material terms and
conditions of the original agreement remained substantially unchanged.
On January 14, 2020, the Company executed an amendment to the DZ Financing Program. The modifications to the agreement were to (1) extend the Amortization Date, as
defined in the DZ Financing Program, from January 25, 2021 to January 25, 2023; (2) extend the Facility Maturity Date, as defined in the DZ Financing Program, from July 25,
2021 to July 25, 2023; and (3) revise an existing covenant to maintain positive net income in any fiscal year ending after 2020. All other terms and conditions remain
unchanged.
On March 12, 2020, the Company executed an amendment to the DZ Financing Program. The modifications to the agreement were to revise an existing covenant to maintain a
TNW, as defined in the DZ Financing Program, from $40.0 million to $35.0 million through the Company’s fiscal quarter ending on or about July 31, 2020 and at least
$40.0 million in each quarter thereafter. All other terms and conditions remain unchanged.
On June 11, 2020, the Company amended the DZ Financing Program to replace the existing TNW covenant requirement, as defined in the DZ Financing Program, to a
minimum TNW of $20.0 million through the Company’s fiscal quarter ending on or about July 31, 2021 and at least $40.0 million in each quarter thereafter. In addition to this
change, the Company elected to reduce the Maximum Facility Amount, as defined in the DZ Financing Program, from $115.0 million to $100.0 million to better reflect our
asset base level and reduce borrowing costs going forward. All other terms and conditions remain unchanged.
On October 2, 2020 the Company amended the DZ Financing Program to replace the existing TNW covenant requirement, as defined in the DZ Financing Program, to a
minimum TNW of $25.0 million for the Company’s fiscal quarter ending on or about October 31, 2021 and $40.0 million in each quarter thereafter. All other terms and
conditions remain unchanged.
On December 17, 2020, the Company amended the DZ Financing Program. The modifications to the agreement were to (1) extend the Amortization Date, as defined in the DZ
Financing Program, from January 25, 2023 to January 25, 2024, and extend the Facility Maturity Date, as defined in the DZ Financing Program, from July 25, 2023 to July 25,
2024; (2) revise an existing covenant to maintain positive net income in any fiscal year ending after 2020 to require the Company to maintain positive net income in any fiscal
year ending after 2021; (3) replace the existing TNW covenant requirement, as defined in the DZ Financing Program, to a minimum TNW of $20.0 million through the
Company’s fiscal quarter ending on or about July 31, 2021 and $25.0 million in each quarter thereafter; and (4) revise the eligibility threshold for the receivables of a large
North American Staffing customer from 5% of eligible receivables to 8%, which will increase our overall availability under the Program by $1.0 - $3.0 million. All other terms
and conditions remain substantially unchanged.
Loan advances may be made under the DZ Financing Program through January 25, 2024 and all loans will mature no later than July 25, 2024. Loans will accrue interest (i) with
respect to loans that are funded through the issuance of commercial paper notes, at the CP rate and (ii) otherwise, at a rate per annum equal to adjusted LIBOR. The CP rate will
be based on the rates paid by the applicable lender on notes it issues to fund related loans. Adjusted LIBOR is based on LIBOR for the applicable interest period and the rate
prescribed by the Board of Governors of the Federal Reserve System for determining the reserve requirements with respect to Eurocurrency funding. If an event of default
occurs, all loans shall bear interest at a rate per annum equal to the prime rate (the federal funds rate plus 3%) plus 2.5%.
28
The DZ Financing Program also includes a letter of credit sub-facility with a sub-limit of $35.0 million. As of November 1, 2020, the letter of credit participation was $24.5
million inclusive of $23.3 million for the Company’s casualty insurance program and $1.2 million for the security deposit required under certain real estate lease agreements.
The DZ Financing Program contains customary representations and warranties as well as affirmative and negative covenants. The agreement also contains customary default,
indemnification and termination provisions. The DZ Financing Program is not an off-balance sheet arrangement, as the bankruptcy-remote subsidiary is a 100%-owned
consolidated subsidiary of the Company.
The Company is subject to certain financial and portfolio performance covenants under the DZ Financing Program, including (1) a minimum TNW, as defined in the DZ
Financing Program, of $20.0 million through the Company's fiscal quarter ending on or about July 31, 2021, $25.0 million in each quarter thereafter; (2) positive net income in
any fiscal year ending after 2021; (3) maximum debt to TNW ratio of 3:1; and (4) a minimum of $15.0 million in liquid assets, as defined in the DZ Financing Program. At
November 1, 2020, there was $2.8 million of borrowing availability, as defined, and the Company was in compliance with all debt covenants, as amended.
Off-Balance Sheet Arrangements
As of November 1, 2020, we issued letters of credit against our DZ Financing Program totaling $24.5 million including $23.3 million for the Company’s casualty insurance
program and $1.2 million for the security deposit required under certain lease agreements.
As of November 3, 2019, we issued letters of credit against our DZ Financing Program totaling $24.2 million including $22.8 million for the Company’s casualty insurance
program, $1.2 million for the security deposit required under certain lease agreements and $0.2 million for the Company’s corporate credit card program.
As of November 1, 2020, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial
condition, results of operations, liquidity, capital expenditures, or capital resources.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial position and results of operations are based upon our Consolidated Financial Statements, which are included in Item 8,
Financial Statements and Supplementary Data of this report and have been prepared in accordance with accounting principles generally accepted in the United States. The
preparation of these financial statements requires management to make estimates, judgments, assumptions and valuations that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosures. While management believes that its estimates, judgments and assumptions are appropriate, significant differences in actual
experience or significant changes in assumptions may materially affect our future results. Management believes the critical accounting policies and areas that require the most
significant estimates, judgments, assumptions or valuations used in the preparation of our financial statements are those summarized below.
Goodwill
We perform our annual impairment test for goodwill during the second quarter of the fiscal year and when a triggering event occurs between annual impairment tests. When
testing goodwill, the Company has the option to first assess qualitative factors for reporting units that carry goodwill. International Staffing is the only segment which carries
goodwill. The qualitative assessment includes assessing the totality of relevant events and circumstances that affect the fair value or carrying value of the reporting unit. These
events and circumstances include macroeconomic conditions, industry and competitive environment conditions, overall financial performance, reporting unit specific events
and market considerations. We may also consider recent valuations of the reporting unit, including the magnitude of the difference between the most recent fair value estimate
and the carrying value, as well as both positive and adverse events and circumstances and the extent to which each of the events and circumstances identified may affect the
comparison of a reporting unit’s fair value with its carrying value. If the qualitative assessment results in a conclusion that it is more likely than not that the fair value of a
reporting unit exceeds the carrying value, then no further testing is performed for that reporting unit.
When a qualitative assessment is not used, or if the qualitative assessment is not conclusive and it is necessary to calculate the fair value of a reporting unit, then the impairment
analysis for goodwill is performed at the reporting unit level using a one-step approach (“Step 1”) under Accounting Standards Update 2017-04, Intangibles - Goodwill and
Other (Topic 350) Simplifying
29
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.
Our fiscal 2020 test performed in the second quarter used significant assumptions including expected revenue and expense growth rates, forecasted capital expenditures, working
capital levels and a discount rate of 15.0%. Under the market-based approach, significant assumptions included relevant comparable company earnings multiples including the
determination of whether a premium or discount should be applied to those comparables. During the second quarter of fiscal 2020, it was determined that no adjustment to the
carrying value of goodwill of $5.2 million was required, as our Step 1 analysis resulted in the fair value of the reporting unit exceeding its carrying value. There were no
triggering events since the annual goodwill impairment assessment that caused the Company to perform an interim impairment assessment.
Long-Lived Assets
Long-lived assets primarily consist of right-of-use assets, capitalized software costs, leasehold improvements and office equipment. We review these assets for impairment
under Accounting Standards Codification 360 Property, Plant and Equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Factors that could trigger an impairment review include a current period operating or cash flow loss combined with a history of operating or cash flow losses
and a projection or forecast that demonstrates continuing losses or insufficient income associated with the use of a long-lived asset or asset group. Other factors include a
significant change in the manner of the use of the asset or a significant negative industry or economic trend. If circumstances require a long-lived asset or asset group be
reviewed for possible impairment, the Company first compares undiscounted cash flows expected to be generated by each asset or asset group to its carrying value. An
impairment loss is recognized when the estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset
(if any) are less than the carrying value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value based on
discounted cash flow analysis or other valuation techniques.
Due to the economic impact and continued uncertainty related to the COVID-19 pandemic, we began to assess our real estate footprint to evaluate potential opportunities for
consolidation and downscaling. During the second half of fiscal 2020, the Company made decisions that impacted several leased office locations throughout North America,
triggering impairment reviews which resulted in impairment charges of $16.1 million to reduce the carrying value of these assets to their estimated fair value.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using current tax laws and rates in effect for the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We must then assess the
likelihood that our deferred tax assets will be realized. If we do not believe that it is more likely than not that our deferred tax assets will be realized, a valuation allowance is
established. When a valuation allowance is increased or decreased, a corresponding tax expense or benefit is recorded.
Accounting for income taxes involves uncertainty and judgment in how to interpret and apply tax laws and regulations within our annual tax filings. Such uncertainties may
result in tax positions that may be challenged and overturned by a tax authority in the future which would result in additional tax liability, interest charges and possible
penalties. Interest and penalties are classified as a component of income tax expense.
We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest
amount that is greater than 50% likely of being realized upon ultimate settlement. Changes in recognition or measurement are reflected in the period in which the change in
estimate occurs.
Realization of deferred tax assets is dependent upon reversals of existing taxable temporary differences, taxable income in prior carryback years and future taxable income.
Significant weight is given to positive and negative evidence that is objectively verifiable. We have a three-year cumulative loss position which is significant negative evidence
in considering whether deferred tax assets are realizable and the accounting guidance restricts the amount of reliance we can place on projected taxable income to support the
recovery of the deferred tax assets. A valuation allowance has been recognized due to the uncertainty of
30
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 DZ Financing Program of $23.3 million as of November 1, 2020.
We recognize expenses and establish accruals for amounts estimated to be incurred, 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 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.
To limit exposure on a per claimant basis for the self-insured medical benefits, the Company purchases stop-loss insurance. Our retained liability for the self-insured medical
benefits is determined utilizing actuarial estimates of expected claims based on statistical analysis of historical data.
Litigation
We are subject to certain legal proceedings as well as demands, claims and threatened litigation that arise in the normal course of our business. If the potential loss from any
claim or legal proceeding is considered probable and the amount can be reasonably estimated, a liability and an expense are recorded for the estimated loss. Significant
judgment is required in both the determination of probability and the determination of whether an exposure is reasonably estimable. Development of the accrual includes
consideration of many factors including potential exposure, the status of proceedings, negotiations, discussions with internal and outside counsel, results of similar litigation and,
in the case of class action lawsuits, participation rates. As additional information becomes available, we will revise the estimates. If the actual outcome of these matters is
different than expected, an adjustment is charged or credited to expense in the period the outcome occurs or the period in which the estimate changes. To the extent that an
insurance company is contractually obligated to reimburse us for a liability, we record a receivable for the amount of the probable reimbursement.
Accounts Receivable
We make ongoing estimates relating to the collectability of our trade accounts receivable and maintain an allowance for estimated losses resulting from the inability of our
customers to make required payments. 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.
31
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 1,
2020, we had cash and cash equivalents on which interest income is earned at variable rates. At November 1, 2020, we had a long-term $100.0 million accounts receivable
securitization program, which can be increased subject to credit approval from DZ Bank, to provide additional liquidity to meet our short-term financing needs.
The interest rates on these borrowings and financings are variable and, therefore, interest and other expense and interest income are affected by the general level of U.S. and
foreign interest rates. 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 a minimal amount or a hypothetical 1-percentage-point decrease in interest rates would
have decreased net interest expense by a minimal amount in fiscal 2020.
Foreign Currency Risk
We have operations in several foreign countries and conduct business in the local currency in these countries. As a result, we have risk associated with currency fluctuations as
the value of foreign currencies fluctuates against the dollar, in particular the British Pound, Euro, Singapore Dollar, Canadian 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 (loss). The U.S. dollar strengthened relative to many foreign currencies as of November 1, 2020 compared to November 3, 2019.
Consequently, stockholders’ equity increased by $0.3 million as a result of the foreign currency translation as of November 1, 2020.
Based upon the current levels of net foreign assets, a hypothetical 10% devaluation of the U.S. dollar as compared to these currencies as of November 1, 2020 would result in an
approximate $1.9 million positive translation adjustment recorded in other comprehensive income within stockholders’ equity. Conversely, a hypothetical 10% appreciation of
the U.S. dollar as compared to these currencies as of November 1, 2020 would result in an approximately $1.9 million negative translation adjustment recorded in other
comprehensive income within stockholders’ equity. We do not use derivative instruments for trading or other speculative purposes.
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. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
32
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 1, 2020 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and
forms and (ii) accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange
Act). Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on the Company’s assessment,
management has concluded that its internal control over financial reporting was effective as of November 1, 2020 to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements in accordance with GAAP.
This Annual Report on Form 10-K does not include an audit report on internal control over financial reporting by the Company’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 1, 2020.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting which occurred during the fiscal quarter ended November 1, 2020, that have materially
affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations of Internal Control
Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all
errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any,
have been detected. Also, any evaluation of the effectiveness of internal controls in future periods are subject to the risk that those internal controls may become inadequate
because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
ITEM 9B. OTHER INFORMATION
None
33
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required to be furnished pursuant to this item will be set forth under the captions “Proposal One: Election of Directors,” “Executive Officers,” “Corporate
Governance,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Miscellaneous - Available Information” in the Company’s Proxy Statement for our 2021
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.
34
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(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
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)
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
10.17
10.18
10.19
10.20*
10.21*
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)
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)
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)
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)
2019 Equity Incentive Plan (incorporated by reference to Appendix A to the Company's Proxy Statement filed February 22, 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)
10.22*
10.23*
10.24*
10.25*
10.26*
10.27
10.28
10.29
10.30
21
23
31.1
31.2
32.1
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
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. (incorporated
by reference to Exhibit 10.37 to the Company's Annual Report on Form 10-K for the fiscal year ended November 3, 2019 filed January 16, 2020;
File No. 001-9232)
Amendment to Employment Agreement, dated December 30, 2019, between Linda Perneau and Volt Informations Sciences, Inc. (incorporated by
reference to Exhibit 10.38 to the Company's Annual Report on Form 10-K for the fiscal year ended November 3, 2019 filed January 16, 2020; File
No. 001-9232)
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 (incorporated by reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K for the fiscal year ended November 3, 2019
filed January 16, 2020; File No. 001-9232)
Amendment No. 2 dated March 12, 2020 to the Amended and Restated Receivables Loan and Security Agreement dated as of July 19, 2019,
among Volt Funding II, LLC, as borrower, Volt Information Sciences, Inc., as servicer, the lenders and letter of credit participants party thereto
from time to time, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as agent, and Autobahn
Funding Company LLC and DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as letter of credit
issuers (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed March 13, 2020; File No. 001-9232)
Amendment No. 3 dated June 11, 2020 to the Amended and Restated Receivables Loan and Security Agreement dated as of July 19, 2019, among
Volt Funding II, LLC, as borrower, Volt Information Sciences, Inc., as servicer, thelenders and letter of credit participants party thereto from time
to time, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as agent, and Autobahn Funding
Company LLC and DZBANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as letter of credit issuers
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed June 17, 2020; File No. 001-9232)
Amendment No. 4 dated October 2, 2020 to the Amended and Restated Receivables Loan and Security Agreement, dated as of July 19, 2019,
among Volt Funding II, LLC, as borrower, Volt Information Sciences, Inc., as servicer, the lenders and letter of credit participants party thereto
from time to time, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as agent, and Autobahn
Funding Company LLC and DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, New York Branch, as letter of credit
issuers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 7, 2020; File No. 001-9232)
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.
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Management contracts and compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.
35
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 13, 2021
Date: January 13, 2021
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)
Date: January 13, 2021
By:
/s/ Leonard Naujokas
Leonard Naujokas
Controller and Chief Accounting Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Date: January 13, 2021
Date: January 13, 2021
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 13, 2021
By:
/s/ Celia R. Brown
Celia R. Brown
Director
Date: January 13, 2021
By:
/s/ Nick S. Cyprus
Nick S. Cyprus
Director
Date: January 13, 2021
By:
/s/ Bruce G. Goodman
Bruce G. Goodman
Director
Date: January 13, 2021
By:
/s/ Arnold Ursaner
Arnold Ursaner
Director
36
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 1,
2020 and November 3, 2019, 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 1, 2020 and November 3, 2019 and the results of its operations
and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
Adoption of ASU No. 2016-02
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in fiscal 2020 due to the
adoption of ASU No. 2016-02, Leases (Topic 842) and the related amendments.
Basis for Opinion
These financial statements are the responsibility of the Company’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 13, 2021
F-1
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
Year Ended
November 1,
2020
November 3,
2019
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
$
$
$
$
822,055 $
694,204
127,851
137,666
2,641
16,913
(29,369)
78
(2,297)
(85)
(869)
(3,173)
(32,542)
1,045
(33,587) $
(1.56) $
21,507
(1.56) $
21,507
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
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 1,
2020
November 3,
2019
$
$
(33,587)
$
343
(33,244)
$
(15,186)
269
(14,917)
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share amounts)
November 1, 2020
November 3, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Restricted cash
Short-term investments
Trade accounts receivable, net of allowances of $219 and $117, respectively
Other current assets
TOTAL CURRENT ASSETS
Property, equipment and software, net
Right of use assets - operating leases
Other assets, excluding current portion
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accrued compensation
Accounts payable
Accrued taxes other than income taxes
Accrued insurance and other
Operating lease liabilities
Income taxes payable
TOTAL CURRENT LIABILITIES
Accrued payroll taxes and other, excluding current portion
Operating lease liabilities - 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:
Preferred stock, par value $1.00; Authorized - 500,000 shares; Issued - none
Common stock, par value $0.10; Authorized - 120,000,000.00 shares; Issued - 23,738,003; Outstanding - 21,729,400 and 21,367,821,
respectively
Paid-in capital
Retained deficit
Accumulated other comprehensive loss
Treasury stock, at cost; 2,008,603 and 2,370,182 shares, respectively
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
The accompanying notes are an integral part of these consolidated financial statements.
F-4
$
$
$
$
38,550 $
17,883
2,853
121,916
7,058
188,260
22,167
25,107
6,311
241,845 $
18,357 $
31,221
12,983
15,908
7,144
891
86,504
29,988
38,232
—
90
3
59,154
213,971
—
2,374
79,937
(29,793)
(6,458)
(18,186)
27,874
241,845 $
28,672
9,772
3,022
135,950
7,252
184,668
25,890
—
7,446
218,004
21,507
36,341
11,244
24,654
—
1,570
95,316
12,029
—
20,270
289
17
53,894
181,815
—
2,374
77,688
(10,917)
(6,801)
(26,155)
36,189
218,004
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
23,738,003
—
—
—
—
—
23,738,003
—
—
—
—
—
23,738,003
$
$
$
Amount
Paid-in
Capital
2,374
—
—
—
—
—
2,374
—
—
—
—
—
2,374
$
$
$
79,057
—
—
499
(1,868)
—
77,688
—
—
1,736
513
—
79,937
$
$
$
(Accumulated
Deficit) Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Stockholders’
Equity
9,738
426
(15,186)
—
(5,895)
—
(10,917)
22,216
(33,587)
—
(7,505)
—
(29,793)
$
$
$
(7,070)
—
—
—
—
269
(6,801)
—
—
—
—
343
(6,458)
$
$
$
(33,600)
—
—
—
7,445
—
(26,155)
—
—
—
7,969
—
(18,186)
$
$
$
50,499
426
(15,186)
499
(318)
269
36,189
22,216
(33,587)
1,736
977
343
27,874
BALANCE AT OCTOBER 28, 2018
Effect of new accounting principle
Net loss
Share-based compensation
Issuance of common stock
Other comprehensive income
BALANCE AT NOVEMBER 3, 2019
Effect of new accounting principle
Net loss
Share-based compensation
Issuance of common stock
Other comprehensive income
BALANCE AT NOVEMBER 1, 2020
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:
Depreciation and amortization
Operating lease asset amortization
Release of doubtful accounts and sales allowances
Unrealized foreign currency exchange loss
Impairment charges
(Gain) loss on dispositions of property, equipment and software
Amortization of gain on sale leaseback of property
Deferred income tax benefit
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 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 financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net increase 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
Year Ended
November 1, 2020
November 3, 2019
$
(33,587)
$
(15,186)
7,981
7,611
(13)
621
16,913
(287)
—
(11)
1,736
14,057
1,209
(5,166)
7,897
(807)
18,154
822
(582)
399
(5,268)
(4,629)
(15,000)
20,000
(343)
(77)
4,580
(116)
17,989
38,444
56,433
2,297
1,979
38,550
17,883
56,433
$
$
$
$
$
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
$
$
$
$
$
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
NOTE 1: Summary of Business and Significant Accounting Policies
We are a global provider of staffing services (traditional time and materials-based as well as project-based). Our staffing services consist of workforce solutions that include
providing contingent workers, personnel recruitment services and managed staffing services programs supporting primarily administrative and light industrial (commercial) 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 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 2020 consisted of 52 weeks and fiscal 2019 consisted of 53 weeks.
(b)
Consolidation
The consolidated financial statements include the accounts of the Company and all subsidiaries over which the Company exercises control. All intercompany balances and
transactions have been eliminated in consolidation.
(c)
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company evaluates its estimates, assumptions
and judgments, including those related to revenue recognition, allowance for doubtful accounts, casualty reserves, valuation of goodwill, intangible assets and other long-lived
assets, 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 1, 2020
Refer to Note 3, Revenue Recognition for the revenue policies related to each specific transaction type.
(e)
Expense Recognition
Cost of Services
Cost of services consists primarily of contingent worker payroll, related employment taxes and benefits and the cost of facilities used by contingent workers in fulfilling
assignments and projects for staffing services customers, including reimbursable costs. Indirect costs are included in Selling, administrative and other operating costs in the
Consolidated Statements of Operations. The Cost of services differ from the cost included within Selling, administrative and other operating costs in that they arise specifically
and directly from the actions of providing staffing services to customers.
Gross margin is calculated as revenue less cost of services.
Selling, Administrative and Other Operating Costs
Selling, administrative and other operating costs primarily relate to the Company’s selling and administrative efforts, as well as the indirect costs associated with providing
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 1, 2020
long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds the fair value.
(j)
Leases
The Company adopted Accounting Standards Codification (“ASC”) 842, Leases in the first quarter of fiscal 2020. As such, the Company implemented new accounting policies
and recognized assets and liabilities for leases with lease terms greater than twelve months in the statement of financial position. Refer to Note 2: Leases for a description of the
accounting policies.
(k)
Goodwill
Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. The
Company early-adopted and applies the method of assessing goodwill for possible impairment permitted by Accounting Standards Update (“ASU”) No. 2017-04, Intangibles –
Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment. The Company first assesses the qualitative factors for reporting units that carry goodwill. If the
qualitative assessment results in a conclusion that it is more likely than not that the fair value of a reporting unit exceeds the carrying value, then no further testing is performed
for that reporting unit.
When a qualitative assessment is not used, or if the qualitative assessment is not conclusive and it is necessary to calculate fair value of a reporting unit, then the impairment
analysis for goodwill is performed at the reporting unit level using a one-step approach. In conducting the goodwill impairment test, the fair value of a reporting unit is compared
with its carrying amount utilizing various valuation techniques. If the fair value of the reporting unit exceeds its carrying value, then no further testing is performed. If the fair
value of the reporting unit is less than its carrying value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the
implied fair value of that goodwill.
The Company performs its annual impairment review of goodwill in its second fiscal quarter and when a triggering event occurs between annual impairment tests.
(l)
Income Taxes
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.
(m)
Share-Based Compensation
The Company accounts for share-based awards as either equity or liability awards based upon the characteristics of each instrument. The compensation cost is measured based
on the grant date fair value of the award. The fair value of liability awards is re-measured periodically based on the effect that the market condition has on these awards. The
share-based compensation expense for all awards 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.
F-9
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
(n)
Foreign Currency
Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where that local currency is the functional currency, are translated to U.S. dollars at
exchange rates in effect at the balance sheet date. Income and expense accounts are translated at average exchange rates during the year which approximate the rates in effect at
the transaction dates. The resulting translation adjustments are directly recorded to a separate component of Accumulated other comprehensive income (loss). Gains and losses
arising from intercompany foreign currency transactions that are of a long-term nature are reported in the same manner as translation adjustments. Gains and losses arising from
intercompany foreign currency transactions that are not of a long-term nature and certain transactions of the Company’s subsidiaries which are denominated in currencies other
than the subsidiaries’ functional currency are recognized as incurred in Foreign exchange gain (loss), net in the Consolidated Statements of Operations.
(o)
Fair Value Measurement
In accordance with 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 using level 3 inputs for goodwill, right-of-use (“ROU”) assets as well as other long-lived assets; share-based compensation arrangements and financial
instruments. The carrying amounts of the Company’s financial instruments, which include cash, cash equivalents, restricted cash, accounts receivable and accounts payable,
approximated their fair values due to the short-term nature of these instruments. 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 and is classified as a Level 2 in the fair value hierarchy.
The Company recognizes transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer.
(p)
Legal and Other Contingencies
The Company is involved in various demands, claims and actual and threatened litigation that arise in the normal course of business. If the potential loss from any claim or legal
proceeding is considered probable and the amount can be reasonably estimated, a liability and an expense are recorded for the estimated loss. Significant judgment is required
in both the determination of probability and the determination of whether an exposure is reasonably estimable. Actual expenses could differ from these estimates in subsequent
periods as additional information becomes known.
(q)
Concentrations of Credit Risk
Cash and cash equivalents are maintained with several financial institutions and deposits held with banks may exceed the amount of insurance provided on such deposits.
Generally, these deposits may be redeemed upon demand and the Company mitigates its credit risk by spreading its deposits across multiple financial institutions and
monitoring their respective risk profiles.
F-10
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
(r)
Restructuring and Severance Costs
The Company accounts for restructuring activities in accordance with ASC 420, Exit or Disposal Cost Obligations. Under the guidance, for the cost of restructuring activities
that do not constitute a discontinued operation, the liability for the current fair value of expected future costs associated with such restructuring activity is recognized in the
period in which the liability is incurred. The costs of restructuring activities taken pursuant to a management approved restructuring plan are segregated.
(s)
Earnings (Loss) Per Share
Basic earnings per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. The diluted earnings per
share computation includes the effect of potential common shares outstanding during the period. Potential common shares include the dilutive effects of shares that would be
issuable upon the exercise of outstanding "in the money" stock options and unvested restricted stock units. The dilutive impact is determined by applying the treasury stock
method. Performance-based share awards are included in the computation of diluted earnings per share only to the extent that the underlying performance conditions: (i) are
satisfied by the end of the reporting period, or (ii) would be satisfied if the end of the reporting period were the end of the related performance period and the result would be
dilutive.
(t)
Treasury Stock
The Company records treasury stock at the cost to acquire it and includes treasury stock as a component of Stockholders’ Equity. In determining the cost of the treasury shares
when either sold or issued, the Company uses the FIFO (first-in, first-out) method. If the proceeds from the sale of the treasury shares are greater than the cost of the shares sold,
the excess proceeds are recorded as additional paid-in capital. If the proceeds from the sale of the treasury shares are less than the original cost of the shares sold, the excess cost
first reduces any additional paid-in capital arising from previous sales of treasury shares for that class of stock and any additional excess is recorded as a reduction of retained
earnings.
(u)
New Accounting Pronouncements
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 March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying
GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to
contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The
Company intends to apply ASU 2020-04 in the first quarter of fiscal 2021 and does not anticipate a significant impact on its consolidated financial statements upon adoption.
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 on the consolidated financial statements upon adoption.
In June 2016, the FASB issued ASU 2016-13 (ASC Topic 326), as clarified in ASU 2019-04, ASU 2019-05, ASU 2019-11 and ASU 2018-19, amending how entities will
measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a
current expected credit loss model, which is a new impairment model based on expected losses. Under this model, an entity recognizes an allowance for expected credit losses
based on historical experience, current conditions and forecasted information rather than the current methodology of delaying recognition of credit losses until it is probable a
loss has been incurred. The amendments are effective for fiscal years beginning after December 15, 2022, which for the Company will be the first quarter of fiscal 2024.
Although the impact upon adoption will depend on the financial instruments held by the Company at that time, the Company does not anticipate a
F-11
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
significant impact on its consolidated financial statements based on the instruments currently held and its historical trend of bad debt expense relating to trade accounts
receivable.
Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on the
Company’s consolidated financial statements and related disclosures.
Recently Adopted by the Company
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 18): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-
07”). ASU 2018-07 expands the guidance in Topic 718 to include share-based payments for goods and services to non-employees and generally aligns it with the guidance for
share-based payments to employees. ASU 2018-07 was effective for the Company in the first quarter of fiscal 2020 and the adoption of this guidance had no impact on the
Company’s consolidated financial statements.
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. This ASU was effective in the first quarter of fiscal 2020 resulting in the Company recording ROU assets and lease
liabilities on the consolidated balance sheet. The adoption of this standard did not have a material impact on the consolidated financial statements of operations and consolidated
statements of cash flows. For the impact on the Company's consolidated financial statements, refer to Note 2 - Leases.
All other ASUs that became effective for Volt for fiscal 2020 were not applicable to the Company at this time and therefore, did not have any impact during the period.
NOTE 2: Leases
The Company adopted ASC 842, Leases on November 4, 2019 using the modified transition method without retrospective application to comparative periods. The Company
elected the package of three practical expedients allowed for under the transition guidance. Accordingly, the Company did not reassess: (1) whether any expired or existing
contracts are/or contain leases; (2) the lease classification for any expired or existing leases; or (3) initial direct costs for any existing leases. The Company has also elected not
to recognize ROU assets and lease liabilities for short-term leases that have a term of 12 months or less.
The Company’s material operating leases consist of branch locations, as well as corporate office space. Our leases have remaining terms of 1 - 11 years. The lease term is the
minimum of the non-cancelable period of the lease or the lease term inclusive of reasonably certain renewal option periods. Volt determines if an arrangement meets the criteria
of a lease at inception, at which time it also performs an analysis to determine whether the lease qualifies as operating or financing. The Company does not currently have any
finance leases.
Upon adoption, the Company recorded approximately $47.2 million of ROU assets and $52.0 million of lease liabilities related to operating leases in the Consolidated Balance
Sheet. At transition, the ROU asset was measured at the initial amount of the lease liability adjusted for any deferred rent and cease-use liabilities. The Company also
recognized a $22.2 million cumulative-effect adjustment to retained earnings related to the deferred gain on the sale and leaseback of real estate. This gain was previously being
amortized at approximately $0.5 million per quarter as an offset to rent expense in the Consolidated Statements of Operations. Since the Company has a full valuation
allowance against its deferred tax assets, the impact is a reduction to our deferred tax assets and related valuation allowance, which resulted in no tax impact to the net change to
equity.
Operating lease liabilities represent the present value of lease payments not yet paid. ROU assets represent Volt's right to use an underlying asset and are based upon the
operating lease liabilities adjusted for prepaid or accrued lease payments, initial direct costs, lease incentives and impairment of operating lease assets. As the rate implicit in the
lease is not readily determinable, the Company used its incremental borrowing rates based on the information available at the lease commencement date in determining the
present value of lease payments. To determine the present value of lease payments not yet paid, the Company estimates incremental secured borrowing rates corresponding to
the maturities of the leases.
The Company has elected the practical expedient to not separate non-lease components from the lease components to which they relate and instead account for each as a single
lease component, for all underlying asset classes. Some leasing
F-12
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
arrangements require variable payments that are dependent on usage or may vary for other reasons, such as payments for insurance, tax payments and other miscellaneous costs.
The variable portion of lease payments is not included in the ROU assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, are
expensed when the obligation for those payments is incurred and are included in lease expenses. Accordingly, all expenses associated with a lease contract are accounted for as
lease expenses.
Operating leases are included in Right of use assets - operating leases and Operating lease liabilities, current and long-term, in the Consolidated Balance Sheet. Lease expense
for operating leases is recognized on a straight-line basis over the lease term and is included in Selling, administrative and other operating costs in the Consolidated Statement of
Operations. During fiscal 2020, cash paid for the amount that was included in the measurement of operating lease liabilities was $11.6 million and the ROU assets obtained in
exchange for operating lease liabilities was $2.0 million.
The components of lease expense were as follows (in thousands):
Operating lease expense
Sublease income
Variable lease expense
Total
(1) (2)
(1) Approximately $ 0.3 million of lease expense is included in restructuring.
(2) The Company has minimal short-term lease expense.
Weighted average remaining lease terms and discount rates were as follows:
Weighted average remaining lease term (years)
Weighted average discount rate
Maturities of operating lease liabilities as of November 1, 2020 were as follows (in thousands):
Fiscal Year:
2021
2022
2023
2024
2025
Thereafter
Total future lease payments
Less: Imputed interest
Total operating lease liabilities
Maturities of operating leases accounted for under ASC 840 as of fiscal year-end 2019 were as follows (in thousands):
Fiscal Year:
2020
2021
2022
2023
2024
Thereafter
Total future lease payments
F-13
Year Ended
November 1, 2020
Year Ended
November 1, 2020
Amount
Amount
10,990
(1,577)
760
10,173
7.97
6.3 %
9,638
8,073
6,936
5,610
5,255
22,895
58,407
13,031
45,376
11,782
9,287
7,457
6,328
5,486
28,422
68,762
$
$
$
$
$
$
$
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
NOTE 3: Revenue Recognition
Adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
As of October 29, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers, using the modified retrospective method applied to those contracts
which were not completed as of October 29, 2018. Results for reporting periods beginning on October 29, 2018 are presented under ASC 606, while prior period amounts are
not adjusted and continue to be reported in accordance with historical accounting guidance.
The cumulative impact of adopting ASC 606 resulted in an increase of $0.4 million to opening retained earnings. The impact is primarily driven by an adjustment to deferred
revenue due to a change in the required criteria for defining customer contracts under the new guidance. As of and for the period ended November 1, 2020 and November 3,
2019, the consolidated financial statements were not materially impacted by the implementation of ASC 606.
Revenue Recognition
All of the Company’s revenue and trade receivables are generated from contracts with customers. Revenue is recognized when control of the promised services is transferred to
the Company’s customers at an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. The Company’s revenue is recorded
net of any sales or other similar taxes collected from its customers.
A performance obligation is a promise in a contract to transfer a distinct service to the customer. The majority of the Company’s contracts contain single performance
obligations. For performance obligations that the Company satisfies over time, revenue is recognized by consistently applying a method of measuring progress toward
satisfaction of that performance obligation. The Company will generally utilize an input measure of time (e.g., hours, weeks, months) of service provided, which depicts the
progress toward completion of each performance obligation.
Volt generally determines the standalone selling prices based on the prices included in the customer contracts. The price as specified in its customer contracts is typically
considered the standalone selling price as it is an observable input that depicts the price as if sold to a similar customer. Certain customer contracts have variable consideration,
including rebates, guarantees, credits, or other similar items that reduce the transaction price. The Company will generally estimate the variable consideration using the expected
value method to predict the amount of consideration to which it will become entitled, based on the circumstances of each customer contract and historical evidence. Revenue is
recognized net of variable consideration to the extent that it is probable that a significant future reversal will not occur. The Company’s estimated amounts of variable
consideration are not material and it does not believe that there will be significant changes to its estimates.
In certain scenarios where a third-party vendor is involved in the Company’s revenue transactions with its customers, the Company will evaluate whether it is the principal or
the agent in the transaction. When Volt acts as the principal, it controls the performance obligation prior to transfer of the service to the customer and reports the related
consideration as gross revenues and the costs as cost of services. When Volt acts as an agent, it does not control the performance obligation prior to transfer of the service to the
customer and it reports the related amounts as revenue on a net basis. The Company generally demonstrates control over the service when it is responsible for the fulfillment of
services under the contract, responsible for the workers performing the service and when it has latitude in establishing pricing. Volt generally acts as an agent in its transactions
within its MSP programs where the Company provides comprehensive management of its customer’s contingent workforce and receive fees based on the volume of services
managed within each program. The Company is the agent in these transactions since it does not have the responsibility for the fulfillment of the services by the vendors or
contractors (referred to as associate vendors). In these transactions, the Company does not control the third-party providers’ staffing services provided to the customers prior to
those services being transferred to the customer.
Revenue Service Types
Staffing Services
Volt’s primary service is providing contingent (temporary) workers to its customers. These services are primarily provided through direct agreements with customers and Volt
provides these services using its employees and, in some cases, by subcontracting with other vendors of contingent workers. Volt’s costs in providing these services consist of
the wages and benefits provided to the contingent workers as well as the recruiting costs, payroll department costs and other administrative
F-14
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
costs. The Company recognizes revenue for its contingent staffing services over time as services are performed in an amount that reflects the consideration it expects to be
entitled to in exchange for its services, which is generally calculated as hours worked multiplied by the agreed-upon hourly bill rate. The customer simultaneously receives and
consumes the benefits of the services as they are provided. The Company applies the practical expedient to recognize revenue for these services over the term of the agreement
commensurate to the amount it has the right to invoice the customer.
Direct Placement Services
Direct placement services include providing qualified candidates to the Company’s customers to hire on a permanent basis. These services are primarily recognized at a point in
time when the qualified candidate is placed and begins permanent employment which is the point when control has transferred to the customer and the Company has the right to
payment for the service. Each placement is a single performance obligation under the Company’s contracts and the related consideration is typically based upon a percentage of
the candidates’ base salary. Direct placement revenue is recognized net of a reserve for permanent placement candidates that do not remain with the customer through the
contingency period, which is typically 60 days or less. This contingency is estimated based on historical data and recorded as a refund liability.
Managed Service Programs (“MSP”)
The Company’s MSP programs provide comprehensive solutions for delivery of contingent labor for assignment to customers, including supplier and worker sourcing,
selecting, qualifying, on/off-boarding, time and expense recordation, reporting and approved invoicing and payment processing procedures. Since the individual activities are
not distinct, the Company accounts for these activities as a single performance obligation. The Company’s fee for these MSP services is a fixed percentage of the staffing
services spend that is managed through the program. The Company recognizes revenue over time for each month of MSP services provided as the customer simultaneously
receives and consumes the services the Company provides. The Company applies the practical expedient to recognize revenue for these services over the term of the agreement
commensurate to the amount it has the right to invoice the customer.
Call Center Services
The customer care solutions business through June 2019 specialized in serving as an extension of its customers’ relationships and processes, from help desk inquiries to
advanced technical support. The Company earned a fee based upon the type, volume and level of services provided as part of the call center operations. Since the individual
activities are not distinct, the Company accounted for them as a single performance obligation. The Company recognized revenue over time as the customer simultaneously
received and consumed the services the Company provided. The Company applied the practical expedient to recognize revenue for these services over the term of the agreement
commensurate to the amount it had the right to invoice the customer.
Disaggregation of Revenues
The following table presents the Company's segment revenues disaggregated by service type (in thousands):
Segment
Service Revenues:
Staffing Services
Direct Placement Services
Managed Service Programs
Geographical Markets:
Domestic
International
Total
North American
Staffing
Fiscal Year Ended November 1, 2020
North American
MSP
International Staffing
Corporate and Other
Eliminations
$
$
$
$
791,163 $
11,820
19,072
822,055 $
722,985 $
99,070
822,055 $
683,635 $
5,460
—
689,095 $
686,252 $
2,843
689,095 $
F-15
83,308 $
3,703
8,297
95,308 $
— $
95,308
95,308 $
24,483 $
2,657
10,775
37,915 $
37,582 $
333
37,915 $
674 $
—
—
674 $
— $
674
674 $
(937)
—
—
(937)
(849)
(88)
(937)
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
Segment
Service Revenues:
Staffing Services
Direct Placement Services
Managed Service Programs
Call Center Services
Geographical Markets:
Domestic
International
Total
North American
Staffing
Fiscal Year Ended November 3, 2019
North American
MSP
International Staffing
Corporate and Other
(1)
Eliminations
$
$
$
$
950,595 $
14,880
17,023
14,592
997,090 $
878,095 $
118,995
997,090 $
822,550 $
8,397
—
—
830,947 $
827,641 $
3,306
830,947 $
105,815 $
4,600
3,962
—
114,377 $
— $
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)
(1) Includes the revenues from Volt's Customer Care Solutions business through the time of exit in June 2019.
Payment Terms
Customer payment terms vary by arrangement although payments are typically due within 15 - 45 days of invoicing. The timing between the satisfaction of the performance
obligations and the payment is not significant and the Company currently does not have any significant financing components or significant payment terms.
Unsatisfied Performance Obligations
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which
they will recognize revenue at the amount to which it has the right to invoice for services performed. Unsatisfied performance obligations for contracts not meeting the
aforementioned criteria are immaterial.
Accounts Receivable, Contract Assets and Contract Liabilities
The Company records accounts receivable when its right to consideration becomes unconditional. The Company maintains a sales allowance for any potential billing errors and
service-related adjustments to the customer. The amount of the sales allowance is determined based on a historical transaction analysis and additions to the sales allowance are
recorded as a reduction to net revenue.
As required under Topic 606, the Company changed its presentation to show this allowance as a liability, whereas under Topic 605, these accounts receivables were recorded
net of an allowance. As of November 3, 2019, the change in the reserve balance from adoption was $0.4 million. The change in the reserve balance during fiscal 2020 and as of
November 1, 2020 was not material. Contract assets primarily relate to the Company’s rights to consideration for services provided that are conditional on satisfaction of future
performance obligations. The Company records contract liabilities when payments are made or due prior to the related performance obligations being satisfied. The current
portion of contract liabilities is included in Accrued insurance and other in the Consolidated Balance Sheets. The Company does not have any material contract assets or long-
term contract liabilities as of November 1, 2020 and November 3, 2019.
The Company may incur fulfillment costs after obtaining a contract to generate a resource that will be used to provide the MSP services. These costs are related to the set up and
implementation of customer specific MSP programs and are considered incremental and recoverable costs to fulfill the Company’s contract with the customer. These costs are
deferred and amortized over the expected period of benefit of the MSP services provided to the customer, determined by taking into consideration its customer contracts and
other relevant factors. Amortization expense is included in Selling, administrative and other operating
F-16
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
costs on the Consolidated Statements of Operations. Deferred fulfillment costs were immaterial as of November 1, 2020 and November 3, 2019.
Economic Factors
The Company's operations are subject to variations in the economic condition and regulatory environment in their jurisdictions of operations. Adverse economic conditions may
severely reduce the demand for the Company’s services and directly impact the revenue. In addition, the Company faces risks in complying with various legal requirements and
unpredictable changes in both U.S. and foreign regulations which may have a financial impact on the business and operations.
The global spread of COVID-19 has created significant volatility, uncertainty and global macroeconomic disruption. This was due to related government actions, non-
governmental agency recommendations and public perceptions and disruption in global economic and labor market conditions. Our business, results of operations and financial
condition have been and may continue to be adversely impacted by the coronavirus pandemic and future adverse impacts could be material and are difficult to predict.
NOTE 4: Restricted Cash and Short-Term Investments
Restricted cash primarily includes amounts related to requirements under certain contracts with 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 1, 2020 and November 3, 2019 restricted cash included $9.2 million and $9.3 million, respectively, restricted for payment to associate vendors and
$0.5 million and $0.5 million, respectively, restricted for other collateral accounts.
At November 1, 2020, restricted cash also included $8.2 million restricted under the Company’s long-term accounts receivable securitization program (“DZ Financing
Program”) with DZ Bank AG Deutsche Zentral-Genossenschaftsbank (“DZ Bank”). This cash was restricted as it supplemented collateral provided by accounts receivable
towards the Company’s aggregate borrowing base usage of $84.5 million, inclusive of $60.0 million outstanding and $24.5 million in issued letters of credit as of November 1,
2020.
At November 1, 2020 and November 3, 2019, short-term investments were $2.9 million and $3.0 million, respectively. These short-term investments consisted primarily of the
fair value of deferred compensation investments corresponding to employees’ selections, primarily in mutual funds, based on quoted prices in active markets.
NOTE 5: Fair Value of Financial Instruments
The following table presents assets and liabilities measured at fair value (in thousands):
Short-term investments
Total financial assets
Deferred compensation plan liabilities
Total financial liabilities
November 1,
2020
November 3,
2019
$
$
$
$
2,853 $
2,853 $
2,853 $
2,853 $
3,022
3,022
3,022
3,022
Fair Value
Hierarchy
Level 1
Level 1
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 1,
2020 and November 3, 2019.
F-17
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
NOTE 6: Trade Accounts Receivable
Trade accounts receivable includes both billed and unbilled amounts due from customers. Billed trade receivables generally do not bear interest. Unbilled receivables represent
accrued revenue earned and recognized on contracts for which billings have not yet been presented to the customer. At November 1, 2020 and November 3, 2019, trade accounts
receivable included unbilled receivables of $3.2 million and $7.7 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.
For the years ended November 1, 2020 and November 3, 2019, the activity in the allowance accounts were as follows (in thousands):
Balance at
beginning of year
Activity
Balance at end
of year
Year Ended November 1, 2020
Allowance for doubtful accounts included in Trade
accounts receivable
Accrued sales reserve included in Accrued insurance and
other
Year Ended November 3, 2019
Sales allowance
Allowance for doubtful accounts
Total included in Trade accounts receivable
$
$
$
$
117
$
102 $
219
310
$
(148) $
162
Balance at
beginning of year
Adoption of
Topic 606
Activity
Balance at end
of year
705
54
759
$
$
(705) $
—
(705) $
—
63
63
$
$
—
117
117
310
Accrued Sales Reserve included in Accrued insurance and
other
$
—
$
705 $
(395)
$
F-18
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
NOTE 7: 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 1,
2020
November 3,
2019
$
$
— $
29,832
2,543
(27,417)
4,958
104,002
(86,793)
22,167 $
375
30,215
3,398
(29,757)
4,231
101,903
(80,244)
25,890
Depreciation and amortization expense totaled $8.0 million and $7.0 million for the fiscal years ended 2020 and 2019, respectively. Depreciation and amortization is included in
Cost of services and Selling, administrative and other operating costs in the Consolidated Statements of Operations.
NOTE 8: Impairment Charges
Long-lived Assets
Long-lived assets primarily consist of right-of-use assets, capitalized software costs, leasehold improvements and office equipment. The Company reviews these assets for
impairment under ASC 360 Property, Plant and Equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
An impairment loss is recognized when the estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the
asset (if any) are less than the carrying value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value based on
discounted cash flow analysis or other valuation techniques.
Due to the economic impact and continued uncertainty related to the COVID-19 pandemic, certain real estate rationalization decisions were made in the second half of fiscal
2020 resulting in the Company consolidating and exiting certain leased office locations throughout North America based on where the Company could be fully operational and
successfully support its clients and business operations remotely. The changes in the use of these right-of-use assets triggered an impairment review and based on the results of
this review, the Company recorded an impairment charge of $16.1 million to reduce the carrying value of these assets to their estimated fair value. Significant assumptions used
to estimate fair value were the current economic environment, real estate market conditions and general market participant assumptions. The Company also recorded impairment
charges of $0.8 million primarily related to the leasehold improvements and office equipment associated with these closed facilities.
Impairment charges incurred in fiscal 2020 were $1.9 million for the North American Staffing segment and $15.0 million for the Corporate and Other category.
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.
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 2020 test performed in the second quarter, the Company 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 15.0%. Under the
market-based approach significant assumptions included relevant comparable company earnings multiples including the determination of whether a premium or discount should
be applied to those comparables. During the second quarter of fiscal 2020, it was determined that no adjustment to the carrying value of goodwill as required as our Step 1
analysis resulted in the fair value of the reporting unit exceeding its carrying value.
F-19
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
The following represents the change in the carrying amount of goodwill during each fiscal year (in thousands):
International Staffing
Aggregate goodwill acquired
Accumulated impairment losses
Foreign currency translation adjustment
Goodwill, net of impairment losses
NOTE 9: Restructuring and Severance Charges
October 28, 2018
Foreign Currency
Translation
Adjustment
$
$
10,483 $
(3,733)
(1,399)
5,351 $
—
—
46
46
$
November 3, 2019
$
Foreign Currency
Translation
Adjustment
—
—
5
5
November 1, 2020
10,483
$
(3,733)
(1,348)
5,402
$
10,483 $
(3,733)
(1,353)
5,397 $
The Company incurred total restructuring and severance costs of $2.6 million and $4.7 million for fiscal 2020 and 2019, respectively.
2020 Restructuring Plan
In the first quarter of fiscal 2020, the Company approved a restructuring plan (the “2020 Plan”) as part of its strategic initiative to optimize the Company’s cost infrastructure.
The 2020 Plan leveraged the global capabilities of the Company's staffing operations based in Bangalore, India and off-shored a significant number of strategically identified
roles to this location. The total costs incurred in fiscal 2020 in connection with the 2020 Plan were $1.2 million, consisting of $0.1 million in North American Staffing,
$0.1 million in International Staffing and $1.0 million in the Corporate and Other category.
2018 Restructuring Plan
In October 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 $5.6
million, consisting of $1.1 million in North American Staffing, $0.4 million in International Staffing and $4.1 million in Corporate and Other.
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 was paid 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 was paid 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 was reported as a part of the Corporate and Other category. This exit enabled 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.
Other Restructuring Costs
During fiscal 2020 and 2019, there were other restructuring actions taken by the Company as part of its continued efforts to reduce costs and to offset COVID-19 related
revenue losses. The Company recorded severance costs of $1.3 million and $0.7 million, respectively, primarily resulting from the elimination of certain positions.
F-20
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
The following tables present the restructuring and severance and benefit costs for the twelve months ended November 1, 2020 and November 3, 2019 (in thousands):
Year Ended November 1, 2020
Total
North American
Staffing
Severance and benefit costs
2020 Plan
Severance and benefit costs
Other
2018 Plan
Severance and benefit costs
Other
Other
Total
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
$
$
$
$
1,163 $
1,163
(23)
180
157
1,137
184
1,321
803 $
260
1,063
212
1,849
2,061
493
171
664
International Staffing
136
136
78 $
78
—
—
—
764
41
805
—
—
—
193
9
202
North American
MSP
Corporate &
Other
$
$
—
—
—
—
—
—
—
—
949
949
(23)
180
157
180
134
314
2,641 $
883 $
338
$
—
$
1,420
Year Ended November 3, 2019
Total
North American
Staffing
International Staffing
404
33
437
200 $
37
237
$
—
—
—
390
92
482
—
—
—
48
25
73
North American
MSP
Corporate &
Other
—
14
14
—
—
—
—
54
54
—
68
$
$
199
176
375
212
1,849
2,061
55
—
55
868
3,359
868
4,656 $
—
719 $
—
510
$
F-21
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
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 1, 2020 and November 3, 2019 are summarized as follows (in thousands):
Balance, end of previous year
Cease use liabilities transferred to ROU assets
Charged to expense
Cash payments
Ending Balance
November 1, 2020
November 3, 2019
$
$
3,845
(1,964)
2,641
(4,310)
212
$
$
5,702
—
4,656
(6,513)
3,845
Upon adoption of ASC 842 Leases, $2.0 million of accrued restructuring related to the exit of leased real estate was reclassified as a reduction to the related ROU asset, per the
accounting guidance. The remaining balance as of November 1, 2020 of $0.2 million, primarily related to other restructuring costs in the North American Staffing and
International Staffing segments.
NOTE 10: Accrued Insurance
(a)
Casualty Insurance Program
Workers’ compensation insurance is purchased through mandated participation in certain state funds and the experience-rated premiums in these state plans relieve the
Company of any additional liability. Liability for workers’ compensation in all other states as well as automobile and general liability (collectively “casualty liability”) 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 $23.3 million as of November 1, 2020.
The Company recognizes expense and establishes accruals for amounts estimated to be incurred, 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 through the ultimate life of the claim. Expense
recognized by the Company under its casualty insurance program amounted to $6.4 million and $9.6 million in fiscal 2020 and 2019, 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.
To limit exposure on a per claimant basis for the self-insured medical benefits, the Company purchases stop-loss insurance. The Company’s retained liability for the self-insured
medical benefits is determined utilizing actuarial estimates of expected claims based on statistical analysis of historical data. 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 $4.9 million and $5.4 million in fiscal 2020 and 2019,
respectively.
F-22
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
NOTE 11: 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
F-23
Year Ended
November 1, 2020
November 3, 2019
(34,889) $
2,347
(32,542) $
(17,529)
3,321
(14,208)
Year Ended
November 1, 2020
November 3, 2019
— $
118
938
1,056 $
— $
(11)
(11)
1,045 $
—
6
1,060
1,066
4
(92)
(88)
978
$
$
$
$
$
$
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
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
Capital Loss
Change in valuation allowance for deferred tax assets
Income tax provision
Year Ended
November 1, 2020
November 3, 2019
$
$
(6,834) $
(1,235)
91
232
(705)
(999)
66
3,357
7,072
1,045 $
(2,984)
142
95
145
471
(1,718)
358
—
4,469
978
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 1, 2020
November 3, 2019
Deferred tax assets:
Net operating loss carryforwards
Interest carryforward
Capital loss carryforwards
U.S. federal tax credit carryforwards
Deferred income
Operating lease liabilities
Deferred withholding tax
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
Right of use assets - operating leases
Other, net
Total deferred tax liabilities
Net deferred tax liability
Balance sheet classification
Non-current assets
Non-current liabilities
Net deferred tax asset (liability)
$
$
$
$
61,723 $
1,345
—
54,727
—
11,477
5,385
1,639
5,366
141,662
(125,396)
16,266
1,725
7,914
6,178
452
16,269
(3) $
— $
(3)
(3) $
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)
F-24
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
At November 1, 2020, the Company has available unused U.S. federal net operating loss (“NOL”) carryforwards of $212.0 million, U.S. state NOL carryforwards of $230.0
million, international NOL carryforwards of $10.3 million and federal tax credits of $54.7 million. As of November 1, 2020, 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 beginning in 2021 (with some indefinite), the
international NOL carryforwards expire at various dates beginning in 2021 (with some indefinite) and federal tax credits expire between 2021 and 2040. At November 1, 2020,
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 2020 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 $125.4 million and
$123.3 million for fiscal 2020 and 2019, respectively. In reaching this conclusion, the Company considered the U.S. domestic demand and recent operating losses causing the
Company to be in a three-year cumulative loss position. Management believes that the remaining deferred tax assets are more likely than not to be realized based upon
consideration of all positive and negative evidence, including scheduled reversal of deferred tax liabilities and tax planning strategies determined on a jurisdiction-by-
jurisdiction basis.
The Company recognizes income tax benefits for tax positions determined more likely than not to be sustained upon examination based on the technical merits of the positions.
The following table sets forth the change in the accrual for uncertain tax positions, excluding interest and penalties (in thousands):
Balance, beginning of year
Decreases relating to tax positions taken in a prior period
Settlements
Lapse of statute of limitations
Total
November 1, 2020
November 3, 2019
$
$
283 $
(3)
(195)
—
85 $
491
(21)
(146)
(41)
283
Of the total unrecognized tax benefits at November 1, 2020 and November 3, 2019, approximately $0.1 million and $0.3 million, respectively, would affect the Company’s
effective income tax rate, if and when recognized in future years. There was no amount accrued for related potential interest and penalties at November 1, 2020. The income tax
provision for the fiscal years ended November 1, 2020 and November 3, 2019 included a reversal of reserves on uncertain tax provisions of $0.2 million and $0.2 million,
respectively.
The Company is subject to taxation at the federal, state and local levels in the U.S. and in various international jurisdictions. With few exceptions, the Company is generally no
longer subject to examination by the U.S. federal, state, local or non-U.S. income tax authorities for years before fiscal 2008.
On December 22, 2017, the U.S. President signed the Tax Cuts and Jobs Act (“Tax Act”) into law. The Tax Act includes a number of provisions, including the lowering of the
U.S. corporate tax rate from 35.0% to 21.0% and the establishment of a territorial-style system for taxing foreign-source income of domestic multinational corporations.
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.
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
F-25
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
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 $15.0 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 March 27, 2020, the U.S. government enacted the CARES Act which, among other things, permits the deferral of the employer’s portion of social security tax payments
between March 27, 2020 and December 31, 2020. As a result, as of November 1, 2020 approximately $20.5 million of employer payroll tax payments were deferred with 50%
due by December 31, 2021 and the remaining 50% by December 31, 2022. Further as a result of the economic repercussions of the COVID-19 pandemic, the Company
experienced a reduction in both weekly payroll, vendor and related tax payments of approximately $3.0 million per week.
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 July 19, 2019, the Company amended and restated its long-term 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 $5.0 - $7.0 million in borrowing availability. All other material terms
and conditions of the original agreement remained substantially unchanged.
On January 14, 2020, the Company executed an amendment to the DZ Financing Program. The modifications to the agreement were to (1) extend the Amortization Date, as
defined in the DZ Financing Program, from January 25, 2021 to January 25, 2023; (2) extend the Facility Maturity Date, as defined in the DZ Financing Program, from July 25,
2021 to July 25, 2023; and (3) revise an existing covenant to maintain positive net income in any fiscal year ending after 2020. All other terms and conditions remain
unchanged.
On March 12, 2020, the Company executed an amendment to the DZ Financing Program. The modifications to the agreement were to revise an existing covenant to maintain a
Tangible Net Worth (“TNW”), as defined in the DZ Financing Program, from $40.0 million to $35.0 million through the Company’s fiscal quarter ending on or about July 31,
2020 and at least $40.0 million in each quarter thereafter. All other terms and conditions remain unchanged.
On June 11, 2020, the Company amended the DZ Financing Program. The modifications to the agreement were to (1) replace an existing TNW covenant requirement, as
defined in the DZ Financing Program, to a minimum TNW of $20.0 million through the Company's fiscal quarter ending on or about July 31, 2021 and $40.0 million in each
quarter thereafter and (2) reduce the Maximum Facility Amount, as defined in the DZ Financing Program, from $115.0 million to $100.0 million. All other terms and conditions
remain unchanged.
On October 2, 2020 the Company amended the DZ Financing Program to replace the existing TNW covenant requirement, as defined in the DZ Financing Program, to a
minimum TNW of $25.0 million for the Company’s fiscal quarter ending on or about October 31, 2021 and $40.0 million in each quarter thereafter. All other terms and
conditions remain unchanged.
Loan advances may be made under the DZ Financing Program through January 25, 2023 and all loans will mature no later than July 25, 2023. 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%.
F-26
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
The DZ Financing Program also includes a letter of credit sub-facility with a sub-limit of $35.0 million. As of November 1, 2020, the letter of credit participation was $24.5
million, inclusive of $23.3 million for the Company’s casualty insurance program and $1.2 million for the security deposit required under certain real estate lease agreements.
The DZ Financing Program contains customary representations and warranties as well as affirmative and negative covenants. The agreement also contains customary default,
indemnification and termination provisions. The DZ Financing Program is not an off-balance sheet arrangement, as the bankruptcy-remote subsidiary is a 100%-owned
consolidated subsidiary of the Company.
The Company is subject to certain financial and portfolio performance covenants under the DZ Financing Program, including (1) a minimum TNW, as defined in the DZ
Financing Program, of $20.0 million through the Company's fiscal quarter ending on or about July 31, 2021, $25.0 million through the Company's fiscal quarter ending on or
about October 31, 2021 and at least $40.0 million in each quarter thereafter; (2) positive net income in any fiscal year ending after 2020; (3) maximum debt to tangible net
worth ratio of 3:1; and (4) a minimum of $15.0 million in liquid assets, as defined in the DZ Financing Program. At November 1, 2020, there was $2.8 million of borrowing
availability, as defined, and the Company was in compliance with all debt covenants.
At November 1, 2020 and November 3, 2019, the Company had outstanding borrowings under the DZ Financing Program of $60.0 million and $55.0 million, respectively, with
a weighted average annual interest rate of 2.6% and 4.1% during fiscal years 2020 and 2019, respectively.
Long-term debt consists of the following (in thousands):
Financing programs
Less:
Deferred financing fees
Total long-term debt, net
November 1,
2020
November 3,
2019
$
$
60,000 $
846
59,154 $
55,000
1,106
53,894
On December 17, 2020, the Company amended the DZ Financing Program. The modifications to the agreement were to (1) extend the Amortization Date, as defined in the DZ
Financing Program, from January 25, 2023 to January 25, 2024, and extend the Facility Maturity Date, as defined in the DZ Financing Program, from July 25, 2023 to July 25,
2024; (2) revise an existing covenant to maintain positive net income in any fiscal year ending after 2020 to any fiscal year ending after 2021; (3) replace the existing TNW
covenant requirement, as defined in the DZ Financing Program, to a minimum TNW of $20.0 million through the Company’s fiscal quarter ending on or about July 31, 2021
and $25.0 million in each quarter thereafter; and (4) revise the eligibility threshold for the receivables of a large North American Staffing customer from 5% of eligible
receivables to 8%, which will increase our overall availability under the Program by $1.0 - $3.0 million. All other terms and conditions of the DZ Financing Program remain
substantially 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 2020 or 2019. 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-27
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
(b)
Treasury Stock
The Company issues shares out of treasury stock to satisfy share-based compensation awards. Activity for the fiscal years ended November 1, 2020 and November 3, 2019 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 1, 2020
November 3, 2019
$
$
(26,155) $
7,969
(18,186) $
(33,600)
7,445
(26,155)
The accumulated balances for each classification of other comprehensive income (loss) are as follows (in thousands):
Foreign currency gains/(losses)
Balance, beginning of the year
November 1, 2020
$
(6,801) $
Other comprehensive income (loss) before reclassifications
Current period other comprehensive income (loss)
343
343
November 3, 2019
(7,070)
269
269
Ending Balance
$
(6,458) $
(6,801)
There were no reclassifications from accumulated other comprehensive loss in fiscal 2020 and 2019.
NOTE 14: Share-Based Compensation Plans
For fiscal years 2020 and 2019, the Company recognized share-based compensation expense of $1.4 million and $1.4 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.
Fiscal 2020 Awards
During fiscal 2020, the Company granted restricted stock units (“RSUs”) to executive management and, due to limited share availability under its long-term incentive plan,
issued deferred cash awards to certain employees including executive management. The RSUs and cash awards vest in equal annual tranches over three years, provided the
employees remain employed with the Company on the applicable vesting date. The grant date fair value for the RSUs is measured using the closing stock price on the grant date
and the total grant date fair value was $0.7 million. The deferred cash awards totaled $2.2 million. In addition, due to limited share availability, cash payments in the aggregate
amount of $0.4 million were made in lieu of equity awards to non-executive directors of the Company.
Fiscal 2019 Awards
During fiscal 2019, the Company granted performance stock units (“PSUs”) to executive management, RSUs to certain employees including executive management and its
annual equity grant of RSUs to the Board of Directors.
F-28
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
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 margin percentage goals based on adjusted revenues at the end of each fiscal year of the one-year, two-year and three-
year performance periods and provided that the employees remain employed with the Company on the applicable vesting date. 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 the applicable vesting date.
The RSUs for the Board of Directors vest 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 PSUs and RSUs had a total grant date fair value of approximately $1.2 million and
$2.1 million, respectively.
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 1, 2020 and November 3,
2019:
Performance Share Units
Outstanding at October 28, 2018
Granted (a) (b)
Forfeited
Vested
Outstanding at November 3, 2019
Forfeited
Vested
Number of
Shares
Weighted Average
Grant Date Fair Value
276,396 $
377,833 $
(179,981) $
(97,262) $
376,986 $
(40,311) $
(127,013) $
209,662 $
3.38
4.05
3.61
3.82
3.90
3.38
4.04
Outstanding at November 1, 2020
(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 that were issued upon vesting.
3.91
Restricted Stock Units
Outstanding at October 28, 2018
Granted
Forfeited
Vested
Outstanding at November 3, 2019
Granted
Forfeited
Vested
Outstanding at November 1, 2020
Number of
Shares
Weighted Average
Grant Date Fair Value
3.53
4.11
3.73
3.75
3.86
1.09
3.79
3.90
2.08
582,831 $
516,968 $
(236,035) $
(196,682) $
667,082 $
625,909 $
(4,387) $
(312,424) $
976,180 $
F-29
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
Number of
shares
Weighted
average
exercise price
Weighted average
contractual life
(in years)
Aggregate
Intrinsic
Value
(in thousands)
1,600,040 $
(200,000) $
(335,972) $
(460,584) $
603,484 $
(60,615) $
(210,925) $
331,944 $
44,394 $
287,550 $
5.25
4.35
5.42
5.36
6.28
8.22
6.59
5.73
4.10
5.98
—
—
—
—
—
—
—
7.27 $
$
—
$
—
—
$
6.81 $
$
—
—
$
6.22
7.09
6.09
Stock Options
Outstanding at October 28, 2018
Exercised
Forfeited
Expired
Outstanding at November 3, 2019
Forfeited
Expired
Outstanding at November 1, 2020
Unvested at November 1, 2020
Exercisable at November 1, 2020
For the year ended November 1, 2020, there was no exercise of stock options. As of November 1, 2020 total unrecognized compensation expense of $1.3 million related to
PSUs, stock options and RSUs will be recognized over the remaining weighted average vesting period of 2.0 years, of which $0.9 million, $0.3 million and $0.1 million is
expected to be recognized in fiscal 2021, 2022 and 2023, respectively.
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 loss
Denominator
Basic weighted average number of shares
Dilutive weighted average number of shares
Per Share Data:
Basic:
Net loss
Diluted:
Net loss
Year Ended
November 1, 2020
November 3, 2019
(33,587)
$
(15,186)
21,507
21,507
(1.56)
(1.56)
$
$
21,119
21,119
(0.72)
(0.72)
$
$
$
The fiscal 2020 diluted earnings per share did not include the effect of potentially dilutive outstanding shares comprised of 976,180 RSUs, 331,944 of stock options and 209,662
PSUs because the effect would have been anti-dilutive. 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.
NOTE 16: Related Party Transactions
For fiscal 2020, the Company provided staffing services in the aggregate amount of $175,000 to a company where Volt's Chairman of the Board, William J. Grubbs, serves as
President.
F-30
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
NOTE 17: Commitments and Contingencies
(a)
(b)
Leases - refer to footnote 2
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 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 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 reported as a part of the Corporate and Other category. This exit allowed 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 1, 2020
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
Eliminations
Year Ended November 1, 2020
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
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
$
$
$
$
$
822,055
694,204
127,851
$
689,095
586,255
102,840
85,776
883
1,859
14,322
137,666
2,641
16,913
(29,369)
(3,173)
1,045
(33,587)
95,308
79,087
16,221
14,484
338
—
1,399
$
$
37,915
29,471
8,444
$
674
328
346
5,370
—
—
3,074
32,036
1,420
15,054
(48,164)
(937)
(937)
—
—
—
—
—
Total
North American
Staffing
International
Staffing
North American
MSP
Corporate and
Other (1)
Eliminations (2)
Year Ended November 3, 2019
$
997,090
844,527
152,563
$
830,947
708,824
122,123
$
114,377
95,552
18,825
$
39,010
28,324
10,686
$
15,320
14,391
929
103,437
719
4
17,963
15,422
510
—
2,893
5,595
68
—
5,023
32,598
3,359
684
(35,712)
157,052
4,656
688
(9,833)
(4,375)
978
(15,186)
(2,564)
(2,564)
—
—
—
—
—
(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 1, 2020
November 3, 2019
$
$
105,516 $
26,989
24,742
84,598
241,845 $
109,067
30,327
19,196
59,414
218,004
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
Year Ended
November 1, 2020
November 3, 2019
$
$
722,985 $
99,070
822,055 $
878,095
118,995
997,090
F-32
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
Long-Lived Assets:
Domestic
International
Total Long-Lived Assets
November 1, 2020
(1)
November 3, 2019
$
$
44,500
2,774
47,274
$
$
24,525
1,365
25,890
(1) Long-lived assets in Fiscal 2020 includes the ROU assets resulting from the adoption of ASC 842, Leases.
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 1, 2020
November 3, 2019
$
$
$
$
474
292
372
4,130
5,268
339
322
152
7,168
7,981
$
$
$
$
415
315
295
8,028
9,053
415
281
50
6,209
6,955
F-33
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
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 1, 2020 and November 3, 2019
(in thousands, except per share amounts):
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
February 2, 2020
(unaudited)
13 weeks
May 3, 2020
(unaudited)
13 weeks
August 2, 2020
(unaudited)
13 weeks
November 1, 2020
(unaudited)
13 weeks
$
$
$
$
$
217,766
186,339
31,427
$
207,275
175,038
32,237
$
185,941
155,983
29,958
36,189
411
—
(4,363)
31
(652)
(266)
(152)
(5,402)
23
(5,425)
(0.25)
21,416
(0.25)
21,416
$
$
$
31,245
546
2,384
(4,217)
9
(476)
571
(168)
(4,281)
556
(4,837)
(0.22)
21,589
(0.22)
21,589
$
$
$
39,497
1,246
11
(9,327)
30
(730)
(328)
(258)
(10,613)
195
(10,808)
(0.50)
21,416
(0.50)
21,416
$
$
$
F-34
211,073
176,844
34,229
30,735
438
14,518
(11,462)
8
(439)
(62)
(291)
(12,246)
271
(12,517)
(0.58)
21,607
(0.58)
21,607
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of November 1, 2020
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
Three Months Ended
January 27, 2019
(unaudited)
13 weeks
April 28, 2019
(unaudited)
13 weeks
July 28, 2019
(unaudited)
13 weeks
November 3, 2019
(unaudited)
14 weeks
$
$
$
$
$
253,436
215,737
37,699
$
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
(5,165)
(0.24)
21,082
(0.24)
21,082
$
$
$
38,395
2,017
79
(4,843)
87
(801)
(151)
(184)
(5,892)
165
(6,057)
(0.29)
21,157
(0.29)
21,157
$
$
$
39,810
59
—
(2,170)
55
(801)
213
(239)
(2,942)
273
(3,215)
(0.15)
21,080
(0.15)
21,080
$
$
$
F-35
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.
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
Name (1)
Arctern Consulting Private Limited (2)
Arctern, Inc.
Nuco I, 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 Consulting Group, Ltd.
Volt Delta International B.V.
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 II, LLC
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.
Jurisdiction of
Incorporation
India
Virginia
Nevada
Delaware
Delaware
Canada
United Kingdom
Germany
India
Malaysia
Delaware
Delaware
Netherlands
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
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.
Exhibit 23
We consent to the incorporation by reference in the following Registration Statements:
Consent of Independent Registered Public Accounting Firm
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 13, 2021, 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 1, 2020.
/s/ Ernst & Young LLP
New York, New York
January 13, 2021
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 13, 2021
/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 13, 2021
/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 1, 2020,
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 13, 2021
/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)